<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
------------------------------------
ROYAL OAK MINES INC.*
------------------------------------
<TABLE>
<S> <C> <C>
ONTARIO, CANADA 1040 NONE
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
</TABLE>
5501 LAKEVIEW DRIVE
KIRKLAND, WASHINGTON 98033
(206) 822-8992
(Address, including zip code, and telephone number, including
area code, of the Company's principal executive offices)
------------------------------------
DAVID A. KATZ, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
(Name, address and the telephone number of
agent for service in the United States)
Copies to:
<TABLE>
<S> <C>
JAMES H. WOOD WILLIAM J.V. SHERIDAN, ESQ.
CHIEF FINANCIAL OFFICER LANG MICHENER
ROYAL OAK MINES INC. BCE PLACE, SUITE 2500
5501 LAKEVIEW DRIVE TORONTO, ONTARIO M5J 2TJ
KIRKLAND, WASHINGTON 98033 (416) 360-8600
(206) 822-8992
</TABLE>
------------------------------------
Approximate date of commencement of proposed sale to public: Upon
consummation of the Exchange Offer referred to herein.
------------------------------------
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. / /
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------------
Series B 11% Senior Subordinated
Notes due 2006...................... US$175,000,000 100% US$175,000,000 US$60,345
Guarantees for Series B 11% Senior
Subordinated Notes due 2006......... $0 0% $0 $0(2)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating registration fee pursuant to
Rule 457, based upon the book value of the Notes in U.S. dollars as of
August 30, 1996.
(2) Pursuant to Rule 457(n), no separate registration fee is payable with
respect to the guarantees.
------------------------------------
The Registrant hereby amends the 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 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
*OTHER REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD
INCORPORATION INDUSTRY I.R.S. EMPLOYER
NAME, ADDRESS AND TELEPHONE NUMBER OR ORGANIZATION CLASSIFICATION NUMBER IDENTIFICATION NUMBER
- ------------------------------------------- ---------------- --------------------- ---------------------
<S> <C> <C> <C>
Kemess Mines Inc........................... Ontario, Canada 1040 None
Unit 9
3167 Tatlow Road
P.O. Box 3519
Smithers, British Columbia
V0J 2N0
(604) 847-5667
</TABLE>
<PAGE> 3
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN THE PROSPECTUS
- ------------------------------------------------- --------------------------------------------
<C> <S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of the
Prospectus............................ Front Cover Page of the Registration
Statement; Outside Front Cover Page of the
Prospectus
2. Inside Front and Outside Back Cover
Pages of the Prospectus............... Inside Front Cover Page of the Prospectus;
Outside Back Cover Page of the Prospectus
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information... Prospectus Summary; Risk Factors; Business;
Selected Historical Consolidated Financial
and Operating Data
4. Terms of the Transaction.............. Prospectus Summary; Risk Factors; The
Exchange Offer; Certain Federal Income Tax
Consequences of The Exchange Offer;
Description of Exchange Notes; Exchange
Offer and Registration Rights
5. Pro Forma Financial Information....... *
6. Material Contracts with the Company
Being Acquired........................ *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............. *
8. Interest of Named Experts and
Counsel............................... Validity of Exchange Notes
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... *
B. Information About the Registrant
10. Information with Respect to S-3
Registrants........................... *
11. Incorporation of Certain Information
by Reference.......................... *
12. Information With Respect to S-2 or S-3
Registrants........................... *
13. Incorporation of Certain Information
by Reference.......................... *
14. Information With Respect to
Registrants Other Than S-3 or S-2
Registrants........................... Prospectus Summary; Risk Factors;
Capitalization; Selected Historical
Consolidated Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Relationships and Related Transactions;
Security Ownership; Financial Statements
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN THE PROSPECTUS
- ------------------------------------------------- --------------------------------------------
<C> <S> <C>
C. Information About the Company Being Acquired
15. Information With Respect to S-3
Companies............................. *
16. Information with Respect to S-2 or S-3
Companies............................. *
17. Information With Respect to Companies
Other Than S-3 or S-2 Companies....... *
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited.... *
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited, or in an Exchange Offer.... Management; The Exchange Offer; Certain
Relationships and Related Transactions
</TABLE>
- ---------------
*Item is omitted because response is negative or item is inapplicable.
<PAGE> 5
SUBJECT TO COMPLETION, DATED AUGUST 30, 1996
OFFER TO EXCHANGE
ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2006
(US$175,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2006
(US$175,000,000 PRINCIPAL AMOUNT)
OF
ROYAL OAK MINES INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1996, UNLESS EXTENDED.
Royal Oak Mines Inc., an Ontario, Canada corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal"), to exchange up to an aggregate principal amount of
US$175,000,000 of its Series B 11% Senior Subordinated Notes due 2006 (the
"Exchange Notes") for an equal principal amount of its outstanding 11% Senior
Subordinated Notes due 2006 (the "Notes"), in integral multiples of US$1,000.
The Exchange Notes will be fully and unconditionally guaranteed on a senior
subordinated basis by Kemess Mines Inc., an Ontario, Canada corporation which is
a wholly owned subsidiary of the Company (the "Guarantor"). The Exchange Notes
will be senior subordinated unsecured obligations of the Company and are
substantially identical (including principal amount, interest rate, maturity and
redemption rights) to the Notes for which they may be exchanged pursuant to this
offer, except that (i) the offering and sale of the Exchange Notes will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and (ii) holders of Exchange Notes will not be entitled to certain rights
of holders under a Registration Rights Agreement of the Company dated as of
August 12, 1996 (the "Registration Rights Agreement"). The Notes have been, and
the Exchange Notes will be, issued under the indenture (the "Indenture") dated
as of August 12, 1996, among the Company, the Guarantor and Mellon Bank, F.S.B.,
as trustee (the "Trustee"). See "Description of Exchange Notes." There will be
no proceeds to the Company from this offering; however, pursuant to the
Registration Rights Agreement, the Company will bear certain offering expenses.
The Exchange Notes will be general, unsecured obligations of the Company,
will be subordinated to all Senior Indebtedness of the Company, will rank pari
passu with all senior subordinated indebtedness of the Company and will be
senior in right of payment to all future subordinated indebtedness, if any, of
the Company. The claims of holders of the Exchange Notes will be effectively
subordinated to the Senior Indebtedness of the Company which, as of June 30,
1996, was $1,991,000, consisting of capitalized lease obligations, and as of
August 27, 1996 also included $1,940,000 in outstanding letters of credit issued
under the Credit Facility (as defined herein), and such claims will be
effectively subordinated to all indebtedness and other liabilities (including
trade payables and capital lease obligations) of the subsidiaries of the Company
that are not Guarantors. Such indebtedness and other liabilities of such
subsidiaries on an adjusted basis (giving effect to the issuance of the Notes)
aggregated approximately $675,000 as of June 30, 1996. The Company's pro forma
ratio of debt to total capitalization at June 30, 1996 was approximately 34.4%.
See "Capitalization." The Notes are not currently, and the Exchange Notes upon
issuance are not expected to be, senior in priority to any outstanding
indebtedness of the Company or its subsidiaries. The Company has no current plan
or intention to incur any indebtedness to which the Notes or the Exchange Notes
would be senior in priority. The Notes and the Exchange Notes rank pari passu
with one another.
(Cover text continued on next page)
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE 16, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE OFFER.
------------------------
THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES
LAWS MAY BE ADVERSELY AFFECTED BY THE FACT THAT THE COMPANY AND THE GUARANTOR
ARE INCORPORATED OR ORGANIZED UNDER THE LAWS OF A FOREIGN COUNTRY, THAT SOME OR
ALL OF THE EXPERTS NAMED IN THIS PROSPECTUS MAY BE RESIDENTS OF A FOREIGN
COUNTRY AND THAT ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF THE COMPANY AND
THE GUARANTOR AND SAID PERSONS MAY BE LOCATED OUTSIDE THE UNITED STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR
PROVINCIAL SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE OR OTHER
JURISDICTION.
<PAGE> 6
The Company will accept for exchange any and all validly tendered Notes on
or prior to 5:00 p.m. New York City time, on , 1996, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date; otherwise such tenders are irrevocable. Mellon Bank, F.S.B. will act as
Exchange Agent (in such capacity, the "Exchange Agent") in connection with the
Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal
amount of Notes being tendered for exchange, but is otherwise subject to certain
customary conditions.
The Notes were sold by the Company on August 12, 1996 (the "Offering") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Notes were
subsequently resold to qualified institutional buyers in reliance upon Rule 144A
under the Securities Act and to a limited number of institutional accredited
investors in a manner exempt from registration under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred in
the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
certain obligations of the Company under the Registration Rights Agreement. See
"The Exchange Offer."
The Exchange Notes will bear interest from August 12, 1996, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined herein) to which interest on
such Notes has been paid), at a rate equal to 11% per annum. Interest on the
Exchange Notes will be payable semi-annually on February 15 and August 15 of
each year, commencing February 15, 1997. The Exchange Notes are redeemable at
the option of the Company (i) in whole or in part at any time on or after March
15, 2001, (ii) on or prior to August 15, 1999 in an amount of up to 35% of the
aggregate principal amount of the Notes originally issued with the net cash
proceeds of certain public equity offerings and (iii) in whole but not in part
in the event of certain changes affecting Canadian withholding taxes, in each
case at the redemption prices set forth herein, plus accrued and unpaid interest
to the date of redemption. See "Prospectus Summary -- Summary of Terms of
Exchange Notes."
Upon the occurrence of a Change of Control (as defined herein), each holder
of Exchange Notes may require the Company to repurchase all or a portion of such
holder's Exchange Notes at 101% of the aggregate principal amount of the
Exchange Notes, together with accrued and unpaid interest, if any, to the date
of repurchase. In addition, subject to certain conditions, the Company will be
obligated to make an offer to repurchase the Exchange Notes at 100% of their
principal amount, plus accrued and unpaid interest to the date of repurchase,
with the net cash proceeds of certain sales or other dispositions of assets. See
"Risk Factors -- Change of Control" and "Description of Exchange Notes."
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the United States Securities and
Exchange Commission (the "Commission") which require each tendering noteholder
to represent that it is acquiring the Exchange Notes in the ordinary course of
its business and that such holder does not intend to participate and has no
arrangement or understanding with any person to participate in a distribution of
the Exchange Notes. In some cases, certain broker-dealers may be required to
deliver a prospectus in connection with the resale of the Exchange Notes that
they receive in the Exchange Offer. See "Prospectus Summary -- The Exchange
Offer."
There has not previously been any public market for the Exchange Notes. The
Company does not intend to list the Exchange Notes on any securities exchange or
to seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the Exchange Notes will develop. To
the extent that an active market for the Exchange Notes does develop, the market
value of the Exchange Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition, and other factors. Such conditions might cause the Exchange Notes, to
the extent that they are actively traded, to trade at a significant discount
from face value. See "Risk Factors -- Lack of Public Market for the Exchange
Notes."
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE
<PAGE> 7
ADVERSELY AFFECTED. FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF
NOTES WILL CONTINUE TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER
THEREOF AND THE COMPANY WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES
GENERALLY WILL NOT HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION
RIGHTS AGREEMENT OR OTHERWISE. SEE "THE EXCHANGE OFFER -- CONSEQUENCES OF
FAILURE TO EXCHANGE."
The Exchange Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global Exchange Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Exchange Notes representing the Exchange Notes will be
shown on, and transfers thereof will be effected through, records maintained by
DTC and its participants. Notwithstanding the foregoing, Notes held in
certificated form will be exchanged solely for the Exchange Notes in
certificated form. After the initial issuance of the Global Exchange Notes,
Exchange Notes in certificated form will be issued in exchange for the Global
Exchange Notes only on the terms set forth in the Indenture. See "Book-Entry;
Delivery and Form."
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
UNTIL , 199 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
<PAGE> 8
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Company has filed with the Commission a Registration Statement
on Form S-4 under the Securities Act for the registration of the Exchange Notes
offered hereby (the "Registration Statement"). This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company or the Exchange Notes offered hereby, reference is made
to the Registration Statement, including the exhibits and financial statement
schedules thereto, which may be inspected without charge at the public reference
facility maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the Commission at
prescribed rates. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Such documents and other information filed by the Company can be inspected
and copied at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048 and 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at its public reference
facilities in New York, New York and Chicago, Illinois at prescribed rates. The
Company makes its filings with the Commission electronically. The Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically, which
information can be accessed at http://www.sec.gov.
The Guarantor is not currently subject to the informational requirements of
the Exchange Act. As a result of the offering of the Exchange Notes, the
Guarantor will become subject to the informational requirements of the Exchange
Act. The Company will fulfill its obligations with respect to such requirements
by including information regarding the Guarantor in the Company's periodic
reports. In addition, the Company will send to each holder of Exchange Notes
copies of annual reports and quarterly or financial reports containing the
information required to be filed under the Exchange Act if furnished by it to
stockholders generally.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the Commission to the Trustees and the holders of the Notes and the
Exchange Notes. The Company has agreed that, even if it is not required under
the Exchange Act to furnish such information to the Commission, it will
nonetheless continue to furnish information that would be required to be
furnished by the Company by Section 13 of the Exchange Act to the Trustees and
the holders of the Notes or Exchange Notes as if it were subject to such
periodic reporting requirements.
In addition, the Company has agreed that, for so long as any of the Notes
remain outstanding, it will make available, upon request, to any seller of such
Notes the information specified in Rule 144(d)(4) under the Securities Act,
unless the Company and the Guarantor are then subject to Section 13 or 15(d) of
the Exchange Act.
------------------------
THIS PROSPECTUS INCLUDES REFERENCES TO THE FUTURE PERFORMANCE, PLANS
AND EXPECTATIONS OF THE COMPANY WHICH ARE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A(I)(1) OF THE SECURITIES ACT, INCLUDING WITHOUT LIMITATION
STATEMENTS MADE UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
2
<PAGE> 9
RESULTS OF OPERATIONS" AND "BUSINESS." SUCH STATEMENTS ARE BASED ON NUMEROUS
VARIABLES AND ASSUMPTIONS THAT ARE INHERENTLY UNCERTAIN, INCLUDING WITHOUT
LIMITATION FACTORS RELATED TO THE COMPANY'S ABILITY TO SUCCESSFULLY COMPLETE
DEVELOPMENT PROJECTS WITHIN PROJECTED CAPITAL BUDGETS OR TO CARRY ON MINING
OPERATIONS WITHIN PROJECTED OPERATING BUDGETS, VOLATILITY IN THE PRICE OF GOLD,
COPPER AND OTHER COMMODITIES, INTEREST AND FOREIGN EXCHANGE RATES, GOVERNMENT
REGULATION AND AGENCY ACTION, COMPETING LAND CLAIMS, THE ACCURACY OF ESTIMATES
OF ORE RESERVES AND MINERAL INVENTORY AND GENERAL ECONOMIC AND COMPETITIVE
CONDITIONS. ACCORDINGLY, ACTUAL FUTURE RESULTS OR VALUES MAY BE SIGNIFICANTLY
MORE OR LESS FAVORABLE THAN PROVIDED BY SUCH REFERENCES.
INFORMATION INCORPORATED BY REFERENCE
All documents filed with the Commission by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the Expiration Date are incorporated herein by reference
and such documents shall be deemed to be a part hereof from the date of filing
of such documents. Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
EXCHANGE RATE DATA
The Company publishes its consolidated financial statements in Canadian
dollars. All dollar amounts set forth in this Prospectus are expressed in
Canadian dollars unless otherwise specifically indicated. The following table
sets forth, for the periods indicated, the high and low exchange rates (i.e.,
the highest and lowest rates at which Canadian dollars were sold), the average
exchange rate (i.e., the average of the exchange rates on the last business day
of each month during the applicable period) and the period end exchange rate of
the Canadian dollar in exchange for the United States dollar, as calculated from
the inverse of the exchange rate reported by the Federal Reserve Bank of New
York for cable transfers payable in Canadian dollars as certified for customs
purposes (the "Noon Buying Rate"). On August 27, 1996, the inverse of the Noon
Buying Rate was Cdn $1.00 equals US$0.7312.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------------------ -------------
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at period end............... 0.8652 0.7867 0.7544 0.7129 0.7323 0.7322
Average exchange rate during the period... 0.8726 0.8276 0.7751 0.7321 0.7305 0.7310
Highest exchange rate during the period... 0.8941 0.8760 0.8046 0.7632 0.7527 0.7381
Lowest exchange rate during the period.... 0.8573 0.7760 0.7439 0.7105 0.7023 0.7265
</TABLE>
3
<PAGE> 10
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
the notes thereto appearing elsewhere in this Prospectus. References to the
"Company" or "Royal Oak" mean Royal Oak Mines Inc., an Ontario, Canada
corporation and its subsidiaries, unless the context otherwise requires. The
consolidated financial statements of Royal Oak included herein have been
prepared in accordance with Canadian generally accepted accounting principles
and are subject to Canadian auditing and independent auditor standards and thus
may not be comparable to financial statements of United States companies.
Certain terms relating to the mining industry as used herein are defined in the
"Glossary of Certain Mining Terms" beginning on page 106. Reserve data in this
Prospectus dated as of December 31, 1995, includes data for the Kemess, Duport
and Cape Ray properties acquired by the Company in 1996. IN THIS PROSPECTUS,
UNLESS OTHERWISE SPECIFIED OR THE CONTEXT OTHERWISE REQUIRES, ALL DOLLAR AMOUNTS
ARE EXPRESSED IN CANADIAN DOLLARS. See "Exchange Rate Data."
The financial information presented below includes operating results
expressed in terms of EBITDA, which represents net income before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. EBITDA information is included as supplemental information herein
because the Company understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
EBITDA is not intended to represent, and should not be considered more
meaningful than, or an alternative to measures of, performance determined in
accordance with generally accepted accounting principles.
THE COMPANY
Royal Oak is a major North American gold mining company which, together
with its predecessors, has produced in excess of 50 million ounces of gold over
a 60-year period. The Company, which owns and operates five producing gold
mines, is in the process of expanding one producing mine and is developing four
major new projects. The Company has extensive land positions in Canada covering
approximately 704,000 acres, as well as over 7,000 acres in the United States,
which provide it with the opportunity to expand its reserves through focused
exploration and development. As of and for the fiscal year ending December 31,
1995, Royal Oak had approximately 9.8 million ounces of mineable gold reserves
and had produced 371,151 ounces of gold.
The Company's five producing gold mines consist of the Colomac and Giant
Mines in the Northwest Territories, the Pamour and Nighthawk Mines in Ontario
and the Hope Brook Mine in Newfoundland. Through acquisitions, exploration and
the implementation of more advanced and efficient mining methods, the Company
has increased its annual production by a compounded annual growth rate of 17.5%
since 1991. The Company conducts a focused exploration program to develop
additional mineable gold reserves in close proximity to its existing mines in
order to maximize the utilization of its processing facilities and to increase
processing efficiencies. In 1995, the Company's exploration efforts resulted in
the addition of approximately 2.2 million ounces of mineable gold reserves to
its existing reserve base at a cost of approximately $6.95 per ounce. A
significant part of this exploration program was focused on the Pamour Mine open
pit expansion which is expected to contribute approximately 60,000 ounces of
gold annually when production commences in the first half of 1998.
DEVELOPMENT PROJECTS
Royal Oak's four major development projects consist of the Kemess South,
Matachewan, Red Mountain and Duport gold properties. (These properties are
collectively referred to herein as the "Development Projects.") The addition of
these four projects has contributed approximately 6.1 million ounces of gold to
the Company's mineable ore reserves. The Company believes that the development
of these properties will extend the Company's overall reserve life, dramatically
increase production and decrease overall cash costs per ounce of gold produced.
4
<PAGE> 11
- - Kemess -- In January 1996, the Company completed a series of transactions
which resulted in the acquisition of the Kemess gold-copper ore body
comprised of Kemess South and Kemess North located in British Columbia. The
aggregate consideration for the Kemess acquisition was approximately $202
million in cash and common shares. Construction of the Kemess South open
pit mine and processing facility (the "Kemess South Project") began in July
1996 and is expected to be completed in the first half of 1998. The Company
estimates that the aggregate development costs of the Kemess South Project
will be approximately $390 million, of which up to $166 million will be
provided in the form of economic assistance, compensation and investment by
the British Columbia provincial government ($14.5 million of which has been
received) with the remainder to be provided from proceeds of the Offering,
vendor financing, borrowings under the Credit Facility and cash flow from
operations. The Kemess South Project contains approximately 4.1 million
ounces of mineable gold reserves and approximately 1.0 billion pounds of
copper. The Company estimates that the average annual production of Kemess
South will be approximately 250,000 ounces of gold with an estimated
average cash cost of US$189 per ounce and approximately 60 million pounds
of copper with an estimated average cash cost of US$0.48 per pound over the
life of the mine.
- - Matachewan -- The Company expects to complete the construction of the open
pit mine and concentrator at the Matachewan property located in Ontario in
the second half of 1998 with an underground mine to follow. Concentrate
from Matachewan will be transported to the Pamour Mill for cyanidation.
Total capital costs to develop the property are expected to be
approximately $115 million. The property was previously an active producing
mine which presently contains approximately 884,000 ounces of mineable gold
reserves. Annual production is targeted at approximately 100,000 ounces of
gold with an estimated average cash cost of US$227 per ounce.
- - Red Mountain -- Following the commencement of construction in 1998, the
Company expects to complete construction of the underground mine and
processing operation at the Red Mountain property located in British
Columbia in 1999. Total capital costs to develop the property are expected
to be approximately $113 million. The property contains approximately
800,000 ounces of mineable gold reserves with annual production targeted at
approximately 150,000 ounces of gold with an estimated average cash cost of
US$162 per ounce.
- - Duport -- Following the commencement of construction in 1999, the Company
expects to complete construction of the underground mine and processing
operation at the Duport property located in Ontario in 2000. Total capital
costs to develop the property are expected to be approximately $70 million.
The property contains approximately 383,000 ounces of mineable gold
reserves with annual production targeted at approximately 47,250 ounces of
gold per year with an estimated average cash cost of US$224 per ounce.
While the Company intends to proceed with the Development Projects on the
schedule outlined above, the Company's initial priority is completion of the
development of the Kemess South Project. The timing of the other Development
Projects will be dependent in part upon completion of the Kemess South Project
and other factors such as available financing and receipt of required government
approvals and permits.
BUSINESS STRENGTHS
Royal Oak believes it has certain strengths that provide the Company with
advantages in successfully pursuing its operating strategy, including the
following:
- - Long Reserve Life -- Royal Oak's properties contain approximately 9.8
million ounces of mineable gold ore reserves with an estimated reserve
life, based on estimated future production, of over 15 years.
- - Attractive Development Projects -- The Company's Development Projects will,
upon completion, increase the Company's annual gold production, extend
overall mine operating life and significantly reduce the Company's average
cash costs.
5
<PAGE> 12
- - Extensive Exploration Property Portfolio -- The Company owns an extensive
portfolio of mineral properties covering 711,000 acres of prospective
mining rights in Canada and the United States. Royal Oak's exploration
program is primarily focused on those properties that are adjacent to its
producing mines in order to maximize the utilization of the Company's
existing processing facilities and to increase processing efficiencies.
- - Management Expertise -- Royal Oak's senior management team has extensive
operating and exploration experience in the mining industry. Management's
significant experience has been instrumental in helping the Company achieve
its historical growth and provides a significant base upon which to expand
the Company's future operations. In addition, the Company has recently
formed a 21-member project development team to construct, develop and
manage the Kemess South Project as well as a separate team to focus on the
other Development Projects.
OPERATING STRATEGY
In order to capitalize on its business strengths, the Company has developed
the following operating strategy to continue its growth:
- - Increase Production and Reduce Average Cash Costs -- As a result of
increased production at the Colomac Mine and the first full year of
production at the Nighthawk Mine, the Company expects to increase its gold
production in 1996 to approximately 415,000 ounces from 371,151 ounces in
1995. In addition, through the successful implementation of advanced mining
technologies accompanied by cost reduction programs, the Company believes
that its average cash costs will decrease from US$358 per ounce of gold in
1995 to approximately US$315 per ounce of gold in 1996. The Company's cash
costs for the six months ended June 30, 1996 were US$331 per ounce of gold
compared to US$351 in the same period in 1995.
- - Complete Development of Major Projects -- The Company's primary objective
with respect to the Development Projects is to efficiently complete the
development of the Kemess South Project. The Company estimates that, upon
completion, the Development Projects will generate additional annual
production of approximately 547,000 ounces of gold and 60 million pounds of
copper with an average estimated cash cost of US$192 per ounce of gold and
US$0.48 per pound of copper over the life of the properties.
- - Expand Reserve Base Through Focused Exploration -- The Company's exploration
program focuses on identifying additional mineable ore reserves in close
proximity to its existing mines. This strategy allows the Company to
maximize utilization of existing processing facilities, to increase
processing efficiencies and to capitalize on its extensive land position in
Canada. In 1995, the Company's $15.3 million exploration program delineated
approximately 2.2 million ounces of mineable gold reserves. The Company has
budgeted $12 million for its 1996 exploration program.
Management believes that the gold mining industry will continue to
consolidate over the next several years and that numerous acquisition
opportunities will become available to the Company. In 1996, the Company
acquired the Kemess, Duport and Cape Ray properties. In addition to the
operating strategy described above, the Company intends to review acquisition
opportunities as they become available and will pursue selective acquisitions of
gold properties that will increase production, mineable ore reserves and cash
flow from operations while reducing average cash costs. These acquisitions could
be an important component of the Company's future growth.
6
<PAGE> 13
THE NOTE OFFERING
THE NOTES.................. The Notes were sold by the Company in the Offering
on August 12, 1996, and were subsequently resold to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to institutional
investors that are accredited investors in a manner
exempt from registration under the Securities Act.
REGISTRATION RIGHTS
AGREEMENT.................. In connection with the Offering, the Company
entered into the Registration Rights Agreement,
which grants holders ("Holders") of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... US$175,000,000 aggregate principal amount of Series
B 11% Senior Subordinated Notes due August 15,
2006.
THE EXCHANGE OFFER......... US$1,000 principal amount of the Exchange Notes in
exchange for each US$1,000 principal amount of
Notes. As of the date hereof, US$175,000,000
aggregate principal amount of Notes are
outstanding. The Company will issue the Exchange
Notes to Holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Notes received in exchange for Notes
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale.
Any Holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the SEC enunciated in Exxon Capital Holdings
Corporation (available April 13,
7
<PAGE> 14
1989), Morgan Stanley & Co., Inc. (available June
5, 1991) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with the resale of the Exchange Notes. Failure to
comply with such requirements in such instance may
result in such Holder incurring liability under the
Securities Act for which the Holder is not
indemnified by the Company.
In any State where the Exchange Offer does not fall
under a statutory exemption to such State's Blue
Sky laws, the Company has filed the appropriate
registrations and notices, and has made the
appropriate requests, to permit the Exchange Offer
to be made in such State.
EXPIRATION DATE............ 5:00 p.m., New York City time, on , 1996,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST ON THE EXCHANGE
NOTES
AND THE NOTES............ The Exchange Notes will bear interest from August
12, 1996, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date (as defined
below in the Summary of Terms of Exchange Notes) to
which interest on such Notes has been paid).
Accordingly, Holders of Notes that are accepted for
exchange will not receive interest on the Notes
that is accrued but unpaid at the time of tender,
but such interest will be payable on the first
Interest Payment Date after the Expiration Date.
CONDITIONS TO THE
EXCHANGE OFFER........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
PROCEDURES FOR
TENDERING NOTES.......... Each Holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or such facsimile, together
with the Notes and any other required documentation
to the Exchange Agent at the address set forth in
the Letter of Transmittal. By executing the Letter
of Transmittal, each Holder will represent to the
Company that, among other things, the Holder or the
person receiving such Exchange Notes, whether or
not such person is the Holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the Holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes. In lieu of physical delivery
of the certificates representing Notes, tendering
Holders may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own
8
<PAGE> 15
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
its Notes, either make appropriate arrangements to
register ownership of the Notes in such owner's
name or obtain a properly completed bond power from
the registered Holder. The transfer of registered
ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawals of Tenders."
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE
NOTES.................... The Company will accept for exchange any and all
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES............. The issuance of the Exchange Notes to Holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain
or loss would be recognized by Holders of the Notes
upon receipt of the Exchange Notes. See "Certain
Federal Income Tax Consequences of the Exchange
Offer."
EFFECT ON HOLDERS OF
NOTES...................... As a result of the making of this Exchange Offer,
the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and Holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such Holders will continue
to hold the untendered Notes and will be entitled
to all the rights and subject to all the
limitations applicable thereto under the Indenture,
except to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Notes will continue to be subject to
certain restrictions on transfer. Accordingly, if
any Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Notes
could be adversely affected.
EXCHANGE AGENT............. Mellon Bank, F.S.B.
9
<PAGE> 16
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) the holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
SECURITIES OFFERED......... US$175,000,000 aggregate principal amount of Series
B 11% Senior Subordinated Notes due 2006 (equal to
Cdn $239,332,604 based upon the exchange rate on
August 27, 1996).
ISSUER..................... Royal Oak Mines Inc.
MATURITY DATE.............. August 15, 2006.
INTEREST PAYMENT DATES..... Interest on the Exchange Notes will accrue from
August 12, 1996 (the "Issue Date") and is payable
semi-annually on each of February 15 and August 15
of each year, commencing February 15, 1997.
RANKING.................... The Exchange Notes will be general unsecured
obligations of the Company and will be subordinated
in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company
(which includes the Credit Facility). The Exchange
Notes will rank pari passu with all future senior
subordinated indebtedness of the Company and will
rank senior to all other subordinated indebtedness,
if any, of the Company. As of June 30, 1996, there
was no Guarantor Senior Indebtedness and $1,991,000
of Senior Indebtedness consisting of capitalized
lease obligations. In addition, as of August 27,
1996, the Company had outstanding under its Credit
Facility letters of credit in the aggregate amount
of $1,940,000.
OPTIONAL REDEMPTION........ The Exchange Notes are redeemable, in whole or in
part, at the option of the Company, on or after
August 15, 2001, at the redemption prices set forth
herein, plus accrued interest to the date of
redemption. In addition, on or prior to August 15,
1999, the Company, at its option, may redeem an
amount of Exchange Notes equal to up to 35% of the
aggregate principal amount of the Notes originally
issued in the Offering with the net cash proceeds
of one or more Public Equity Offerings (as
defined), at the redemption prices set forth herein
plus accrued interest to the date of redemption.
The Exchange Notes are also redeemable at the
option of the Company, in whole but not in part, at
a redemption price equal to 100% of the aggregate
principal amount so redeemed, plus accrued and
unpaid interest thereon to the date of the
redemption, in the event of certain changes
affecting Canadian withholding taxes. See
"Description of Exchange Notes -- Optional
Redemption."
SUBSIDIARY GUARANTEE....... The Exchange Notes will be guaranteed on a senior
subordinated basis by the Guarantor.
CHANGE OF CONTROL.......... Upon a Change of Control Triggering Event (as
defined), each holder will have the right to
require the Company to offer to repurchase such
holder's Exchange Notes at a price equal to 101% of
the principal amount thereof plus accrued interest
to the date of repurchase.
CERTAIN COVENANTS.......... The Indenture contains certain covenants that limit
the ability of the Company and its Restricted
Subsidiaries to, among other things, incur
10
<PAGE> 17
additional indebtedness, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur indebtedness
that is subordinated in right of payment to any
Senior Indebtedness and senior in right of payment
to the Exchange Notes, incur liens, in the case of
a subsidiary, to pay dividends or make certain
payments to the Company and its Restricted
Subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
the assets of the Company or its Restricted
Subsidiaries.
EXCHANGE OFFER;
REGISTRATION RIGHTS........ In the event that applicable law or interpretations
of the staff of the Commission do not permit the
Company to effect the Exchange Offer, or if certain
holders of the Notes are not permitted to
participate in, or do not receive the benefit of,
the Exchange Offer, the Registration Rights
Agreement provides that the Company and the
Guarantor will use all reasonable efforts to cause
to become effective a shelf registration statement
with respect to the resale of the Notes and to keep
such shelf registration statement effective until
three years after the Issue Date or such shorter
period ending when all the Notes have been sold
thereunder. The interest rate on the Notes is
subject to increase under certain circumstances if
the Company and the Guarantor are not in compliance
with their obligations under the Registration
Rights Agreement. See "Exchange Offer and
Registration Rights."
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
See "Risk Factors," which begins on page 16, for a discussion of certain
factors that should be considered by prospective investors in evaluating an
investment in the Exchange Notes.
11
<PAGE> 18
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial data for
the Company as of and for the periods noted. The consolidated balance sheet and
income statement data as of and for the years ended December 31, 1991 through
1995 has been derived from the audited consolidated financial statements of
Royal Oak. The consolidated balance sheet and income statement data as of and
for the six months ended June 30, 1995 and 1996 has been derived from the
unaudited financial statements of Royal Oak which, in the opinion of management
of the Company, contain all adjustments necessary for a fair presentation of
this information. The historical data with respect to the results of operations
for the six months ended June 30, 1996 should not be regarded as necessarily
indicative of the results that may be expected for the entire year. The
Operating Data presented below has been derived from the Company's accounting
and other records. The consolidated financial statements of Royal Oak and the
notes thereto have been prepared in accordance with accounting principles
generally accepted in Canada ("Cdn GAAP"). These principles are also in
conformity, in all material respects, with accounting principles generally
accepted in the United States ("US GAAP") except as described in Note 13 of the
notes to the audited consolidated financial statements of Royal Oak and the
notes thereto as of December 31, 1994 and 1995 and for each fiscal year in the
three-year period ended December 31, 1995 (the "Annual Consolidated Financial
Statements"). All dollar amounts are expressed in Canadian dollars except as
noted below. The following table should be read together with the Annual
Consolidated Financial Statements and the unaudited consolidated financial
statements of Royal Oak and the notes thereto as of and for the six months ended
June 30, 1995 and 1996 (the "Unaudited Consolidated Financial Statements" and,
together with the Annual Consolidated Financial Statements, the "Consolidated
Financial Statements") appearing elsewhere in this Prospectus. See "Index to
Consolidated Financial Statements."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
INCOME STATEMENT DATA:
CDN GAAP
Revenue.................................... $96,433 $113,673 $135,326 $162,111 $208,311 $100,839 $105,846
Operating expenses......................... 72,581 89,874 110,258 117,790 182,214 89,714 81,383
Royalties and marketing expenses........... 830 881 1,248 2,490 2,535 1,108 1,408
Administrative and corporate expenses...... 3,500 4,082 3,411 5,271 8,549 4,945 4,861
Depreciation and amortization.............. 4,966 4,275 4,998 8,525 14,895 6,270 11,366
Exploration expenses(1).................... -- -- -- -- -- 254 2,409
Provision for (recovery of) loss on foreign
currency contracts....................... -- -- -- 15,267 (5,244) (3,772) (976)
-------- -------- -------- -------- -------- -------- --------
Operating income........................... 14,556 14,561 15,411 12,768 5,362 2,320 5,395
Interest and other income, net(2).......... 1,314 638 2,289 7,074 20,902 12,135 2,462
Other(1)................................... (7,124) (3,654) (1,862) 2,960 (1,553) (235) (23)
Provision for income taxes................. (105) (108) (215) (636) (1,542) (969) (2,729)
-------- -------- -------- -------- -------- -------- --------
Net income................................. $ 8,641 $ 11,437 $ 15,623 $ 22,166 $ 23,169 $ 13,251 $ 5,105
======== ======== ======== ======== ======== ======== ========
US GAAP(3)
Net income................................. $ 8,226 $ 9,562 $ 13,940 $ 19,978 $ 17,177 $ 9,762 $ 3,654
OPERATING DATA:
Recovered gold ounces...................... 194,952 245,469 276,320 318,171 371,151 184,206 179,643
Average spot gold price per ounce (US$).... 362 344 360 384 384 383 395
Average realized gold price per ounce
(US$).................................... 432 383 380 428 409 394 431
Cash cost per ounce (US$).................. 327 304 311 311 358 351 331
Total cost per ounce (US$)(4).............. 367 346 340 353 410 400 413
Total cost excluding depreciation and
amortization (US$)....................... 345 332 326 333 381 375 367
OTHER DATA:
EBITDA(5).................................. $19,522 $ 18,836 $ 20,409 $ 21,293 $ 20,257 $ 8,590 $ 16,761
Net additions to property, plant and
equipment(6)............................. 6,513 19,889 26,803 52,461 66,018 22,943 255,728
Ratio of earnings to fixed charges......... 4.43 N.A. 163.93 376.02 84.85 150.32 92.57
</TABLE>
12
<PAGE> 19
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
BALANCE SHEET DATA (AT PERIOD END)
CDN GAAP
Cash and cash equivalents.................. $ 4,935 $ 12,719 $ 79,644 $148,524 $139,410 $164,294 $ 14,797
Property, plant and equipment.............. 58,200 77,547 99,218 137,954 191,381 154,824 435,690
Total assets............................... 74,484 111,670 217,226 384,074 428,963 421,312 580,118
Long-term debt(2)(7)....................... -- -- -- -- -- -- --
Shareholders' equity....................... 49,273 81,935 185,362 302,731 340,495 330,556 459,959
US GAAP(3)
Total assets............................... $73,319 $108,630 $213,253 $377,913 $416,810 $411,662 $646,636
Shareholders' equity....................... 48,533 79,320 181,389 296,570 328,342 320,906 446,355
</TABLE>
- ---------------
(1) Prior to January 1, 1996, the Company's exploration expenses were not
material and were classified under "Other."
(2) The Company historically has had no material long-term debt and,
accordingly, has had no material interest expense. As a result of the
Offering, the Company would have had as of June 30, 1996 annual interest
expense of approximately US$19.25 million (or approximately Cdn $26.3
million based upon the exchange rate as of June 30, 1996) associated with
the Notes.
(3) Under US GAAP (i) depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas
under Cdn GAAP, total mineral inventory may be used in the calculations; and
(ii) for defined benefit pension plans, the projected benefit obligation
should be discounted using interest rates at which the obligation could be
effectively settled whereas under Cdn GAAP, the projected benefit obligation
may be discounted using interest rates which are consistent with long-term
assumptions. See Note 13 to the Annual Consolidated Financial Statements.
(4) Total cost per ounce includes depreciation and amortization.
(5) "EBITDA," as used in this Prospectus, means operating income plus
depreciation and amortization. EBITDA differs from the definition of
Consolidated EBITDA under the Indenture. See "Description of Notes." EBITDA
is not a measure of financial performance under US GAAP. Accordingly, it
does not represent net income or cash flows from operations as defined by US
GAAP and does not necessarily indicate that cash flows will be sufficient to
fund cash needs. As a result, EBITDA should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity.
(6) Net additions to property, plant and equipment for the six months ended June
30, 1996 include investments in Kemess capital assets of $202 million
through the acquisitions of Geddes Resources Limited, El Condor Resources
Ltd. and St. Philips Resources Inc. and Duport capital assets through the
acquisition of Consolidated Professor Mines Limited.
(7) As of June 30, 1996, the Company had capital lease obligations in the amount
of $1,991,000.
13
<PAGE> 20
SUMMARY RESERVE DATA(1)
The following table lists the Company's mineable ore reserves for the years
noted:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1991 1992 1993 1994 1995(2)
----- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
GOLD RESERVES (AT END OF PERIOD):
Northwest Territories Division
Giant Mine(3)
Mineable ore (000s tons)......................................... 2,339 2,821 2,617 2,395 2,466
Average grade (ounces per ton)................................... 0.311 0.319 0.321 0.319 0.335
Contained ounces (000s).......................................... 727 899 840 763 826
Colomac Mine(4)
Mineable ore (000s tons)......................................... -- -- 13,618 13,054 12,255
Average grade (ounces per ton)................................... -- -- 0.052 0.053 0.058
Contained ounces (000s).......................................... -- -- 709 694 711
Ontario Division
Pamour and Nighthawk Mines
Mineable ore (000s tons)......................................... 3,812 3,825 3,993 9,398 38,471
Average grade (ounces per ton)................................... 0.099 0.099 0.097 0.067 0.046
Contained ounces (000s).......................................... 379 378 386 629 1,771
Matachewan
Mineable ore (000s tons)......................................... -- -- -- 1,400 13,253
Average grade (ounces per ton)................................... -- -- -- 0.062 0.067
Contained ounces (000s).......................................... -- -- -- 87 884
Duport
Mineable ore (000s tons)......................................... -- -- -- -- 1,008
Average grade (ounces per ton)................................... -- -- -- -- 0.380
Contained ounces (000s).......................................... -- -- -- -- 383
Newfoundland Division
Hope Brook Mine
Mineable ore (000s tons)......................................... -- 8,255 7,300 3,936 2,448
Average grade (ounces per ton)................................... -- 0.104 0.102 0.087 0.087
Contained ounces (000s).......................................... -- 856 746 343 215
Cape Ray
Mineable ore (000s tons)......................................... -- -- -- -- 502
Average grade (ounces per ton)................................... -- -- -- -- 0.294
Contained ounces (000s).......................................... -- -- -- -- 147
British Columbia Division
Kemess South
Mineable ore (000s tons)......................................... -- -- -- -- 220,947
Average grade (ounces per ton)................................... -- -- -- -- 0.018
Contained ounces (000s).......................................... -- -- -- -- 4,056
Red Mountain
Mineable ore (000s tons)......................................... -- -- -- -- 3,053
Average grade (ounces per ton)................................... -- -- -- -- 0.262
Contained ounces (000s).......................................... -- -- -- -- 800
Royal Oak Consolidated
Total mineable ore (000s tons)................................... 6,151 14,901 27,527 30,183 294,402
Average grade (ounces per ton)................................... 0.180 0.143 0.097 0.083 0.033
Total Company contained ounces (000s)............................ 1,106 2,133 2,682 2,517 9,793
COPPER RESERVES (AT END OF PERIOD):
British Columbia Division
Kemess South
Mineable ore (000s tons)......................................... -- -- -- -- 220,947
Average grade (%)................................................ -- -- -- -- 0.224
Content (000s pounds)............................................ -- -- -- -- 989,843
</TABLE>
- ---------------
See footnotes on following page.
14
<PAGE> 21
(1) "Mineable ore reserves" include both proven and probable reserves. The term
"reserves" means that part of a mineral deposit which can be reasonably
assumed to be economically extracted or produced at the time of the reserves
determination. The term "economically," as used in the definition of
reserves, implies that profitable extraction or production under defined
investment assumptions has been established or analytically demonstrated.
The assumptions made must be reasonable, including assumptions concerning
the prices and costs that will prevail during the life of the project.
The term "proven reserves" means reserves for which (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings and drill holes;
grade and/or quality are computed from the results of detailed sampling; and
(b) the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well established.
The term "probable reserves" means reserves for which quantity and grade
and/or quality are computed from information similar to that used for
reserves, but the sites for inspection, sampling and measurement are farther
apart or are otherwise less adequately spaced. The degree of assurance,
although lower than that for proven reserves, is high enough to assume
continuity between points of observation.
The term "contained ounces" means that the reserves are estimated to
encompass a stated number of ounces of gold in place. The number of ounces
ultimately recovered and available for sale depends upon mining efficiency
and processing efficiency.
See "Risk Factors -- Reserve Estimates; Mineral Inventory."
(2) Reserve data dated as of December 31, 1995 includes data for the Kemess,
Duport and Cape Ray properties acquired by the Company in 1996.
(3) Reserve data includes data for the Nicholas Lake property. See "Business --
Operating Properties -- Giant."
(4) Reserve data includes data for the Kim-Cass property on a 100% ownership
basis. See "Business -- Operating Properties -- Colomac." As of June 30,
1996, the mine plan at the Colomac Mine was under review by the Company's
management which could affect the reserves at such property; however, based
upon information currently available to the Company, any adjustment to such
reserves is not anticipated to be material to the Company's total mineable
inventory in the Indin Lake area that would be processed by the Colomac
Mill.
15
<PAGE> 22
RISK FACTORS
Prospective participants should consider carefully the risk factors set
forth below as well as the other information contained in this Prospectus before
participating in the Exchange Offer.
ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
Following the sale of the Notes, the Company increased its level of
indebtedness and debt service obligations. As of June 30, 1996, after giving
effect to the sale of the Notes, the Company would have had approximately
US$176.5 million (Cdn $241 million based upon the exchange rate in effect on
such date) aggregate amount of indebtedness outstanding, representing 34.4% of
total capitalization. See "Capitalization." The Company's average annual
interest expense in respect of the Notes is approximately US$19.25 million
(approximately Cdn $26.3 million based upon the exchange rate as of June 30,
1996).
The degree of the Company's leverage could have important consequences to
holders of the Exchange Notes including: (i) limiting the Company's ability to
obtain additional financing to fund future working capital requirements, capital
expenditures, acquisitions or other general corporate requirements; (ii)
requiring a portion of the Company's cash flow from operations to be dedicated
to debt service requirements, thereby reducing the funds available for
operations and future business opportunities; and (iii) increasing the Company's
vulnerability to adverse economic and industry conditions.
The Company may incur additional indebtedness in the future, including
Senior Indebtedness. See " -- Subordination." The ability of the Company to make
scheduled payments under its present and future indebtedness will depend on,
among other things, the future operating performance of the Company and the
Company's ability to refinance its indebtedness when necessary. Each of these
factors is to a large extent subject to economic, financial, competitive and
other factors beyond the Company's control.
SUBORDINATION
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior
Indebtedness. Subject to certain limitations, the Indenture permits the Company
to incur additional Senior Indebtedness. See "Description of Exchange Notes --
Certain Covenants -- Limitation on Indebtedness." As a result of the
subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency, holders of Senior Indebtedness and trade creditors of
the Company and the Guarantor may recover more, ratably, than the holders of the
Exchange Notes. The holders of any indebtedness of the Company's subsidiaries
(other than the Guarantor) will be entitled to payment of their indebtedness
from the assets of such subsidiaries prior to the holders of any general
unsecured obligations of the Company, including the Exchange Notes. In addition,
substantially all of the assets of the Company and its subsidiaries may in the
future be pledged to secure other indebtedness of the Company. See "Description
of Exchange Notes."
DEVELOPMENT PROJECTS
General -- The Company from time to time engages in the development of new
ore bodies, both at newly acquired properties and currently existing mining
operations. The Company's ability to sustain or increase its present level of
gold production is dependent in part on the successful development of such new
ore bodies and/or expansion of existing mining operations. The economic
feasibility of any individual development project and all such projects
collectively is based upon, among other things, estimates of ore reserves,
metallurgical recoveries, production rates and capital and operating costs of
such development projects, and future metal prices. Development projects are
also subject to the completion of favorable feasibility studies, the issuance of
necessary permits and the receipt of adequate financing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." Development projects may have no operating
history upon which to base estimates of future operating costs and capital
requirements. Particularly for development projects, estimates of ore reserves,
metal recoveries and cash operating costs are to a large extent based upon the
interpretation of geological data obtained from drill holes and other sampling
techniques and feasibility studies which derive estimates of cash operating
costs based
16
<PAGE> 23
upon anticipated tonnage and grades of ore to be mined and processed, the
configuration of the ore body, expected recovery rates of metals from the ore,
comparable facility and equipment costs, anticipated climate changes and other
factors. As a result, actual cash operating costs and economic returns of any
and all development projects may materially differ from the costs and returns
currently estimated.
Pending Projects -- The development and construction cost requirements for
the Development Projects and the Pamour open pit expansion are significant. For
the development of the Kemess South Project, the Company is relying on the
updated cost estimates developed by the Company in 1996 and completion of the
development is subject to receipt of adequate financing and receipt of all
remaining governmental approvals and permits. See "Business -- Development
Projects -- Kemess South." The Company's other pending Development Projects are
subject to the completion of favorable feasibility studies on each of such
properties and the receipt of adequate financing and all required governmental
approvals and permits.
GOLD AND METAL PRICE VOLATILITY
The Company's profitability is significantly affected by changes in the
market price of gold, and upon completion of the Kemess South Project, may be
significantly affected by changes in the market price of copper. Gold prices may
fluctuate dramatically and are affected by numerous industry factors, such as
demand for precious metals, forward selling by producers, central bank sales and
purchases of gold, and production and cost levels in major gold-producing
regions such as North America, South Africa and the former Soviet Union.
Moreover, gold prices are also affected by macro-economic factors such as
expectations for inflation, interest rates, currency exchange rates, and global
or regional political and economic situations. The current demand for, and
supply of, gold affects gold prices, but not necessarily in the same manner as
current demand and supply affect the prices of other commodities. The potential
supply of gold consists of new gold mine production plus existing stocks of
bullion and fabricated gold held by governments, financial institutions,
industrial organizations and individuals. Since mine production in any single
year constitutes a very small portion of the total potential supply of gold,
normal variations in current production do not necessarily have a significant
effect on the supply of gold or on its price. If gold prices should decline
below the Company's cash costs and remain at such levels for any sustained
period, the Company could determine that it is not economically feasible to
continue commercial production at any or all of its mines. Although the Company
has hedging programs in place to reduce certain of the risks associated with
gold price volatility, there can be no assurance that such hedging strategies
will be successful. See " -- Hedging Activities." The aggregate effect of these
factors, all of which are beyond the Company's control, is impossible to
predict.
Copper prices may also fluctuate dramatically and are affected by numerous
factors beyond the Company's control, including expectations of inflation,
speculative activities, the relative exchange rate of the United States dollar,
global and regional demand, production and production costs in major producing
regions. For example, between January 1, 1996 and July 31, 1996, the price per
pound of copper fluctuated between a high of US$1.288 and a low of US$0.829. The
aggregate effect of these factors, all of which are beyond the Company's
control, is impossible to predict.
The volatility of gold and copper prices is illustrated in the following
table which sets forth the average of the daily closing prices in United States
dollars of gold and copper for 1980, 1985, 1990 and each year thereafter until
1996:
<TABLE>
<CAPTION>
1980 1985 1990 1991 1992 1993 1994 1995 1996(3)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gold(1) (per ounce)......... $614.32 $317.22 $383.64 $362.23 $343.94 $359.86 $384.15 $384.08 $392.97
Copper(2) (per pound)....... $ 0.990 $ 0.643 $ 1.208 $ 1.059 $ 1.035 $ 0.866 $ 1.049 $ 1.331 $1.095
</TABLE>
- ---------------
(1) London Bullion Market
(2) London Metal Exchange
(3) Through August 15, 1996
As of August 27, the closing price for gold was US$388.80 per ounce and the
closing price for copper was US$0.899 per pound.
17
<PAGE> 24
HEDGING ACTIVITIES
In the normal course of its business, the Company uses gold spot deferred
contracts, gold forward sales commitments and gold call option contracts to
manage its exposure to fluctuations in the price of gold. Contracted prices on
spot deferred and forward sales contracts are recognized in revenue when
production is delivered against the commitment. If actual delivery is not made
against a particular spot deferred contract at the time of maturity, gains and
losses, if any, are recognized at that time. In addition, the Company uses oil
swap agreements and foreign exchange contracts to minimize the impact of
fluctuations in oil and foreign currency prices, respectively. Contract
positions are designed to ensure that the Company will receive a defined minimum
price for certain quantities of its production. The related costs paid or
premiums received for option contracts which hedge the sales prices of
commodities are deferred and included in income as part of the hedged
transaction. Revenues from the aforementioned contracts are recognized at the
time contracts expire or are closed out by either delivery of the underlying
commodity or settlement of the net position in cash. The Company is exposed to
certain losses on forward sales contracts, generally the amount by which the
contract price exceeds the spot price of the commodity, in the event of
non-performance by the counterparties to these agreements. The Company believes
that it has minimized credit risk relating to its hedging activities by dealing
with large credit-worthy institutions and by limiting its credit exposure to
such institutions.
As of December 31, 1995, the Company had contractual arrangements, in both
United States and Canadian dollars (i) to deliver an aggregate of 459,028 ounces
of gold between 1996 and 1999 at prices of US$385 to $654 per ounce, (ii) for
892,792 ounces of gold call options written with expiry dates between 1996 and
1999 at strike prices of US$410 to $664, (iii) to sell an aggregate of
approximately US$115.9 million at an exchange rate of Cdn$1.28/US$1.00, and (iv)
to purchase an aggregate of 400,000 barrels of crude oil between 1996 and 1997
at a price per barrel of US$16.85 to US$17.40. See Note 11 to the Annual
Consolidated Financial Statements. In 1996, the Company closed out the contracts
referred to in clause (i) above, resulting in the generation of cash and
deferred revenue of $20,131,000, exchanged the gold call options expiring
between 1997 and 1999 referred to in clause (ii) above for call options with
strike prices of $549 to $561, resulting in the generation of cash and deferred
revenue of $11,235,000, and settled contracts for 200,000 barrels of crude oil
which matured in 1996 referred to in clause (iv) above, resulting in the
generation of cash of $537,000 which was used to reduce fuel costs.
FOREIGN EXCHANGE
Currency fluctuations may affect the cash flow which the Company will
realize from its operations as gold and copper are sold in world markets in
United States dollars and the Company's costs are incurred primarily in Canadian
dollars. Although the Company has hedging programs in place to reduce certain
risks associated with foreign exchange exposure, there can be no assurance that
such hedging strategies will be successful. See Note 6 to the Annual
Consolidated Financial Statements for a further discussion of such activities as
of December 31, 1995.
RESERVE ESTIMATES; MINERAL INVENTORY
The reserves presented in this Prospectus are estimates and no assurance
can be given that the indicated amount of gold or other minerals may be
economically recovered. Reserve estimates may require revisions based on actual
production experience. The ore grade actually recovered by the Company may
differ from the estimated grade of the reserves. The Company's reserve estimates
are revised annually based on the previous year's operating history. Many
factors relating to each mine, such as the design of the mine plan, unexpected
operating and processing problems, increases in the stripping ratio in open pit
mines, unforeseen geotechnical conditions which may result in increased ground
support or dilution in underground operations, and the complexity of the
metallurgy of an ore body, may adversely affect cash costs. Moreover,
fluctuations in the market price of gold or other minerals, as well as increased
production costs or reduced recovery rates, may render reserves containing
relatively lower grades of mineralization uneconomical to recover and may
ultimately result in a restatement of reserves.
References in this Prospectus to "mineral inventory" refer to the
combination of mineable ore reserves and the Company's estimates of mineralized
material which is either not sufficiently delineated as to size, tonnage and
grade or, even if delineated, cannot be economically extracted at the time of
the reserve
18
<PAGE> 25
determination and accordingly, cannot be classified as mineable ore reserves.
Information described in this Prospectus as "mineral inventory" and "mineralized
material" is provided for informational purposes only as the Commission
generally permits disclosure of only proven ore reserves, probable ore reserves
and mineable ore reserves. There can be no assurance that any mineralized
material will ever become mineable ore reserves.
GOVERNMENT PERMITS AND PAYMENTS
In the ordinary course of business, mining companies are required to seek
governmental permits for expansion of existing operations or for the
commencement of new operations. Obtaining the necessary governmental permits is
a complex and time-consuming process involving numerous jurisdictions and often
involving public hearings and costly undertakings on the part of the Company.
The duration and success of permitting efforts are contingent upon many
variables not within the Company's control. Environmental protection permitting,
including the approval of reclamation plans, may increase costs and cause delays
depending on the nature of the activity to be permitted and the interpretation
of applicable requirements implemented by the permitting authority. There can be
no assurance that all necessary permits will be obtained and, if obtained, that
the costs involved will not exceed those previously estimated by the Company. It
is possible that the costs and delays associated with the compliance with such
standards and regulations could become such that the Company would not proceed
with the development or operation of a mine or mines.
The Company, through an agreement with the British Columbia provincial
government which settled the issue of compensation pertaining to the Windy
Craggy property and provided grants and investment for the development of the
Kemess South Project and other properties in British Columbia, is expected to
bring the Kemess South Project into production in the second quarter of 1998.
The development of the Kemess South Project will be facilitated by up to $166
million of compensation, economic assistance and investment from the British
Columbia provincial government, subject to the satisfaction of certain
conditions which the Company expects to meet. Section 25 of the Financial
Administration Act (British Columbia) provides that, notwithstanding the
commitment to pay, any payment of money by the British Columbia provincial
government pursuant to an agreement is subject to (i) an appropriation being
available for that agreement in the year in which the payment falls due and (ii)
the Treasury Board (as defined in the Financial Administration Act) not having
controlled or limited expenditure under any such appropriation. Although the
Company fully expects that adequate appropriations will be made for all amounts
to be paid by the British Columbia provincial government and that the Treasury
Board will not control or limit such appropriations, there can be no assurance
that this will be the case. To the Company's knowledge, the British Columbia
provincial government has never failed to make an appropriation for a payment of
money pursuant to an agreement in the year in which a payment was due and the
Treasury Board has not controlled or limited any such appropriation. See
"Business -- Development Projects -- Kemess South."
REGULATIONS AND MINING LAW
The Company's mining operations and exploration activities are subject to
extensive federal, provincial, state and local laws and regulations governing
exploration, development, production, exports, taxes, labour standards,
occupational health and safety, waste disposal, monitoring, protection and
remediation of the environment, reclamation, mine safety, toxic substances and
other matters. Compliance with such laws and regulations increases the costs of
planning, designing, drilling, developing, constructing, operating and closing
mines and other facilities. It is possible that the costs and delays associated
with compliance with such laws and regulations could become such that the
Company would not proceed with the development or continue the operation of a
mine or mines.
The Company has expended significant resources, both financial and
managerial, to comply with environmental protection laws, regulations and
permitting requirements and the Company anticipates that it will continue to do
so in the future. Although the Company believes that its operations and
facilities comply in all material respects with applicable environmental
protection requirements, there can be no assurance that additional significant
costs and liabilities will not be incurred to comply with current and future
requirements. Moreover, it is possible that future developments, such as
increasingly strict environmental protection laws, regulations and enforcement
policies thereunder, and claims for damages to natural resources, property and
19
<PAGE> 26
persons resulting from or alleged to result from the Company's operations, could
result in substantial costs and liabilities in the future.
MINING RISKS AND INSURANCE
The business of mining for gold and other metals is generally subject to a
number of risks and hazards, including environmental hazards, industrial
accidents, labour disputes, encountering unusual or unexpected geological
conditions, stope failures, changes in the regulatory environment and natural
phenomena such as inclement weather conditions, floods, blizzards and
earthquakes. Such occurrences 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 possible legal
liability. The Company maintains insurance against risks that are typical in the
mining industry, but which may not provide adequate coverage in certain
unforeseen circumstances. Moreover, insurance against certain risks (including
certain liabilities for environmental pollution or other hazards as a result of
exploration and production) is not generally available to companies within the
industry. Without such insurance, if the Company becomes subject to
environmental liabilities, the payment of such liabilities would reduce its
available funds.
EXPLORATION AND RESERVE GROWTH
Exploration for gold and other precious metals is highly speculative in
nature, involves many risks and is frequently unsuccessful. There can be no
assurance that exploration efforts will result in the discovery of gold
mineralization or that any mineralization discovered will result in an increase
of reserves. If reserves are developed, it may take a number of years and
substantial expenditures from the initial phases of drilling until production is
possible, during which time the economic feasibility of production may change.
No assurance can be given that the exploration programs will result in the
replacement of current production with new reserves or that the development
programs will be able to extend the life of existing mines or locate new mines.
In the event that new reserves are not developed, the Company may not be able to
sustain its current level of gold production.
COMPETITION
Because mines have limited lives based on proven and probable ore reserves,
the Company is continually seeking to replace and expand its reserves. The
Company encounters competition from other mining companies in connection with
the acquisition of properties producing or capable of producing gold and in the
recruitment and retention of qualified employees. As a result of this
competition, some of which is with companies having significantly greater
financial resources, the Company may be unable to acquire attractive mining
properties on terms it considers acceptable. In addition, there are a number of
uncertainties inherent in any program relating to the location of economic ore
reserves, the development of appropriate metallurgical processes, the receipt of
necessary governmental permits and the construction of mining and processing
facilities and the appropriate financing thereof. Accordingly, there can be no
assurance that the Company's programs will yield new reserves to replace mined
reserves and expand current reserves. The Indenture contains limitations on the
ability of the Company to acquire additional properties. See "Description of
Exchange Notes -- Certain Covenants -- Limitation on Indebtedness," and "--
Limitation on Restricted Payments."
ABORIGINAL LAND CLAIMS
Aboriginal groups have made claims in Canada asserting aboriginal rights to
land located within their "traditional territory" or resource tenure. In order
to pursue a claim, an aboriginal group must notify the responsible federal,
provincial or territorial government where the land is located. Each
jurisdiction has one or more procedures in place to review and resolve any such
claim, failing which judicial consideration may prevail. No government has
advised the Company to date of any formal title claim or award that would
include the Company's properties. There is, however, no assurance that future
claims negotiations or judgments will not affect the Company's properties. If
the Company's properties are included in any future negotiated settlements or
awards, there can be no assurance that the Company would receive adequate
compensation.
20
<PAGE> 27
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act or any state
securities laws and, unless so registered and to the extent not exchanged for
the Exchange Notes, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws.
The Exchange Notes will constitute a new class of securities with no
established trading market. Although the Exchange Notes will generally be
permitted to be resold or otherwise transferred by nonaffiliates of the Company
without compliance with the registration requirements under the Securities Act,
the Company does not intend to list the Exchange Notes on any national
securities exchange or to seek admission thereof to trading in the Nasdaq
National Market. BT Securities Corporation and Scotia Capital Markets (USA) Inc.
(the "Initial Purchasers") have advised the Company that they currently intend
to make a market in the Exchange Notes. The Initial Purchasers are not obligated
to do so, however, and any market-making with respect to Exchange Notes may be
interrupted or discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Exchange
Act. See "Exchange Offer and Registration Rights." Accordingly, no assurance can
be given that an active public or other market will develop for the Exchange
Notes or as to the liquidity of the trading market for the Exchange Notes. If a
trading market does not develop or is not maintained, holders of the Exchange
Notes may experience difficulty in reselling the Exchange Notes or may be unable
to sell them at all. If a market for the Exchange Notes develops, any such
market may be discontinued at any time. If a public trading market develops for
the Exchange Notes future trading prices of such Exchange Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's financial condition and results of operations, and the market for
similar notes. Depending on these and other factors, the Exchange Notes may
trade at a discount from their principal amount.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of any Change of Control
Triggering Event (as defined), which requires both a Change of Control (as
defined) and a Rating Event (as defined), the Company will be required to make
an offer (a "Change of Control Offer") to purchase all of the Exchange Notes
issued and then outstanding under the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest thereon
and Additional Interest (as defined), if any, to the date of purchase. There can
be no assurance that the Company would be able to obtain financing on
commercially reasonable terms or at all at such time, and consequently no
assurance can be given that the Company would be able to purchase any of the
Exchange Notes tendered pursuant to a Change of Control Offer. See "Description
of Exchange Notes." Clause (i) of the definition of "Change of Control" under
"Description of Exchange Notes" includes a sale, lease, exchange or other
transfer of "all or substantially all" of the assets of the Company to a person
or group of persons. There is little case law interpreting the phrase "all or
substantially all" in the context of an indenture. Because there is no precise
established definition of this phrase, the ability of a holder of Exchange Notes
to require the Company to repurchase such Notes as a result of a sale, lease,
exchange or other transfer of all or substantially all of the Company's assets
to a person or group of persons may be uncertain.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, Holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any Holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a
21
<PAGE> 28
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Notes could be
adversely affected. See "The Exchange Offer."
RESTRICTIONS ON TRANSFER
The Notes were offered and sold by the Company in a private offering exempt
from registration pursuant to the Securities Act and have been resold pursuant
to Rule 144A under the Securities Act and to a limited number of other
institutional "accredited investors" (as defined in Rule 501(a) (1), (2), (3) or
(7) under the Securities Act). As a result, the Notes may not be reoffered or
resold by purchasers except pursuant to an effective registration statement
under the Securities Act, or pursuant to an applicable exemption from such
registration, and the Notes are legended to restrict transfer as aforesaid. Each
Holder (other than any Holder who is an affiliate or promoter of the Company)
who duly exchanges Notes for Exchange Notes in the Exchange Offer will receive
Exchange Notes that are freely transferable under the Securities Act. Holders of
Notes who participate in the Exchange Offer should be aware, however, that if
they accept the Exchange Offer for the purpose of engaging in a distribution,
the Exchange Notes may not be publicly reoffered or resold without complying
with the registration and prospectus delivery requirements of the Securities
Act. As a result, each Holder of Notes accepting the Exchange Offer will be
deemed to have represented, by its acceptance of the Exchange Offer, that it
acquired the Exchange Notes in the ordinary course of business and that it is
not engaged in, and does not intend to engage in, a distribution of the Exchange
Notes. If existing Commission interpretations permitting free transferability of
the Exchange Notes following the Exchange Offer are changed prior to
consummation of the Exchange Offer, the Company will use its best efforts to
register the Notes for resale under the Securities Act. See "Prospectus Summary
- -- The Exchange Offer" and "Exchange Offer and Registration Rights."
The Notes currently may be sold pursuant to the restrictions set forth in
Rule 144A under the Securities Act or pursuant to another available exemption
under the Securities Act without registration under the Securities Act. To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for the untendered and tendered but unaccepted Notes could be adversely
affected.
22
<PAGE> 29
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
to be the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
herein by reference.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on August 12, 1996, and were
subsequently resold to qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to institutional investors that are accredited
investors in a manner exempt from registration under the Securities Act. In
connection with the Note Offering, the Company entered into the Registration
Rights Agreement, which requires, among other things, that promptly following
the Issue Date the Company and the Guarantor (i) file with the Commission a
registration statement under the Securities Act with respect to an issue of new
notes of the Company identical in all material respects (other than transfer
restrictions) to the Notes (which obligation has been satisfied by the filing of
the Registration Statement of which this Prospectus is a part), (ii) use their
best efforts to cause such registration statement to become effective under the
Securities Act and (iii) upon the effectiveness of that registration statement,
offer to the Holders of the Notes the opportunity to exchange their Notes for a
like principal amount of Exchange Notes, which would be issued without a
restrictive legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act). A copy of the Registration Rights Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part. The
term "Holder" with respect to the Exchange Offer means any person in whose name
the Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
Any Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Notes outstanding. Following the consummation of the
Exchange Offer, Holders of the Notes who did not tender their Notes generally
will not have any further registration rights under the Registration Rights
Agreement, and such Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Notes could be
adversely affected. The Notes are currently eligible for sale pursuant to Rule
144A through the PORTAL System of the National Association of Securities
Dealers, Inc. Because the Company anticipates that most Holders of Notes will
elect to exchange such Notes for Exchange Notes due to the absence of
restrictions on the resale of Exchange Notes under the Securities Act, the
Company anticipates that the liquidity of the market for any Notes remaining
after the consummation of the Exchange Offer may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time on the
Expiration Date. The Company will issue US$1,000 principal amount of Exchange
Notes in exchange for each US$1,000 principal amount of outstanding Notes
accepted in the Exchange Offer. Holders may tender some or all of their Notes
pursuant to the Exchange Offer. However, Notes may be tendered only in integral
multiples of US$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the Exchange Notes generally will not be entitled to
certain rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indenture.
Holders of Notes do not have any appraisal or dissenters' rights under the
Ontario Business Corporations Act or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange
23
<PAGE> 30
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, including Rule 14e-1
thereunder. The Exchange Offer will not necessarily be conducted in compliance
with the securities laws of the province of Ontario, Canada.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for a period of five to ten business days if the Exchange Offer
would otherwise expire during such five to ten business day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, liquidated
damages will accrue and be payable on the Notes either temporarily or
permanently. See "Exchange Offer and Registration Rights."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON EXCHANGE NOTES
The Exchange Notes will bear interest from August 12, 1996, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date to which interest on such Notes has been
paid). Accordingly, holders of Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Notes at the time of tender,
but such interest will be payable on the first Interest Payment Date after the
Expiration Date. Interest on the Exchange Notes will be payable semiannually on
each February 15 and August 15, commencing on February 15, 1997.
24
<PAGE> 31
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent so as to be received by the Exchange
Agent at the address set forth below prior to 5:00 p.m., New York City time, on
the Expiration Date. Delivery of the Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the DTC may make book-entry delivery of the Notes by causing the
DTC to transfer such Notes into the Exchange Agent's account with respect to the
Notes in accordance with the DTC's procedures for such transfer. Although
delivery of the Notes may be effected through book-entry transfer into the
Exchange Agent's account at the DTC, a Letter of Transmittal properly completed
and duly executed with any required
25
<PAGE> 32
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the DTC does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the DTC) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the DTC) and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at the
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of notes transferred
26
<PAGE> 33
by book-entry transfer, the name and number of the account at the DTC to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee register the transfer of such Notes into
the name of the person withdrawing the tender and (iv) specify the name in which
any such Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time or
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
Exchange Notes will be issued with respect thereto unless the Notes so withdrawn
are validly retendered. Any Notes which have been tendered but which are not
accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
"-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, the Company will extend the Exchange Offer for a period of
five to 10 business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
Mellon Bank, F.S.B. will act as Exchange Agent for the Exchange Offer with
respect to the Notes.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
By Registered or Certified Mail, Overnight Mail or Courier Service or in
Person by Hand:
Mellon Bank, F.S.B.
c/o Mellon Bank, N.A.
Corporate Trust Operations
2 Mellon Bank Center, Room 335
Pittsburgh, PA 15259-0001
By Facsimile:
(412) 236-2807
27
<PAGE> 34
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone, facsimile or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and pay
other registration expenses, including fees and expenses of the Trustee, filing
fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. A gain or loss, however, may be recognized due to changes in the carrying
value of the Notes or the Exchange Notes during an accounting period due to, for
example, fluctuations in the exchange rate for United States and Canadian
dollars (due to the fact that the Notes and Exchange Notes are denominated in
United States dollars and the value thereof is recorded on the Company's books
in Canadian dollars). The expenses of the Exchange Offer will be amortized over
the term of the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder of such Exchange
Notes (other than any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holder does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the SEC enunciated
in Exxon Capital Holdings Corporation (available April 13, 1989) and Morgan
Stanley & Co., Incorporated (available June 5, 1991), or similar no-action
letters, but rather must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K of the Securities Act. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Notes, where
such Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, may be a statutory underwriter and must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the
registered Holder, (ii) neither the Holder nor any such other person has an
arrangement or understanding with any person to
28
<PAGE> 35
participate in the distribution of such Exchange Notes and (iii) the Holder and
such other person acknowledge that if they participate in the Exchange Offer for
the purpose of distributing the Exchange Notes (a) they must, in the absence of
an exemption therefrom, comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes and cannot rely on the no-action letters referenced above and (b) failure
to comply with such requirements in such instance could result in such Holder or
such other person incurring liability under the Securities Act for which such
Holder or such other person is not indemnified by the Company. Further, by
tendering in the Exchange Offer, each Holder and such other person that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company will represent to the Company that such Holder and such other person
understand and acknowledge that the Exchange Notes may not be offered for
resale, resold or otherwise transferred by that Holder or such other person
without registration under the Securities Act or an exemption therefrom.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act, to a qualified institutional buyer within the meaning of Rule
144A under the Securities Act in a transaction meeting the requirements of Rule
144A, (iv) outside the United States to a foreign person pursuant to the
exemption from the registration requirements of the Securities Act provided by
Regulation S thereunder, (v) pursuant to an exemption from registration under
the Securities Act provided by Rule 144 thereunder (if available) or (vi) to an
institutional accredited investor in a transaction exempt from the registration
requirements of the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States or other
jurisdiction. See "Risk Factors -- Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such State.
29
<PAGE> 36
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
Note should consult his, her or its own tax advisor as to the particular tax
consequences of exchanging such Holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for United
States federal income tax purposes. Consequently, no gain or loss would be
recognized by Holders of the Notes upon receipt of the Exchange Notes, and
ownership of the Exchange Notes will be considered a continuation of ownership
of the Notes. For purposes of determining gain or loss upon the subsequent sale
or exchange of the Exchange Notes, a Holder's basis in the Exchange Notes should
be the same as such Holder's basis in the Notes exchanged therefor. A Holder's
holding period for the Exchange Notes should include the Holder's holding period
for the Notes exchanged therefor. The issue price, original issue discount
inclusion and other tax characteristics of the Exchange Notes should be
identical to the issue price, original issue discount inclusion and other tax
characteristics of the Notes exchanged therefor.
See also "Certain Income Tax Considerations."
30
<PAGE> 37
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to the issuance of the Notes. The
information presented below should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this Prospectus. See "Index to
Consolidated Financial Statements."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
CDN GAAP
Cash and cash equivalents........................................ $ 14,797 $246,804
======== ========
Credit Facility(1)............................................... $ -- $ --
Long-term debt (including current portion):
11% Senior Subordinated Notes due 2006(2)...................... $ -- $239,006
Capital leases................................................. 1,991 1,991
-------- --------
Total long-term debt........................................ 1,991 240,997
-------- --------
Shareholders' equity:
Common shares.................................................. 376,316 376,316
Retained earnings.............................................. 83,643 83,643
-------- --------
Total shareholders' equity.................................. 459,959 459,959
-------- --------
Total capitalization............................................. $461,950 $700,956
======== ========
US GAAP
Total shareholders' equity....................................... $446,355 $446,355
Total capitalization............................................. 448,346 687,352
</TABLE>
- ---------------
(1) The Company entered into the Credit Facility on February 15, 1996. As of
August 27, 1996, $1,940,000 was outstanding under the Credit Facility in the
form of letters of credit issued thereunder. The Credit Facility matures on
February 14, 1997 and is renewable annually at the option of the lender. See
"Description of Credit Facility."
(2) Reflects the full face amount of the Notes converted to Canadian dollars
based on the Noon Buying Rate on June 30, 1996 of Cdn $1.00 equals
US$0.7322.
(3) After giving effect to the issuance of the Notes.
31
<PAGE> 38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth historical consolidated financial and
operating data for the Company as of and for the periods noted. The consolidated
balance sheet and income statement data as of and for the years ended December
31, 1991 through 1995 has been derived from the audited consolidated financial
statements of Royal Oak. The consolidated balance sheet and income statement
data as of and for the six months ended June 30, 1995 and 1996 has been derived
from the unaudited financial statements of Royal Oak which, in the opinion of
management of the Company, contain all adjustments necessary for a fair
presentation of this information. The historical data with respect to the
results of operations for the six months ended June 30, 1996 should not be
regarded as necessarily indicative of the results that may be expected for the
entire year. The Operating Data presented below has been derived from the
Company's accounting and other records. The Consolidated Financial Statements
have been prepared in accordance with Cdn GAAP. These principles are also in
conformity, in all material respects, with US GAAP except as described in Note
13 of the notes to the Annual Consolidated Financial Statements. The following
table should be read together with the Consolidated Financial Statements
(including the notes thereto) appearing elsewhere in this Prospectus. See "Index
to Consolidated Financial Statements."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
-------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
INCOME STATEMENT DATA:
CDN GAAP
Revenue................................... $ 96,433 $113,673 $135,326 $162,111 $208,311 $100,839 $105,846
Operating expenses........................ 72,581 89,874 110,258 117,790 182,214 89,714 81,383
Royalties and marketing expenses.......... 830 881 1,248 2,490 2,535 1,108 1,408
Administrative and corporate expenses..... 3,500 4,082 3,411 5,271 8,549 4,945 4,861
Depreciation and amortization............. 4,966 4,275 4,998 8,525 14,895 6,270 11,366
Exploration expenses(1)................... -- -- -- -- -- 254 2,409
Provision for (recovery of) loss on
foreign currency contracts.............. -- -- -- 15,267 (5,244) (3,772) (976)
------- -------- -------- -------- -------- -------- --------
Operating income (loss)................... 14,556 14,561 15,411 12,768 5,362 2,320 5,395
Interest and other income, net(2)......... 1,314 638 2,289 7,074 20,902 12,135 2,462
Other(1).................................. (7,124) (3,654) (1,862) 2,960 (1,553) (235) (23)
Provision for income taxes................ (105) (108) (215) (636) (1,542) (969) (2,729)
------- -------- -------- -------- -------- -------- --------
Net income................................ $ 8,641 $ 11,437 $ 15,623 $ 22,166 $ 23,169 $ 13,251 $ 5,105
======= ======== ======== ======== ======== ======== ========
US GAAP(3)
Net income................................ $ 8,226 $ 9,562 $ 13,940 $ 19,978 $ 17,177 $ 9,762 $ 3,654
OPERATING DATA:
Recovered gold ounces..................... 194,952 245,469 276,320 318,171 371,151 184,206 179,643
Average spot gold price per ounce (US$)... 362 344 360 384 384 383 395
Average realized gold price per ounce
(US$)................................... 432 383 380 428 409 394 431
Cash cost per ounce (US$)................. 327 304 311 311 358 351 331
Total cost per ounce (US$)(4)............. 367 346 340 353 410 400 413
Total cost excluding depreciation and
amortization (US$)...................... 345 332 326 333 381 375 367
OTHER DATA:
EBITDA(5)................................. $ 19,522 $ 18,836 $ 20,409 $ 21,293 $ 20,257 $ 8,590 $ 16,761
Net additions to property, plant and
equipment(6)............................ 6,513 19,889 26,803 52,461 66,018 22,943 255,728
Ratio of earnings to fixed charges........ 4.43 N.A. 163.93 376.02 84.85 150.32 92.57
BALANCE SHEET DATA (AT PERIOD END):
CDN GAAP
Cash and cash equivalents................. $ 4,935 $ 12,719 $ 79,644 $148,524 $139,410 $164,294 $ 14,797
Property, plant and equipment............. 58,200 77,547 99,218 137,954 191,381 154,824 435,690
Total assets.............................. 74,484 111,670 217,226 384,074 428,963 421,312 580,118
Long-term debt(2)(7)...................... -- -- -- -- -- -- --
Shareholders' equity...................... 49,273 81,935 185,362 302,731 340,495 330,556 459,959
</TABLE>
32
<PAGE> 39
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND RATIO)
US GAAP(3)
Total assets.............................. $ 73,319 $108,630 $213,253 $377,913 $416,810 $411,662 $646,636
Shareholders' equity...................... 48,533 79,320 181,389 296,570 328,342 320,906 446,355
</TABLE>
- ---------------
(1) Prior to January 1, 1996, the Company's exploration expenses were not
material and were classified under "Other."
(2) The Company historically has had no material long-term debt and,
accordingly, has had no material interest expense. As a result of the
Offering, the Company would have had, as of June 30, 1996, annual interest
expense of approximately US$19.25 million (or approximately Cdn $26.3
million based upon the exchange rate as of June 30, 1996) associated with
the Notes.
(3) Under US GAAP (i) depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas
under Cdn GAAP, total mineral inventory may be used in the calculations; and
(ii) for defined benefit pension plans, the projected benefit obligation
should be discounted using interest rates at which the obligation could be
effectively settled whereas under Cdn GAAP, the projected benefit obligation
may be discounted using interest rates which are consistent with long-term
assumptions. See Note 13 to the Annual Consolidated Financial Statements.
(4) Total cost per ounce includes depreciation and amortization.
(5) "EBITDA," as used in this Prospectus, means operating income plus
depreciation and amortization. EBITDA differs from the definition of
Consolidated EBITDA under the Indenture. See "Description of Exchange
Notes." EBITDA is not a measure of financial performance under US GAAP.
Accordingly, it does not represent net income or cash flows from operations
as defined by US GAAP and does not necessarily indicate that cash flows will
be sufficient to fund cash needs. As a result, EBITDA should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flows as a measure of liquidity.
(6) Net additions to property, plant and equipment for the six months ended June
30, 1996 include investments in Kemess capital assets of $202 million
through the acquisitions of Geddes Resources Limited, El Condor Resources
Ltd. and St. Philips Resources Inc. and Duport capital assets through the
acquisition of Consolidated Professor Mines Limited.
(7) As of June 30, 1996, the Company had capital lease obligations in the amount
of $1,991,000.
33
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the information
contained in Royal Oak's Consolidated Financial Statements (including the notes
thereto) appearing elsewhere in the Prospectus. See "Index to Consolidated
Financial Statements."
GENERAL
The majority of the Company's revenue is derived from gold sales. Revenue
varies with the volume of gold produced and the price received for that
production. Set out below is a table indicating the impact on revenue of
increased production and of prices for the years 1993 through 1995.
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Impact on revenue due to:
Increased Production...................................... $15,126 $ 750 $52,480
Increased (Decreased) Prices(1)........................... 6,527 26,035 (6,280)
------- ------- -------
Incremental revenue from prior year......................... $21,653 $26,785 $46,200
======= ======= =======
</TABLE>
- ---------------
(1) Based upon realized prices and includes impact of changes in relative
exchange rates.
In 1995, a US$10 per ounce increase in the gold price would have increased
revenue for the year ended December 31, 1995 by approximately $5.1 million.
Each year since the acquisition of the Pamour and Giant Yellowknife Groups
in November 1990, the Company has increased its gold production, mineral
inventory, revenue, net income, and total assets through a number of
acquisitions and development of several properties. This growth has been
reflected in the market capitalization of the Company which has increased
significantly, from $90 million at the end of 1991 to approximately $690 million
as of June 30, 1996.
Gold production has increased since 1990 primarily through the acquisition
of the Hope Brook Mine and the Colomac Mine. Gold production is currently
expected to increase from 371,151 ounces in 1995 to approximately 415,000 ounces
in 1996. This increase is expected to come from increased production at the
Colomac Mine and the first full year of production at the Nighthawk Mine. Future
increases in production are expected to come from the Pamour Mine open pit
expansion and the Development Projects.
The majority of the Company's expenses consist of operating costs
associated with recovering gold from the Company's mines. Operating costs
include mining and processing costs for gold. The most significant of these
costs are labour, consumable materials, repairs of machinery and equipment, fuel
and utilities. The Company's average cash costs increased from US$311 per ounce
in 1994 to US$358 per ounce in 1995 due primarily to a change in mining methods
at the Pamour Mine and start-up costs at the Colomac Mill. The Company expects
that average cash costs will decrease to approximately US$315 per ounce in 1996
with the implementation of more effective mining methods and the full year's
operation of the Colomac Mill. See "Business -- Operating Strategy."
34
<PAGE> 41
RESULTS OF OPERATIONS
The following table indicates the Company's expenses and income as a
percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenue................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses........................ 81.4 72.7 87.5 89.0 76.9
Royalties and marketing expenses.......... 0.9 1.5 1.2 1.1 1.3
Administrative and corporate expenses..... 2.5 3.2 4.1 4.9 4.6
Depreciation and amortization............. 3.7 5.3 7.1 6.2 10.7
Exploration expense(1).................... -- -- -- 0.2 2.3
Provision for (recovery of) loss on
foreign currency contracts.............. -- 9.4 (2.5) (3.7) (0.9)
----- ---- - ---- - ---- - ---- -
Operating income (loss)................... 11.5 7.9 2.6 2.3 5.1
Interest and other income, net(2)......... 1.6 4.4 10.0 12.0 2.3
Other(1).................................. (1.4) 1.8 (0.8) (0.2) --
Provision for income taxes................ (0.2) (0.4) (0.7) (1.0) (2.6)
----- ---- - ---- - ---- - ---- -
Net income................................ 11.5% 13.7% 11.1% 13.1% 4.8%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Prior to January 1, 1996, the Company's exploration expenses were not
material and were classified under "Other."
(2) The Company historically has had no material long-term debt and,
accordingly, has had no material interest expense. As a result of the
Offering, the Company as of June 30, 1996 would have had annual interest
expense of approximately US$19.25 million (or approximately Cdn$26.3 million
based upon the exchange rate as of June 30, 1996) associated with the Notes.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenue from the sale of gold for the three months ended June 30, 1996
increased 3% to $54.8 million compared to the same period of 1995. In the second
quarter of 1996, a 9% increase in the average realized price of US$439 per ounce
of gold compared to US$401 in the same period in 1995 accounted for this
increase. However, this increase was partially offset by a 6% decrease in
production to 91,447 ounces (compared to 97,246 ounces in the second quarter of
1995) and a strengthening of the Canadian dollar from US$0.729 in the second
quarter of 1995 to US$0.733 in the same period of 1996 which reduced revenue by
approximately $0.2 million in the second quarter of 1996 compared to the same
period in 1995.
Revenue from the sale of gold for the six months ended June 30, 1996
increased 5% to $105.8 million compared to the same period of 1995. In the
year-to-date, a 9% increase in the average realized price of US$431 per ounce of
gold compared to US$394 in the same period in 1995 accounted for this increase.
However, this increase was partially offset by a 2% decrease in production to
179,643 ounces (compared to 184,206 ounces in the year-to-date 1995) and a
strengthening of the Canadian dollar from US$0.720 in the six months ended June
30, 1995 to US$0.732 in the same period of 1996 which reduced revenue by
approximately $1.6 million in the first six months of 1996 compared to the same
period in 1995.
The increase in production at the Company's Ontario operations for the
three months and the six months ended June 30, 1996 is mainly attributable to
the production from the Nighthawk Mine which commenced operation in late 1995.
The decrease in production at the Company's Newfoundland operations for the
three months and the six months ended June 30, 1996 resulted from the fact that
the Hope Brook Mill was temporarily shut down in March and April, as planned.
Mining operations continued during this period and ore was stockpiled. This
shutdown not only enabled the Company to reduce operating costs but also has
allowed the mill to operate more efficiently for the balance of 1996. The Hope
Brook Mill resumed operations on May 1 and all ore stockpiled during the
shutdown is expected to be milled by the end of 1996.
35
<PAGE> 42
Operating costs decreased 14% from $45.7 million in the second quarter of
1995 to $39.4 million in the same period in 1996. Operating costs decreased 9%
on a year-to-date basis from $89.7 million for the six months ended June 30,
1995 to $81.4 million for the same period in 1996. The decreases were mainly
attributable to the shutdown of the Hope Brook Mill in the months of March and
April 1996. Operations recommenced on May 1, 1996. Mining costs incurred during
the planned shutdown at the Hope Brook Mine have been deferred and will be
charged to operating costs as the ore mined during the shutdown is milled during
the balance of 1996.
Cash operating costs on a per ounce basis decreased 8% from US$342 in the
second quarter of 1995 to US$315 in the second quarter of 1996. For the
year-to-date, the decrease was 6% from US$351 in the second quarter of 1995 to
US$331 in the second quarter of 1996. These decreases reflect the cost controls
implemented during 1996 and steps taken to reduce the average cash operating
cost per ounce.
Royalties and marketing expenses remained relatively constant for the
second quarter. However, on a year-to-date basis, these expenses have increased
by $0.3 million mainly due to royalties on production from the Nighthawk Mine
where substantial mining began in 1996.
Administrative and corporate expenses decreased to $2.7 million in the
second quarter of 1996 from $3.3 million in the same period in 1995. This
decrease was attributable to timing differences as certain expenses were
incurred in the first quarter of 1996 whereas those similar expenses were
incurred in the second quarter of 1995. For the six months ended June 30, 1996
and 1995, respectively, the administrative and corporate expenses were not
significantly different. This reflects a decrease in corporate expenses as a
result of cost controls, offset by an increase in capital taxes pursuant to the
exercise of warrants and as a result of the issuance of shares of the Company in
connection with the acquisitions of Geddes Resources Limited ("Geddes") and El
Condor Resources Ltd. ("El Condor").
Depreciation and amortization increased from $3.0 million in the second
quarter of 1995 to $6.1 million in the same period in 1996 and from $6.3 million
in the first six months of 1995 to $11.4 million in the same period in 1996.
Increases in capital assets and deferred mining costs over the past several
years, combined with adjustments to mineral inventory on specific properties
have led to these increases. Depreciation and amortization of the Nighthawk Mine
assets and deferred development costs commenced in early 1996.
Exploration expenses increased from $0.1 million in the second quarter of
1995 to $1.4 million in the same period in 1996 and from $0.3 million in the
first six months of 1995 to $2.4 million in the same period in 1996. The Company
has been evaluating its exploration projects as part of its overall strategic
plan and to the extent that certain exploration costs are determined not to be
recoverable due to insufficient or lack of expected mineralized material or
otherwise, exploration costs have been charged to operations.
Recovery of loss on foreign currency contracts resulted in a recovery of
$0.2 million with respect to these contracts for the three months ended June 30,
1996 as a result of the strengthening of the Canadian dollar. The comparable
recovery in the same period of 1995 was $3.8 million which reflected a
substantial strengthening of the Canadian dollar compared to the United States
dollar for that period. For the six months ended June 30, 1996 and 1995,
respectively, the recovery balances were $1.0 million and $3.8 million. The
Company's hedging strategies for foreign currency attempt to protect the Company
from exchange rate fluctuations.
Operating income in the second quarter of 1996 increased to $4.5 million
from $4.2 million in the second quarter of 1995, and in the first six months of
1996 increased to $5.4 million from $2.3 million in the first six months of
1995.
Interest and other income decreased from $6.4 million in the second quarter
of 1995 to $1.1 million in the same period in 1996. Interest and other income
for the six month periods ended June 30, 1995 and 1996, respectively, were $12.1
million and $2.5 million. These decreases reflect the reduction of cash balances
due to the acquisitions of Geddes, El Condor, St. Philips Resources Inc. ("St.
Philips") and Consolidated Professor Mines Limited ("Consolidated Professor"),
and capital expenditures in the last 12 months which, in total, have reduced
investment income in 1996.
36
<PAGE> 43
Income taxes increased by $1.1 million from $0.7 million in the second
quarter of 1995 to $1.8 million in the same period in 1996 while the increase
was $1.7 million from $1.0 million in the six months ended June 30, 1995 to $2.7
million in the same period in 1996. The 1996 balances include a provision for
deferred taxes of $1.5 million and $2.0 million for the three months and the six
months ended June 30, 1996, respectively. No such provision for deferred taxes
was required for 1995 because the Company had unrecognized deferred tax assets.
However, the balance of the Company's unrecognized deferred tax assets has
virtually been utilized such that an accrual for deferred income taxes is
necessary for 1996.
Net income for the second quarter of 1996 decreased by $6.0 million, or
62%, to $3.7 million from net income of $9.7 million during the same period in
1995. Net income for the six months ended June 30, 1996 decreased by $8.2
million, or 62%, to $5.1 million from net income of $13.3 million during the
same period in 1995. Significantly lower investment income after the completion
of the purchases of Geddes, El Condor, St. Philips and Consolidated Professor,
combined with a reduction of the Company's unrecognized deferred tax assets,
which have necessitated the accrual of deferred income taxes in 1996, were
mainly responsible for the lower net income in the second quarter and the
year-to-date.
1995 Compared to 1994
Revenue from gold sales of 371,151 ounces was $208.3 million in 1995, which
was 28% higher than revenue of $162.1 million in 1994. Production in 1994
included 40,568 ounces from the Colomac Mine. Revenue from this production was
netted against start-up costs which were deferred as pre-production costs in
1994 because the mine had not reached commercial levels of production by the end
of 1994. Revenue in 1995 includes a full year of production from the Colomac
Mine of 117,646 ounces. The increase in production at Colomac in 1995 from the
level in 1994 was offset by 24,098 fewer ounces of production at three of the
Company's other operating mines (i.e. Giant, Pamour and Hope Brook). The
Company's average realized price decreased to US$409 per ounce in 1995 as
compared to US$428 per ounce in 1994. In 1995, the Canadian/United States dollar
exchange rate adversely affected the Company's revenue whereas in 1994, the
exchange rate positively affected revenues.
Operating costs increased to $182.2 million in 1995 from $117.8 million in
1994. The inclusion in 1995 of the Colomac Mine operating costs contributed
approximately $61.5 million to this increase. In 1994, because the Colomac Mill
had not reached commercial levels of production, start-up costs net of revenue
generated from gold sales were deferred to pre-production costs. Operating costs
at both the Giant and Pamour Mines increased slightly while the operating cost
at the Hope Brook Mine decreased in 1995. Operating costs include mining and
processing costs for gold. The most significant of these costs are labour,
consumable materials, repairs of machinery and equipment, fuel and utilities.
The costs of transporting personnel and freight to the Colomac and Hope Brook
Mines are also significant costs for those operations. Average cash costs
increased by 15% to US$358 per ounce in 1995 from US$311 per ounce in 1994. The
increase reflected a change in mining methods at the Pamour Mine which resulted
in lower mill feed grades and tonnages mined and milled, and costs at Colomac
that were significantly above budget as a result of overcoming the difficulties
associated with the start-up of the mill. These problems at both operations have
been addressed in 1996.
Royalties and marketing expenses increased marginally in 1995 as a result
of increased marketing costs related to increased production at the Colomac
Mine. Should the average selling price of gold exceed US$400 per ounce in 1996,
an additional $1.0 million in royalties will be payable under the terms of the
Colomac Mine asset purchase agreement.
Administrative and corporate expenses increased 62% to $8.5 million in 1995
from $5.3 million in 1994. The corporate office relocated from Vancouver,
British Columbia to Kirkland, Washington in March 1995. Costs associated with
this relocation were approximately $0.5 million. Salary and benefit costs
increased as a number of personnel were added in both 1994 and 1995 to
strengthen the corporate office and position the Company for future growth.
Travel, telephone and professional fees increased in 1995 as the Company
examined various acquisition and merger opportunities and dealt with bringing
cash operating costs under control. In 1994, much of the travel costs and
professional fees related to the bid to acquire Lac Minerals Ltd. ("Lac
Minerals") were netted against the gain on sale of securities when the shares
acquired by the Company
37
<PAGE> 44
in connection with the bid were sold. Corporate expenses are expected to
decrease in 1996 as many of the one-time costs associated with moving the
corporate office in 1995 will be eliminated.
Depreciation and amortization increased in 1995 to $14.9 million (US$29.24
per ounce) from $8.5 million (US$22.48 per ounce) in 1994. Increases in capital
assets and deferred mining costs over the past several years, combined with
adjustments to mining reserves on specific properties, have led to these
increases. Depreciation and amortization are provided on the unit-of-production
method. Higher production in 1995 associated with the Colomac Mine increased
depreciation and amortization by $7.4 million in 1995, while lower production at
the other three mines in 1995 reduced the difference to $6.4 million.
Provision for (recovery of) loss on foreign currency contracts resulted in
a recovery of $5.2 million in 1995 as compared to a loss of $15.3 million in
1994 as a result of the strengthening of the Canadian dollar in 1995 (see below
under "1994 Compared to 1993" for a discussion of the 1994 loss). These
contracts were associated with the Company's contractual obligation to deliver
future gold production at specified prices in United States dollars. The
Company's hedging strategies for foreign currency attempt to protect the Company
from exchange rate fluctuations.
Operating income in 1995 was $5.4 million as compared to $12.8 million in
1994 for the reasons described above.
Interest and other income increased 195% to $20.9 million in 1995 from $7.1
million in 1994. (See Note 9 to the Annual Consolidated Financial Statements for
a breakdown and comparison of these amounts.) Interest income was significantly
higher in 1995 as a result of the Company's high cash balances which increased
due to a $100 million equity issue in 1994. Interest income in 1995 includes
$1.3 million of interest received on a refund of 1988 Ontario mining taxes.
Surplus cash is primarily invested in highly liquid, low risk financial
instruments with relatively short maturities. This strategy gives the Company
maximum flexibility should funds be needed for acquisitions or other purposes.
The gain on sale of securities was $8.3 million in 1995 compared to $1.2 million
in 1994. In 1994, the Company acquired approximately 1.83 million shares of
Barrick Gold Corporation ("Barrick Gold") in exchange for shares of Lac Minerals
which it tendered to the Barrick Gold bid for Lac Minerals. While the Company
made a partial disposition of the Barrick Gold shares in 1994, it sold the
remaining 978,000 Barrick Gold shares that it held during 1995. In 1995, the
Company established an acquisition team to evaluate many opportunities in North
America and overseas. Consistent with the approach taken in 1994 when the
Company bid for Lac Minerals, the Company purchased shares in certain companies
to establish an equity position prior to holding discussions with management
regarding a merger or takeover. These positions were subsequently sold when
discussions and negotiations with such companies were terminated, resulting in
gains on sale of securities. Other income in 1995 includes a $2.0 million refund
of 1988 Ontario mining taxes previously paid. Other income in 1994 includes
dividends and option premiums earned on the shares of both Lac Minerals and
Barrick Gold.
Income taxes for 1995 were minimal. The Company has tax deductions,
including earned depletion and mining exploration depletion, available to be
utilized in future years totaling $183 million. Because of past reorganizations
undertaken by the Company, utilization of some of these tax deductions may be
restricted. The Company does not expect to pay cash income taxes or mining taxes
in Canada for at least the next two years. However, the Company is subject to
capital taxes and minimum taxes in certain Canadian jurisdictions. The Company's
United States operations are taxable, however, the total of 1996 United States
taxes is not expected to be material. The balance of the Company's unrecognized
deferred income tax assets is decreasing. Accordingly, the Company expects to
report a deferred income tax provision in 1996 which will increase the Company's
effective tax rate above the 6% level in 1995.
Net income for the year ended December 31, 1995 increased 5% to $23.2
million on revenues of $208.3 million. This compares with $22.2 million on
revenues of $162.1 million in 1994.
1994 Compared to 1993
Revenue in 1994 increased 19.8% to $162.1 million from $135.3 million in
1993. This increase was primarily the result of higher gold production,
favorable exchange rates and the Company's hedging program.
38
<PAGE> 45
Gold production increased 15.1% from 276,320 ounces in 1993 to 318,171 ounces in
1994. Gold production of 40,568 ounces at the Colomac Mine, which began
production in July 1994, was primarily responsible for this increase. All
revenue from gold production at the Colomac Mine in 1994 was netted against
start-up costs and deferred as pre-production cost. The Company's hedging
strategy allowed it to realize an average gold price of US$428 per ounce in
1994, the highest in the industry, up from US$380 per ounce in 1993. The average
spot price in 1994 was US$384 per ounce. The US$44 premium contributed $16.5
million to revenue.
Operating costs in 1994 increased 6.8% to $117.8 million from $110.3
million in 1993, but the average cost per ounce remained at US$311. The 15.1%
increase in gold production offset utility rate increases at the Giant Mine and
increased labour rates, which are tied to gold prices, at the Giant and Hope
Brook Mines.
Royalties and marketing expenses doubled in 1994 to $2.5 million from $1.2
million in 1993 primarily as a result of royalty increases at the Hope Brook
Mine. Under the terms of the Hope Brook Mine purchase agreement, the Company is
obligated to pay an operating royalty of $1.3 million to $3.3 million annually
depending on the average price of gold when the average price exceeds US$380 per
ounce in respect of gold production from the Hope Brook Mine. Since the average
price of gold was US$384 in 1994, the Company made a $1.3 million royalty
payment in respect of the Hope Brook Mine. Obligations under this agreement
expire in 1996.
Administrative and corporate expenses in 1994 increased 54.5% to $5.3
million from $3.4 million in 1993. This increase was the result of (i) the
addition of key personnel to the corporate office in late 1993 and early 1994,
(ii) investor relations fees associated with the attempted takeover by the
Company of Lac Minerals, (iii) higher capital taxes due to the increase in
shareholders' equity and (iv) one-time costs related to the relocation of the
corporate office from Vancouver.
Depreciation and amortization in 1994 increased 70.6% to $8.5 million from
$5.0 million in 1993. The increase is primarily due to the increase in capital
assets and deferred mining costs, as well as adjustments to mining reserves on
specific properties.
Provision for (recovery of) loss on foreign currency contracts recorded by
the Company in 1994 included a $15.3 million provision for loss on foreign
currency contracts. Prior to 1994, the Company had entered into a series of
foreign currency contracts at an average exchange rate of Cdn $1.2744/US$1.00 to
hedge contractual obligations to deliver future gold production at specified
prices in United States dollars. In November 1994, the Emerging Issues Committee
of the Canadian Institute of Chartered Accountants issued an abstract
restricting the use of hedge accounting when spot deferred forward contracts
mature and are rolled forward to future periods. In view of this recommendation,
the Company adopted a conservative approach and provided for the loss on foreign
currency contracts which matured subsequent to November 1994 and prior to the
end of 1994 and as well provided for the potential future loss related to its
currency contracts by marking them to market at the end of 1994. The Company
intends to continue to roll these foreign exchange contracts forward as they
mature and will continue to mark-to-market these contracts in the future. The
effect of this provision was to adjust the book carrying value of the contracts
to Cdn $1.4028/US$1.00 as of December 31, 1994.
Gain on issuance of shares by associated company recorded by the Company in
1994 consisted of a $3.0 million gain. Mountain Minerals Co. Ltd. ("Mountain
Minerals") issued stock in 1994 which reduced the Company's equity interest from
51.1% to 41.2%. On August 12, 1996, Highwood Resources Ltd. ("Highwood"), in
which the Company has a 32% interest, acquired all of the outstanding shares of
Mountain Minerals. See "Business -- Strategic Investments."
Operating income in 1994 decreased 16.9% to $12.8 million from $15.4
million in 1993.
Interest and other income in 1994 increased to $7.1 million from $2.3
million in 1993. This increase was primarily the result of higher cash balances
resulting from equity issues in 1993 and 1994.
Income taxes were $0.6 million in 1994, up from $0.2 million in 1993. The
Company continued to pay minimal income taxes as it utilized tax deductions from
earned depletion and mining exploration depletion which it was able to carry
forward.
Net income in 1994 increased 41.9% to $22.2 million from $15.6 million in
1993.
39
<PAGE> 46
SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Company, as a Canadian company, uses Canadian dollars as the basis of
measurement and follows Cdn GAAP in reporting its financial results. The
differences in the reported results that would have resulted from using US GAAP
as opposed to Cdn GAAP are summarized in Note 13 to the Annual Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash, cash equivalents and short-term
investments of $39.7 million compared to $41.1 million at March 31, 1996 and
$142.4 million at December 31, 1995.
Operating Activities. Net cash provided by operating activities for the
second quarter of 1996 was $0.2 million compared to $6.3 million in the same
period in 1995. However, for the six months ended June 30, 1996, the net cash
used amounted to $9.5 million compared to net cash provided by operating
activities of $7.7 million in the first six months of 1995. These changes for
the second quarter and the year-to-date reflected a reduction in interest and
other income due to reduced cash balances as well as the impact of a seasonal
increase in inventory net of an increase in current liabilities which financed
much of this increase in inventory. (See Note 5 to the Unaudited Consolidated
Financial Statements). The increase in inventory and current liabilities was
attributable to the need to supply operating and maintenance materials to the
Colomac Mine site over a winter ice road, as weather conditions permit. The
change was more pronounced in 1996 compared to the prior year because management
decided to transport more supplies over the winter ice road than by airplane.
Financing Activities. Net cash provided by financing activities for the
second quarter of 1996 was $20.5 million compared to $2.3 million in the same
period in 1995. The higher cash provided in the 1996 period of $18.2 million
compared to 1995 was mainly the result of the early settlement of forward
contracts which the Company had at December 31, 1995. For the six months ended
June 30, net cash provided in 1996 amounted to $141.9 million compared to $21.1
million in 1995. This higher cash provided in 1996 resulted mainly from the
issuance of share capital which generated proceeds of $114.0 million and the
above-noted settlement of forward contracts in the second quarter. The issuance
of shares was part of the consideration for the acquisition of the Kemess
property. (See Note 8 to the Unaudited Consolidated Financial Statements.)
Investing Activities. Net cash used in investing activities for the second
quarter of 1996 was $22.0 million compared to $14.4 million in the same period
in 1995. The higher use of cash in the 1996 period primarily reflected a higher
investment in property, plant and equipment at the Company's current mines and
development projects including $1.1 million for mining equipment related to the
Pamour Mine open pit expansion, $6.0 million for the advanced exploration and
development of the Red Mountain property and $7.9 million for the development of
the Kemess property, among other items. The latter two investments were offset
by an initial $14.5 million compensation payment received from the British
Columbia provincial government.
Net cash used in investing activities for the six months ended June 30,
1996 was $235.1 million compared to $24.6 million in the corresponding period in
1995. The Company completed the acquisition of the Kemess property in January
1996 for aggregate consideration of approximately $202.0 million. This included
cash consideration of $87.8 million of which $26.9 million was incurred in prior
periods in respect of open market purchases of shares of Geddes, El Condor and
St. Philips. (See Note 8 to the Unaudited Consolidated Financial Statements.) In
addition, during the second quarter of 1996, the Company completed the
acquisition of all of the shares of Consolidated Professor for total
consideration of approximately $16.2 million. (See Note 9 to the Unaudited
Consolidated Financial Statements.) For the six months ended June 30, 1996, the
Company had also invested $37.9 million in property, plant and equipment at its
various mines and development projects including $5.1 million for mining
equipment related to the Pamour Mine open pit expansion, $6.4 million for the
advanced exploration and development of the Red Mountain property, $9.5 million
for the development of the Kemess property and $22.6 million on mine site
maintenance capital and development. The expenditures on the Red Mountain and
Kemess properties were offset by an initial $14.5 million compensation payment
received from the British Columbia provincial government. Also during 1996,
40
<PAGE> 47
the Company made $6.3 million of additional investments in Mountain Minerals and
Asia Minerals Corp. ("Asia Minerals"), two strategic long-term investments. Asia
Minerals has recently completed a private placement offering, the proceeds of
which will provide funds to allow the company to pursue its ventures in China.
Capital Expenditures. The Company currently expects to spend $129 million
for capital expenditures in 1996, of which approximately $45 million has been or
is expected to be funded by the British Columbia provincial government.
Approximately $102 million of the total will be spent on the Development
Projects. See "Business -- Development Projects." The balance of the budget will
be used for exploration and sustaining capital for the Company's existing
operations.
The Company expects that the approximately US$170.6 million of proceeds
received from the Offering, together with its current cash position, amounts
available under the Credit Facility, vendor financing, compensation from the
British Columbia provincial government and its investment and economic
assistance package (see "Business -- Development Projects -- Kemess South") and
the cash flow from existing operations will be sufficient to fund the Company's
capital expenditure and exploration programs and ongoing operations until 1998,
when the Kemess South Project is expected to be brought into production and to
generate sufficient cash flow to fund future growth.
41
<PAGE> 48
BUSINESS
THE COMPANY
Royal Oak is a major North American gold mining company which, together
with its predecessors, has produced in excess of 50 million ounces of gold over
a 60-year period. The Company, which owns and operates five producing gold
mines, is in the process of expanding one producing mine and is developing four
major new projects. The Company has extensive land positions in Canada covering
approximately 704,000 acres, as well as over 7,000 acres in the United States,
which provide it with the opportunity to expand its reserves through focused
exploration and development. As of and for the fiscal year ending December 31,
1995, Royal Oak had approximately 9.8 million ounces of mineable gold reserves
and produced 371,151 ounces of gold.
The Company's five producing gold mines consist of the Colomac and Giant
Mines in the Northwest Territories, the Pamour and Nighthawk Mines in Ontario
and the Hope Brook Mine in Newfoundland. Through acquisitions, exploration and
the implementation of more advanced and efficient mining methods, the Company
has increased its annual production by a compounded annual growth rate of 17.5%
since 1991. The Company conducts a focused exploration program to develop
additional mineable gold reserves in close proximity to its existing mines in
order to maximize the utilization of its processing facilities and to increase
processing efficiencies. In 1995, the Company's exploration efforts resulted in
the addition of approximately 2.2 million ounces of mineable gold reserves to
its existing reserve base at a cost of approximately $6.95 per ounce. A
significant part of this exploration program was focused on the Pamour Mine open
pit expansion which is expected to contribute approximately 60,000 ounces of
gold annually when production commences in the first half of 1998.
As of June 30, 1996, the Company employed 1,461 people, of which 937 are
represented by one of two unions. The Company's principal executive offices are
located at 5501 Lakeview Drive, Kirkland, Washington 98033, and its telephone
number is (206) 822-8992.
MINING PROCESS
The business of gold mining is essentially divided into four phases:
exploration, development, production and reclamation. During the exploration
phase, geologists search for indications of mineralization. Quite often, large
areas of land must be examined. Consequently, geologists rely on such general
techniques as the review of geological maps, the interpretation of satellite or
aerial surveys and the review of historical mining data in order to search for
possible indications of mineralization. Once an area of interest has been
identified, surface samples are taken and analyzed for the presence of anomalous
levels of mineralization. Trenches are often dug in order to take sub-surface
samples and better determine the geological structure. The final step in the
identification of a mineralized body involves drilling of the identified targets
by either reverse circulation or diamond core drills.
Before proceeding further, a determination must be made as to whether the
mineralization represents an economic ore body. To accomplish this, a
feasibility study is completed. The feasibility study involves the comprehensive
analysis of the entire proposed mine operation and ultimately determines whether
the mine will be placed into production. The results from exploratory trenching
and drilling, and in certain instances, additional work, including bulk sampling
and underground development, together with estimates of capital and operating
costs, are used to assess the economics of the deposit.
Once a decision has been made to proceed, permission is sought and the
infrastructure for the mine is constructed, including access roads, runways,
power lines, living quarters, maintenance sheds and processing facilities.
Concurrently, the mine is developed. In the case of an underground mine, access
to the ore body must be provided. This may include the sinking of shafts and/or
the development of declines, ramps or drifts. In an open pit mine, development
will generally involve the removal of non-mineralized surface rock in order to
allow access to the ore body.
Once construction and development have been completed, the mine is brought
into production with the mining of both ore and waste rock. Ore is segregated
from the waste rock and then sent to the mill for further processing in order to
extract the gold. Ore is first crushed in order to reduce the size of the larger
pieces. If
42
<PAGE> 49
the concentration of gold is high enough, the crushed ore will typically be
processed further in a mill. In the mill, crushed ore is ground to a size small
enough to ensure liberation of the gold from the associated rock, thereby
forming a fine ore slurry. A gravity circuit may be employed to remove free gold
or, if the gold is still associated with the waste rock, the gold is dissolved
in a cyanide solution, thereby allowing the waste rock to be discarded as
tailings. The goldbearing cyanide solution is then processed to remove the gold,
typically through the use of either a carbon adsorption or a zinc precipitation
circuit. Once extracted, the gold is smelted in a furnace and poured into molds,
creating dore bars. These bars are then sent to a refinery for final
purification.
If the grade of the ore is low, it may be more economical to use heap
leaching rather than milling to extract the gold. In heap leaching, the crushed
ore is placed on lined leach pads where a weak cyanide solution is applied to
the surface of the heap. The solution percolates down through the ore where it
dissolves the gold and flows to a central collection location. The gold-bearing
solution is then processed further at the mill (as described above).
Although reclamation of a mine may occur concurrently during the production
phase, it will begin in earnest once all the economic mineralization has been
extracted from the ore body. Reclamation involves the returning of land
disturbed by mining, including waste dumps, tailings ponds and pits, to
environmentally acceptable conditions and disposal of the remaining waste in an
approved manner. Reclamation may include revegetation and recontouring of the
disturbed land and removal of all buildings, machinery and equipment. If
necessary, monitoring of the site for potential leakage of acid rock drainage or
other soluble elements may be undertaken. Reclamation requirements vary greatly
according to location of the property.
HISTORY
The Company came into existence on July 23, 1991 as a result of the
amalgamation of five companies: Giant Yellowknife Mines Limited, Pamour Inc.,
Pamorex Minerals Inc., Royal Oak Resources Ltd. and Akaitcho Yellowknife Gold
Mines Limited, certain of which commenced operations approximately 60 years ago.
As a result of this amalgamation, the Company had two operating mines, Pamour
and Giant. On January 1, 1992, the Company amalgamated with its wholly-owned
subsidiary, Supercrest Mines Limited. In addition to its wholly owned
subsidiaries, the Company has a majority interest in three companies, Ronnoco
Gold Mines Limited, Northbelt Yellowknife Gold Mines Limited and Royal Eagle
Exploration Inc.
Since 1991, Royal Oak has acquired the following properties and interests:
- the Broulan property in Ontario from Balmoral Mines Ltd. (1991);
- a 20% interest in Athabaska Gold Resources Ltd. (1991-1993);
- the Hope Brook Mine in Newfoundland from Hope Brook Gold Inc. (1992);
- the Colomac Mine in the Northwest Territories (and an existing royalty
interest) from Neptune Resources Corp. (1993);
- a controlling interest in Geddes Resources Limited from Neptune
Resources Corp. (1993);
- an option in respect of the Kim-Cass property in the Northwest
Territories from Echo Bay Mines Ltd. (1994);
- the Red Mountain property in British Columbia from Barrick Gold
Corporation (1995);
- the Nicholas Lake gold property in the Northwest Territories from
Athabaska Gold Resources Ltd. (1995);
- an 89.4% interest in Ronnoco Gold Mines Limited, thereby providing the
Company with a strategic land position on the Nighthawk Lake Break in
Ontario (1995-6);
- a leasehold interest in the Copperstone property located in Arizona
(1995);
43
<PAGE> 50
- all of the outstanding shares of Geddes, El Condor and St. Philips,
thereby acquiring the Kemess property in British Columbia (1996);
- all of the outstanding shares of Consolidated Professor, thereby
acquiring the Duport property in Ontario (1996); and
- the Cape Ray gold property in Newfoundland from American Gem Corporation
and the net smelter return royalty on the property from Homestake Canada
Inc. (1996).
In addition, the Company has certain strategic investments. See "--
Strategic Investments."
OPERATING STRATEGY
In order to capitalize on its business strengths, the Company has developed
the following operating strategy to continue its growth:
- Increase Production and Reduce Average Cash Costs -- As a result of
increased production at the Colomac Mine and the first full year of
production at the Nighthawk Mine, the Company expects to increase its
gold production in 1996 to approximately 415,000 ounces from 371,151
ounces in 1995. In addition, through the successful implementation of
advanced mining technologies accompanied by cost reduction programs, the
Company believes that its average cash costs will decrease from US$358
per ounce of gold in 1995 to approximately US$315 per ounce of gold in
1996. The Company's cash costs for the six months ended June 30, 1996
were US$331 per ounce of gold compared to US$351 in the same period in
1995.
- Complete Development of Major Projects -- The Company's primary
objective with respect to the Development Projects is to efficiently
complete the development of the Kemess South Project. The Company
estimates that, upon completion, the Development Projects will generate
additional annual production of approximately 547,000 ounces of gold and
60 million pounds of copper with an average estimated cash cost of US$192
per ounce of gold and US$0.48 per pound of copper over the life of the
properties.
- Expand Reserve Base Through Focused Exploration -- The Company's
exploration program focuses on identifying additional mineable ore
reserves in close proximity to its existing mines. This strategy allows
the Company to maximize utilization of existing processing facilities, to
increase processing efficiencies and to capitalize on its extensive land
position in Canada. In 1995, the Company's $15.3 million exploration
program delineated approximately 2.2 million ounces of mineable gold
reserves. The Company has budgeted $12 million for its 1996 exploration
program.
Management believes that the gold mining industry will continue to
consolidate over the next several years and that numerous acquisition
opportunities will become available to the Company. In 1996, the Company
acquired the Kemess, Duport and Cape Ray properties. In addition to the
operating strategy described above, the Company intends to review acquisition
opportunities as they become available and will pursue selective acquisitions of
gold properties that will increase production, mineable ore reserves and cash
flow from operations while reducing average cash costs. These acquisitions could
be an important component of the Company's future growth.
OPERATING PROPERTIES
The Company produced a record 371,151 ounces of gold in 1995, an increase
of 17% from the 318,171 ounces produced in 1994. This production came from the
Company's five operating gold mining properties: the Colomac and Giant Mines in
the Northwest Territories, the Pamour and Nighthawk Mines in Ontario and the
Hope Brook Mine in Newfoundland.
Set forth on the following page is a summary, on a property-by-property
basis, of the Company's production, reserve and cost data:
44
<PAGE> 51
PRODUCTION, RESERVE & COST DATA
<TABLE>
<CAPTION>
RESERVES AT
PRODUCTION YEAR END(1)
------------------------------------------------ -----------
RECOVERED MINEABLE
ORE MILLED HEAD GRADE RECOVERY GOLD ORE
(TONS) (OUNCES/TON) (%) (OUNCES) (000S TONS)
---------- ------------ -------- --------- -----------
<S> <C> <C> <C> <C> <C>
GOLD
Gold Colomac Mine(2)
1995..................................................... 2,725,388 0.047 92.34 117,646 12,255
1994..................................................... 985,091 0.047 87.10 40,568 13,054
1993..................................................... -- -- -- -- 13,618
Giant Mine(3)
1995..................................................... 410,966 0.254 86.73 91,423 2,466
1994..................................................... 430,238 0.264 86.95 101,176 2,395
1993..................................................... 413,098 0.264 85.86 92,948 2,617
Pamour and Nighthawk Mines
1995..................................................... 1,329,846 0.067 90.20 80,120 38,471
1994..................................................... 1,350,007 0.069 89.20 85,755 9,398
1993..................................................... 1,330,722 0.072 89.60 87,346 3,993
Hope Brook Mine
1995..................................................... 1,090,250 0.090 84.43 81,962 2,448
1994..................................................... 1,227,136 0.089 82.10 90,672 3,936
1993..................................................... 1,149,071 0.101 82.48 96,026 7,300
Kemess South(4)
1995..................................................... -- -- -- -- 220,947
Kemess North(4)
1995..................................................... -- -- -- -- --
Red Mountain
1995..................................................... -- -- -- -- 3,053
Matachewan
1995..................................................... -- -- -- -- 13,253
1994..................................................... -- -- -- -- 1,400
Duport(4)
1995..................................................... -- -- -- -- 1,008
Cape Ray(4)
1995..................................................... -- -- -- -- 502
Copperstone
1995..................................................... -- -- -- -- --
Royal Oak Consolidated
1995..................................................... 5,556,450 -- -- 371,151 294,402
1994..................................................... 3,992,472 -- -- 318,171 30,183
1993..................................................... 2,892,891 -- -- 276,320 27,527
<CAPTION>
MINERALIZED MATERIAL
AT YEAR END(1)
-------------------------------------
AVERAGE MINERALIZED AVERAGE
GRADE GOLD MATERIAL GRADE GOLD
(OUNCES/TON) (OUNCES) (000S TONS) (OUNCES/TON) (OUNCES)
------------ -------- ----------- ------------ --------
<S> <C> <C> <C> <C>
GOLD
Gold Colomac Mine(2)
1995..................................................... 0.058 711,000 4,438 0.058 260,000
1994..................................................... 0.053 694,000 7,375 0.060 467,000
1993..................................................... 0.052 709,000 4,026 0.044 179,000
Giant Mine(3)
1995..................................................... 0.335 826,000 6,043 0.218 1,317,000
1994..................................................... 0.319 763,000 6,066 0.216 1,313,000
1993..................................................... 0.321 840,000 6,171 0.216 1,331,000
Pamour and Nighthawk Mines
1995..................................................... 0.046 1,771,000 19,927 0.081 1,611,000
1994..................................................... 0.067 629,000 6,223 0.086 536,000
1993..................................................... 0.097 386,000 5,615 0.090 506,000
Hope Brook Mine
1995..................................................... 0.088 215,000 3,960 0.101 399,000
1994..................................................... 0.087 343,000 4,389 0.109 477,000
1993..................................................... 0.102 746,000 2,673 0.116 311,000
Kemess South(4)
1995..................................................... 0.018 4,056,000 --(5) -- --
Kemess North(4)
1995..................................................... -- -- 173,063 0.011 1,918,000
Red Mountain
1995..................................................... 0.262 800,000 525 0.203 106,000
Matachewan
1995..................................................... 0.067 884,000 1,976 0.139 274,000
1994..................................................... 0.062 87,000 11,409 0.103 1,176,000
Duport(4)
1995..................................................... 0.380 383,000 1,007 0.320 322,000
Cape Ray(4)
1995..................................................... 0.294 147,000 -- -- --
Copperstone
1995..................................................... -- -- 2,424 0.172 417,000
Royal Oak Consolidated
1995..................................................... 0.033 9,793,000 213,363 0.031 6,625,000
1994..................................................... 0.083 2,517,000 35,822 0.111 3,969,000
1993..................................................... 0.097 2,682,000 18,485 0.126 2,327,000
<CAPTION>
COSTS
--------------------------------
OPERATING CASH DEPRECIATION
TOTAL MINERAL COST/TON COST AND
INVENTORY(1) MILLED (US$/ AMORTIZATION
(OUNCES GOLD) ($/TON) OUNCE) (US$/OUNCE)
------------- --------- ------ -----------
GOLD
Gold Colomac Mine(2)
1995..................................................... 970,000 $ 22.72 $383 $46
1994..................................................... 1,162,000 -- -- --
1993..................................................... 888,000 -- -- --
Giant Mine(3)
1995..................................................... 2,143,000 100.59 329 10
1994..................................................... 2,076,000 92.71 289 11
1993..................................................... 2,171,000 95.86 330 9
Pamour and Nighthawk Mines
1995..................................................... 3,382,000 30.39 368 20
1994..................................................... 1,165,000 28.34 327 37
1993..................................................... 892,000 26.25 310 20
Hope Brook Mine
1995..................................................... 614,000 35.35 343 32
1994..................................................... 820,000 32.30 320 23
1993..................................................... 1,057,000 31.48 292 13
Kemess South(4)
1995..................................................... 4,056,000 -- -- --
Kemess North(4)
1995..................................................... 1,918,0000 -- -- --
Red Mountain
1995..................................................... 906,000 -- -- --
Matachewan
1995..................................................... 1,159,000 -- -- --
1994..................................................... 1,263,000 -- -- --
Duport(4)
1995..................................................... 705,000 -- -- --
Cape Ray(4)
1995..................................................... 147,000 -- -- --
Copperstone
1995..................................................... 417,000 -- -- --
Royal Oak Consolidated
1995..................................................... 16,418,000 32.79 358 29
1994..................................................... 6,485,000 39.17 311 22
1993..................................................... 5,009,000 38.27 311 14
</TABLE>
<TABLE>
<CAPTION>
RESERVES AT YEAR END(1)
--------------------------
MINEABLE
ORE AVERAGE
COPPER (000S TONS) GRADE (%)
----------- ------------
<S> <C> <C>
Kemess South(4)
1995................................................................................................ 220,947 0.224
Kemess North(4)
1995................................................................................................ -- --
<CAPTION>
MINERALIZED
MATERIAL
AT YEAR
END(1)
-----------
COPPER MINERALIZED
(000S MATERIAL
COPPER POUND) (000S TONS)
-------- -----------
<S> <C> <C>
Kemess South(4)
1995................................................................................................ 989,843 --(5)
Kemess North(4)
1995................................................................................................ -- 173,063
<CAPTION>
COPPER
AVERAGE (000S
COPPER GRADE (%) POUNDS)
------------ --------
Kemess South(4)
1995................................................................................................ --
Kemess North(4)
1995................................................................................................ 0.180 623,026
<CAPTION>
COPPER
Kemess South(4)
1995................................................................................................
Kemess North(4)
1995................................................................................................
<CAPTION>
COPPER
Kemess South(4)
1995................................................................................................
Kemess North(4)
1995................................................................................................
</TABLE>
- ---------------
(1) See "Risk Factors -- Reserve Estimates; Mineral Inventory."
(2) In 1994, revenue from production at Colomac was netted against start-up
costs and deferred as pre-production costs, and 1994 and 1995 include data
with respect to the Kim-Cass property on a 100% ownership basis. See
"Business -- Operating Properties -- Colomac." As of June 30, 1996, the mine
plan at the Colomac Mine was under review by the Company's management which
could affect the reserves at such property; however, based upon information
currently available to the Company, any adjustment to such reserves is not
anticipated to be material to the Company's total mineral inventory in the
Indin Lake area that would be processed by the Colomac Mill.
(3) 1995 reserves include data with respect to the Nicholas Lake property.
(4) Property acquired in 1996.
(5) In addition, the Kemess South property includes in-situ mineralization of
approximately 151 million tons. The Company intends to further delineate
such mineralization during the development of Kemess South.
45
<PAGE> 52
COLOMAC
Background
The Colomac Mine, which is located approximately 137 miles northwest of
Yellowknife in the vicinity of Indin Lake, was acquired in April 1993 from
Neptune Resources Corp. ("Neptune") after having been shut down since June 1991.
Stripping operations at the Colomac Mine recommenced in March 1994, and the
first gold production was realized in July 1994. During 1995, the Colomac Mine
produced 117,646 ounces of gold at an average cash cost per ounce of US$383. For
the six months ended June 30, 1996, the Colomac Mine produced approximately
60,552 ounces of gold at an average cash cost per ounce of US$356. As of
December 31, 1995, the Colomac Mine and the nearby Kim-Cass deposit had mineable
ore reserves of 711,000 ounces of gold and additional mineralized material of
260,000 ounces of gold. As of June 30, 1996, the mine plan at the Colomac Mine
was under review by the Company's management which could affect the reserves at
such property; however, based upon information currently available to the
Company, any adjustment to such reserves is not anticipated to be material to
the Company's total mineral inventory in the Indin Lake area that would be
processed by the Colomac Mill. The property is accessible by winter road from
Yellowknife for approximately three months each year or on a year round basis by
chartered aircraft to a 5,000 foot airstrip at the mine site. The Kim-Cass
property, which is located 9 miles southwest of the Colomac Mine, contains two
deposits, the Main Zone and the Cass Zone, that will become feed for the Colomac
Mill. The Kim-Cass property consists of 12 leased mining claims covering
approximately 15,322 acres and will be accessible from Colomac by an all-weather
road. Currently, the Kim-Cass property is accessible by chartered aircraft from
Yellowknife or by winter road from Colomac.
Ownership
The Colomac property is comprised of four mining leases and three surface
leases which cover approximately 3,400 acres. In 1993, the Company acquired the
Colomac Mine for shares of Royal Oak worth $7,875,000 and the gross production
royalty on the Colomac property for shares of Royal Oak worth $4,000,000. The
Company holds a 100% interest in the leases. The mining leases are subject to an
operating royalty payable to Neptune. The Company is obligated to pay an
operating royalty when the average price of gold for a calendar year exceeds
US$400 per ounce. Amounts payable are $1.0 million or $2.0 million annually
depending on the average price of gold. No amount has been payable under this
royalty to date. Obligations under this agreement expire after five years of
production, which is currently expected to be reached at the end of 1999. The
net book value of the Colomac property, plant and equipment was approximately
$45.9 million as of December 31, 1995.
In 1994, the Company entered into an agreement with Echo Bay Mines Ltd.
("Echo Bay") pursuant to which Echo Bay granted the Company an option to acquire
up to a 100% interest in the Kim-Cass property, exclusive of diamond rights, by
placing the property into production within a four-year period. The Company is
obligated to incur minimum annual exploration expenses of $250,000 on the
property during the four-year earn-in period and has the right to extend the
earn-in period for consideration of $100,000 per year. Upon the Company placing
the Kim-Cass property into production, the property will be subject to a net
smelter return royalty which will be on a sliding scale based on the price of
gold. The Company has spent over $1.0 million for exploration on the property to
date, which spending satisfies the option requirements.
Mining and Milling Facilities
The Colomac Mine uses conventional open pit mining techniques. The mill,
built in 1989, is a conventional 9,300 tons per day CIP circuit with historical
recoveries of approximately 90%. The mill circuitry was modified, including
installation of a pebble crusher by-pass, in 1996 to overcome operating
difficulties and to facilitate the processing of 10,000 tons of ore per day. The
plant and equipment are generally in good to excellent condition. The design of
the open pit was carried out with computer-aided mine design software which
allows for block model generation, reserve calculation and interactive pit
design. The power for this property is diesel-generated on site.
46
<PAGE> 53
Geology
The Colomac ore body is hosted within a large quartz feldspar porphyry sill
of the Pre-Cambrian age. It was later tilted into a vertically dipping
orientation and has been named the Colomac Dyke. This intrusion was fractured
and recemented by quartz veinlets containing free gold and pyrite. The Colomac
Dyke averages 120 feet wide in the Zone 2.0 pit. It has a strike length of
approximately 7 miles. The Main Zone occurs within a package of steeply dipping
mafic pillowed volcanics. The gold occurs associated with enriched areas of
sulphides. The Cass Zone occurs within a steeply dipping mafic intrusive body.
Gold occurs associated with swarms of quartz veinlets containing minor amounts
of sulphides.
Ore Reserves
As of December 31, 1995, the Colomac operation, including its satellite
deposits, the Main and Cass Zones, had proven and probable ore reserves of
approximately 12,255,000 tons grading 0.058 ounces of gold per ton. As of June
0, 1996, the mine plan at the Colomac Mine was under review by the Company's
management which could affect the reserves at such property; however, based upon
information currently available to the Company, any adjustment to such reserves
is not anticipated to be material to the Company's total mineral inventory at
Indin Lake area that would be processed by the Colomac Mill. The cut-off grade
used in estimating these reserves of 0.030 ounces of gold per ton for the open
pit is based on current mining costs and a gold price of $517 (US$383) per
ounce. Allowances are made in these estimates for dilution and mining losses.
Ore reserves do not include allowances for losses in milling.
GIANT
Background
The Giant Mine, located approximately three miles north of Yellowknife, has
been in production continuously since 1948. The Ingraham Trail and Vee Lake Road
from Yellowknife both pass through the centre of the property. Mining is
conducted underground and there is an on-site mill. In 1995, the Giant Mine
produced 91,423 ounces of gold at an average cash cost per ounce of US$329. For
the six months ended June 30, 1996, the Giant Mine produced approximately 40,049
ounces of gold at an average cash cost per ounce of US$352. Since the
commissioning of the mill in 1948, the Giant Mine has produced in excess of
7,000,000 ounces of gold.
The Company has undertaken a number of development initiatives on
properties in the vicinity of the Giant Mine, namely the Supercrest deposit and
the Nicholas Lake property. The Company has begun rehabilitation of the
infrastructure which accesses the Supercrest ore body and which enables large
scale mining of this ore body. The higher grade mineable ore from Supercrest,
which averages 0.384 ounces of gold per ton in situ compared to 0.301 ounces of
gold per ton at Giant, is expected to have a beneficial impact on production and
cash cost of the Company beginning in the second half of 1996. The net book
value of the Giant Mine property, plant and equipment was approximately $49.9
million as of December 31, 1995.
The Nicholas Lake property, which was acquired in 1995 from Athabaska Gold
Resources Ltd., is located 60 miles north of Yellowknife. It can be accessed by
chartered aircraft from Yellowknife or by winter road. Production is expected to
commence in 1998. Ore will be mined year round, and stockpiled at site, for
shipment to the Giant Mine in Yellowknife on the winter ice road. The ore will
be processed at the Giant facility in a parallel circuit that will utilize
common infrastructure where possible, namely buildings, power and tailing ponds.
The Nicholas Lake parallel circuit is expected to operate at a capacity of 200
to 300 tons per day.
Ownership
The Company owns a 100% interest in the Giant Mine property which consists
of six mining leases covering 1,636 acres and one surface lease covering 2,243
acres.
The Company purchased a 100% interest in the Nicholas Lake property in 1995
from Athabaska Gold Resources Ltd., for $3.8 million. The Nicholas Lake property
is subject to a 1% net smelter return royalty.
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Mining and Milling Facilities
The Giant Mine currently operates underground with access provided by two
large service raises, five declines and the "C" shaft, which is the principal
operating opening for hoisting and extends to a depth of 2,124 feet. Mining is
by conventional underground mining techniques utilizing equipment to drill small
diameter holes for blasting the ore. The ore is carried to the ore dumps by
mechanized scooptrams and/or battery operated trains. Development is carried out
by conventional equipment as well as with some mechanized drill jumbos. The mill
at the Giant Mine is a 1,100 ton per day milling and refining complex. The power
source for this property is Northwest Territories Power Corp.
The Nicholas Lake ore body consists of eleven zones of mineralization.
These zones are near vertical quartz-sulphide veins. The zones have been drilled
from surface and underground at a spacing of approximately 65 feet. The ore body
is accessed by a ramp (driven in 1994) to a depth of 300 feet below surface. A
total of 750 feet of cross-cutting and silling has been conducted on two of the
major zones (including detailed mapping and sampling). Mining methods during the
production phase will be shrinkage. Access will be provided by deepening the
existing ramp as mining progresses.
The main infrastructure of the Giant Mine has been in place since 1946. An
Edwards Hearth roaster was added in 1948 and a fluid bed roaster was added in
1950. In the mid-1950s, a two-stage fluid bed roaster was added along with a
roaster gas cleaning plant. In the early 1980s, a new effluent treatment plant
was added, and in 1992 to 1994, the mill's flotation cells were replaced. As a
result of the Company's operations at the Giant Mine, there are small amounts of
sulphur dioxide and arsenic emissions, but the Company's roaster currently
operates in compliance with all existing legislation and regulations in this
regard. The Giant Mine's plant and equipment are generally in good condition.
Geology
The Giant Mine is in the Yellowknife Greenstone belt, a package of
Pre-Cambrian basic volcanic rocks. Ore bodies are hosted in shear zones within
the greenstones. Individual ore bodies are veins, quartz lenses or silicified
areas within the shear. Gold is associated with fine-grained arsenopyrite.
The Nicholas Lake deposit is a series of narrow, steeply dipping quartz
veins containing gold, arsenopyrite and other sulphides. These veins occur
within a granitic intrusive body.
Ore Reserves
As of December 31, 1995, the Yellowknife operation, including Nicholas
Lake, had remaining proven and probable ore reserves of approximately 2,466,000
tons grading 0.335 ounces of gold per ton. A cut-off grade of 0.20 ounces of
gold per ton, based on current mining costs and a gold price of $517 (US$383)
per ounce, was used in calculating these reserves. Allowances are made in these
estimates for dilution and mining losses. Ore reserves do not include allowances
for losses in milling. In some areas, such as Nicholas Lake, higher cut-off
grades were used.
PAMOUR
Background
The Pamour Mine consists of two underground and two open pit mining
operations. The Pamour Mine is located approximately 15 miles east of the City
of Timmins, Ontario, and has been in production since 1936. Both the Pamour and
Hoyle properties are transected by Highway 101. In 1995, the Pamour and
Nighthawk Mines produced approximately 80,120 ounces of gold at an average cash
cost per ounce of US$368. For the six months ended June 30, 1996, the Pamour and
Nighthawk Mines produced approximately 47,977 ounces of gold at an average cash
cost per ounce of US$287. Since the commissioning of the mill in 1936, the
Pamour Mine has produced in excess of 4.0 million ounces of gold. The net book
value of the Company's property, plant and equipment in the Ontario operations,
including those associated with the Pamour, Hoyle and Nighthawk properties, was
approximately $57.2 million as of December 31, 1995.
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Ownership
The Pamour property consists of 38 patented mining claims and one License
of Occupation. Together, the property covers approximately 1,531 acres of mining
and surface rights. Directly adjacent to the Pamour Mine is the Hoyle property
which is comprised of 37 patented mining claims and 4 leased claims covering
approximately 1,608 acres. The Company has a renewable 10-year lease on that
portion of the Hoyle property lying south of the Timiskaming Unconformity. The
lease terms include the payment of a minimum annual rent of $100,000 which is
credited against a production royalty, being the higher of $0.75 per ton or a 2%
net smelter return. In order to renew the lease, which expires in 1999, for a
further 10-year term, the Company must spend $1.0 million on exploration and
mine one million tons of ore. The Company has a 51% interest in the portion of
the Hoyle property north of the Timiskaming Unconformity, which is not currently
in production.
Mining and Milling Facilities
The Pamour Mine currently operates both open pit and underground mining
operations. The underground mine currently produces approximately 2,000 tons of
ore per day, while the open pit operations produce approximately 1,500 tons per
day. The Pamour Mine is comprised of the Pamour No. 1 Underground Mine, surface
pits and the Hoyle Mine.
The Pamour No. 1 Underground Mine commenced operations in 1936 as the
original Pamour Mine and has operated continuously since. The leased Hoyle Mine
extension, which commenced production in April 1990, is the eastern strike
extension of the Pamour ore body and is a large resource of bulk mineable
conglomerate ore which has been accessed by a decline from surface and by
underground drifts from the Pamour shaft. The underground mine currently
produces approximately 2,000 tons per day through a 3,145 foot deep
five-compartment timbered shaft. The Hoyle property has the capacity to produce
18,000 tons per month. The mine is adjacent to the Pamour No. 1 operation and
has higher grade ore than present reserves at the Pamour No. 1 Mine.
Where possible, bulk mining methods are utilized, primarily by modified
vertical crater retreat as well as sublevel blasthole stoping. The bulk mining
areas are developed with large mechanized drill jumbos, scooptrams and trucks.
The blocks are drilled off with 4.5 inch and/or 6.5 inch diameter blastholes and
blasted into drawpoints located at the bottom of the block. Scooptrams and
trucks move the blasted ore from the drawpoints to an internal pass. An electric
trolley with 5 ton cars transports the ore from the internal pass to 3 Shaft
where it is shipped to the surface. Higher grade, narrow veins are mined by a
modified open shrinkage method. The ore is developed and mined with jacklegs and
stopers which drill narrow blastholes (1.25 inch in diameter). The broken ore is
transported to the surface through mechanized scoops, trucks and/or electric
trains.
The No. 3 Pit is located immediately southeast of the Pamour Mill. This
open pit was developed over the workings of the Pamour Mine and first came into
production in 1985. The No. 5 Pit, at the extreme west end of the Pamour No. 1
property, was brought into production in 1989. Total pit production is 1,500
tons of ore per day.
An additional jaw crusher was added to the Pamour Mine in the early 1990s.
In 1995, all 25-cycle electrical motors in the mine were replaced due to the
change in the power supply from 25 cycles to 60 cycles. Also in 1995, an
additional ball mill was installed to increase capacity from 3,600 to 4,500 tons
per day. The on-site mill at Pamour has the capacity to treat approximately
4,000 tons per day and is expected to increase to 8,000 tons per day after the
completion of modifications which are underway. The Pamour Mine plant and
equipment are generally in good condition. A gold pyrite flotation concentrate
is produced from the ore and is treated by a conventional cyanidation process to
produce a gold precipitate which is refined into dore. The power source for this
property is Ontario Hydro.
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Pamour Mine open pit expansion
As a result of its successful exploration program, the Company is
developing a significant expansion project at the Pamour property. The Company
has focused on examining the low grade halo around the mined out stopes at the
Pamour Mine. As of December 31, 1995, the Company had added approximately 1.14
million ounces of gold to mineable ore reserves from this exploration.
Production from the site is expected to commence in 1998 at a rate of 60,000
ounces of gold per year. The current dimensions of the planned pit are
approximately 6,000 feet long, 2,400 feet wide and 800 feet deep. However, the
ultimate extent of the pit will be determined by staged drilling over the next
few years. Total capital costs to complete the expansion are expected to be
approximately $22 million.
Geology
The Pamour Mine is located approximately one mile north of the
Destor-Porcupine Fault, an east-northeast to west-southwest striking structure.
The majority of the historic gold producing mines in the Porcupine Gold Camp
have been located near this structure. On the property, a series of basic
volcanic rocks are unconformably overlain by greywackes and a thick
conglomerate, known as the Pamour conglomerate. All rocks are of the
Pre-Cambrian age. Gold occurs in narrow high grade quartz veins in the volcanics
and in the sediments. The majority of the gold that has been mined from this
property occurs in sheeted sets of quartz veins in the Pamour conglomerate and
in the greywackes on either side of it. Gold also occurs in broad irregular
zones of quartz veinlets in the volcanic rocks.
Ore Reserves
As of December 31, 1995, the Pamour and Nighthawk operations had remaining
proven and probable ore reserves of approximately 38,471,000 tons grading 0.046
ounces of gold per ton. The ore reserves at this division have increased in each
of the last three years due to expansion of open pit reserves. A major drilling
campaign was undertaken in 1995 for this purpose. Cut-off grades (which range
from 0.023 to 0.200 ounces per ton) are determined for each type of ore based on
current mining costs, and a gold price of $517 (US$383) per ounce. Allowances
are made in these estimates for dilution and mining losses. Ore reserves do not
include allowances for losses in milling.
NIGHTHAWK
Background
The Nighthawk Mine, which was operated by Porcupine Peninsular Gold Mines
Limited between 1924 and 1927, is located east of the Pamour Mine and commenced
production in September 1995. Access is via highway, 10 miles from the Pamour
Mill. The Company and its predecessors paid a total of $287,500 from 1973 to
1994 in the form of cash payments and work requirements of the Nighthawk Mine.
The net book value of the Company's properties and the associated plants and
equipment in its Ontario division, which includes the Nighthawk Mine, was
approximately $57.2 million as of December 31, 1995. In 1995, the Pamour and
Nighthawk Mines produced approximately 80,120 ounces of gold at an average cash
cost per ounce of US$368. For the six months ended June 30, 1996 the Pamour and
Nighthawk Mines produced approximately 47,977 ounces of gold at an average cash
cost per ounce of US$287.
Ownership
The Company's land holdings in the Nighthawk Lake area are extensive with
approximately 11,726 acres held representing 254 claims. Most of the property is
held outright by the Company as staked claims. Other portions are held through
various option agreements which also provide for some form of production
royalty. The Ronnoco claims on the east peninsula of the lake are held through a
subsidiary company, Ronnoco Gold Mines Limited. The current producing deposit,
the Nighthawk Mine, is located on the north peninsula of the lake and is subject
to a production royalty being the higher of (i) $0.003 times tons times dollars
per ounce of gold or (ii) 20% of the net profits.
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Mining and Milling Facilities
During the period from 1924 to 1927, the Nighthawk Mine produced 99,628
tons of ore grading 0.32 ounces of gold per ton. Additional exploration was done
periodically over the ensuing years. The Company developed the Nighthawk Mine
and began production in September 1995. Full production levels of 750 tons per
day were reached in May 1996.
The ore body is accessed by a ramp currently at 450 feet below surface,
which will ultimately be driven to 750 feet below surface. Mining methods for
this underground mine are primarily longhole open stoping, with 50 feet between
sublevels. Waste rock will be placed in stopes as delayed backfill. Ore is
hauled to surface stockpiles in 30 ton dump trucks. The material is then hauled
by truck 10 miles to the Pamour Mill for processing. The mine's equipment is
generally in excellent condition. The power source for this property is Ontario
Hydro.
Geology
The Nighthawk Mine is adjacent to a major structure called the Nighthawk
Break, which is thought to be a splay off of the Destor-Porcupine Fault. The
geology in this area consists mainly of steeply dipping volcanic flows. In the
mine area, these have undergone intensive carbonate alteration. Gold occurs in
quartz veins and silicified zones associated with minor amounts of sulphide
minerals.
Ore Reserves
As of December 31, 1995, the Nighthawk Mine had mineable ore reserves of
853,000 tons grading 0.166 ounces of gold per ton and mineralized material of
599,000 tons grading 0.164 ounces of gold per ton. A cut-off grade of 0.100
ounces per ton, based on current mining costs and a gold price of $517 (US$383)
per ounce, was used in calculating these reserves. Allowances are made in these
estimates for dilution and mining losses. Ore reserves do not include allowances
for losses in milling.
HOPE BROOK
Background
The Hope Brook Mine is located approximately 5 miles inland from the
southwest coast of Newfoundland, between the towns of Burgeo and Port aux
Basques. It was acquired in April 1992 from Hope Brook Gold Inc., which had shut
down operations in May 1991. The mine currently produces 3,000 tons of ore per
day. For 1995, the Hope Brook Mine produced 81,962 ounces of gold at a cash cost
per ounce of US$343. For the six months ended June 30, 1996, the Hope Brook Mine
produced approximately 31,065 ounces of gold at an average cash cost per ounce
of US$327. As of December 31, 1995, the Hope Brook Mine had mineable ore
reserves of 215,000 ounces of gold and mineralized material of 399,000 ounces of
gold. Access to the mine is restricted to air or sea travel. A 4,000 foot
airstrip was constructed in 1992 to provide transportation for the mine
employees. The mine is being operated as a fly-in, fly-out camp. The principal
mode of access for supplies is by a ship owned and operated by the Company
exclusively for the mine. The ship is based in Rose Blanche, Newfoundland. The
net book value of the Hope Brook Mine property, plant and equipment was
approximately $19.7 million as of December 31, 1995.
Ownership
Production from the Hope Brook Mine is subject to an operating royalty for
five years ranging from $1.3 million to $3.3 million annually in favour of the
prior owner when the annual average spot price of gold exceeds US$380 per ounce.
In 1995, the Company paid $1.3 million in respect of such royalty. This
operating royalty expires at the end of 1996. The Hope Brook Mine area consists
of a 25-year mining lease, surface lease and extended exploration licenses which
cover approximately 6,800 acres of mining rights and 490 acres of surface
rights. The Company holds a 100% interest in the property subject to the above
operating royalty. All mining activities are confined to the mining leases.
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Mining and Milling Facilities
The Hope Brook Mill was first commissioned in September 1988. The Hope
Brook ore body is intersected by a number of mafic dykes which have proven to be
significantly harder to grind than the ore material. In 1990, Hope Brook Gold
Inc., owned by B.P. Resources Canada Inc., added a pebble crushing circuit to
the primary grinding circuit. This circuit was intended to extract the mafic
pebbles from the SAG mill and to crush them externally, thereby increasing
overall throughput. The circuit was not totally successful and was subsequently
shut down.
In May 1991, operations at the mine were voluntarily suspended by Hope
Brook Gold Inc. due to an unacceptable level of contamination in the tailings
pond and concern about its ability to continue operations while meeting the
environmental discharge specifications set by the federal and provincial
authorities. In 1992, Royal Oak successfully modified the mafic pebble crushing
circuit. This action, coupled with other circuit modifications, has
significantly increased overall throughput. In 1995, Hope Brook produced an
average of 2,987 tons per day. Ore is delivered to the surface and crushed to a
nominal minus 6 inch using a primary gyratory crusher. The crushed ore is
stockpiled and withdrawn as required to feed the mill grinding circuit. Grinding
to 70% minus 200 mesh is accomplished in a conventional SAG circuit followed by
a conventional ball mill grinding circuit operating in closed circuit with
cyclones. Gold is extracted from the grinding circuit product in a conventional
60 hour cyanide leach circuit followed by 6 stages of CIP. Gold is recovered
from activated carbon in a pressure stripping-electrowinning circuit. Gold is
stripped from the electrowinning cell cathodes and melted in an induction
furnace to yield dore bullion. The dore is subsequently shipped to a refinery
for final refining.
In 1993, a sulphide flotation circuit was added to the mill flowsheet. The
final tailings from the CIP circuit are treated through an effluent treatment
plant utilizing the INCO SO2-Air process. The treated slurry is conditioned and
then subjected to a conventional copper rougher-scavenger flotation process. The
resulting concentrate is upgraded through several stages of cleaner flotation to
yield a concentrate grading 20 to 22% copper. The concentrate also bears
significant gold values increasing overall mill gold recovery by up to 4%. The
concentrate is dewatered, dried and shipped to a custom smelter for processing
of both the contained copper and gold values.
The Hope Brook effluent treatment circuit achieved wastewater quality that
was in substantial compliance with the mine's Certificate of Approval in 1993,
1994 and 1995. However, in 1994 and 1995, while the effluent treatment circuit
was in full compliance with the mine's certificate of approval, the discharge
from the mine's tailings impoundment area did not consistently pass Environment
Canada's LC50 fish toxicity test. Although, in Canada, gold mining operations
are exempt from Environment Canada's Metal Mining Liquid Effluent Regulations,
including the LC50 fish toxicity test, remedial actions have been taken to
eliminate the problem and for the last several months, the Company's effluent
has met the LC50 fish toxicity test.
The main access to the underground mine is by ramp which has been driven to
a vertical depth of 1,000 feet below surface. The haulage component of the
ramp-haulage system installed at Hope Brook uses 55 ton capacity electric Kiruna
trucks and diesel trucks. The prior owner of the Hope Brook Mine conducted its
operations using a blasthole stoping and fill method. In 1995, the Company
changed the mining method to sublevel stoping, similar to that used at its Hoyle
property. The Hope Brook plant and equipment are generally in good condition.
The source of power for this property is Newfoundland Hydro.
Geology
Gold mineralization occurs in an alteration zone of pervasive silica,
pyrite and pyrophyllite which is approximately 4 kilometres long and 300 metres
wide. The alteration zone exists within the Mid-Ordovician Georges Brook
Formation which consists of a mixed volcanic-sedimentary sequence. The Hope
Brook ore body is located in the zone of alteration. Ore covers a strike length
of 500 metres and extends from surface to a depth of 400 metres, dipping steeply
at an angle of seventy-five degrees.
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Ore Reserves
As of December 31, 1995, the Hope Brook Mine had remaining proven and
probable ore reserves of approximately 2,448,000 tons grading 0.088 ounces of
gold per ton. A cut-off grade of 0.079 ounces per ton, based on current mining
costs and a gold price of $517 (US$383) per ounce, was used in calculating stope
reserves. Allowances are made in these estimates for dilution and mining losses.
Ore reserves do not include allowances for losses in milling. The Company
expects that the Cape Ray acquisition will extend the life of the Hope Brook
Mine.
Cape Ray Acquisition
In July, 1996, the Company purchased the Cape Ray gold property from
American Gem Corporation for $500,000, and purchased Homestake Canada Inc.'s net
smelter return royalty on the property for $425,000. The acquisition of the Cape
Ray property is of strategic importance to Royal Oak's Newfoundland operations.
The Cape Ray deposit is expected to provide high grade feed over the next
several years to the Hope Brook Mill for processing in combination with lower
grade ore from the Hope Brook Mine. Ore will be transported to the mill using a
combination of truck and the Company's supply ship.
A feasibility study completed by Kilborn Inc. in 1989 indicates that the
Cape Ray property contains a diluted mineable ore reserve of 501,619 tons at a
grade of 0.294 ounces of gold per ton. Underground work in the 1980s included a
decline facilitating development on the 90 foot and 200 foot levels of the 04
Zone.
The Cape Ray property is located 12 miles northeast of the town of Port aux
Basques in southeast Newfoundland. Access to the Cape Ray property is by a 12
mile gravel road from the community of Isle aux Morts. The property consists of
an extensive land position of 62 square miles covering 29 miles of strike length
on the Cape Ray fault. In addition to the existing reserve within the Main Zone,
the property hosts several known mineralized zones including Windowglass Hill,
Gulch, Sleeper and Big Pond. Previous drilling on the Big Pond Zone returned a
significant intersection of 0.62 ounces of gold per ton over 7.7 feet. The Main
Zone is located along a shear zone diverging from the Cape Ray Fault within the
Windsor Point Group, which is comprised of a discontinuous sequence of
volcaniclastics, associated argillaceous sediments, mafic volcanics, schists and
mylonites. The access road will be rehabilitated in the summer of 1996 and the
decline will be dewatered when permitting has been arranged so that underground
development and mining can commence. The Company currently intends to operate
the Cape Ray property as an underground mine. The power source for the property
is expected to be either an on-site diesel generator or Newfoundland Hydro.
The Company plans to conduct geochemical and geophysical surveys and 25,000
feet of diamond drilling over four areas of this property during the summer
field season.
The Company has also optioned the Coast property owned by Coast Petroleum
Transport Ltd., which lies on strike with the Cape Ray deposit. This property is
located 35 miles west of the Hope Brook Mine.
DEVELOPMENT PROJECTS
KEMESS SOUTH
Background
The Kemess South Project is located 186 miles northwest of Mackenzie,
British Columbia, and to the east of Thutade Lake. Currently, access to the area
is by air from Smithers or Prince George to the Sturdee airstrip (a 4,500 foot
gravel strip) 24 miles to the north, or from the south via an all-weather road
from Fort St. James or Mackenzie. As part of the Kemess South Project, the
Company intends to construct an airstrip adjacent to the mine site.
In May 1993, Royal Oak acquired 39% of Geddes, a company whose only
significant asset was a 100% interest in a block of mineral claims located in
the vicinity of Windy Craggy mountain in northwestern British Columbia. In June
1993, the British Columbia provincial government announced that it would
permanently protect, as a provincial park, the region which included Windy
Craggy, and would provide compensation for holders of mineral claims in the
area. Subsequently, in December 1994, the United Nations Educational,
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Scientific and Cultural Organization (UNESCO) designated the Tatshenshini-Alsek
Provincial Park, which includes Windy Craggy, a World Heritage site.
In May 1995, the British Columbia provincial government commenced active
negotiations with senior officers of Geddes pertaining to compensation
respecting Windy Craggy. In order to facilitate such negotiations, Royal Oak
indicated to the British Columbia provincial government a willingness to
purchase the Kemess and Red Mountain properties and to develop these properties,
provided appropriate project support and investment arrangements were provided
by the British Columbia provincial government.
In January 1996, the Company completed the acquisition of Geddes, El Condor
and St. Philips. The remaining outstanding shares of Geddes were acquired for
shares of the Company and cash with a total acquisition cost of $40.9 million;
the outstanding shares of El Condor were acquired for shares of the Company and
cash worth $110.6 million; and the outstanding shares of St. Philips were
acquired for $38.6 million in cash. El Condor and St. Philips owned the Kemess
South property and El Condor owned the Kemess North property. These properties
are now owned by Kemess Mines Inc. (formerly Geddes Resources Limited). Although
the Company will continue to evaluate the potential of the Kemess North
property, there is presently no plan to develop this property.
On April 29, 1996, the British Columbia provincial government announced
that it had issued a Project Approval Certificate for the Kemess South Project
which entitles the Company to proceed with permitting applications for
construction of the mine site and attendant infrastructure. Federal approval
under the Environmental Assessment Act (Canada) and the Fisheries Act (Canada)
is expected shortly and will facilitate completion of all infrastructure
impacting on viable lakes and streams in the project area.
Timetable for Development
The phases of development of the Kemess South Project are: (i) completion
of permitting and planning; (ii) preparation of detailed design and procurement;
and (iii) project management and construction.
Construction of the Kemess South Project commenced in July 1996 and is
anticipated to take 24 months to complete. The construction phase will employ a
work force of approximately 350 persons, peaking at 450 to 550 persons.
The engineering of the processing facilities, which commenced in November
1995, is being carried out by Kilborn Engineering Pacific Ltd. Teshmont
Consultants Inc. of Winnipeg is designing the power line and Knight & Piesold
has commenced engineering studies for the design of the tailings dam.
Compensation, Financial Assistance and Investment
The Company currently estimates that its total capital costs for the Kemess
South Project will be approximately $390 million. The net book value of the
plant and equipment of the Company's British Columbia operations which include
the Kemess South Project, was approximately $10.7 million as of December 31,
1995.
The Company is expecting to bring the Kemess South Project into production
in the second quarter of 1998. The project development will be facilitated by up
to $166 million of economic assistance, investment and compensation from the
British Columbia provincial government as described below. The Company is not
obligated to repay the British Columbia provincial government any of such
amounts. Section 25 of the Financial Administration Act (British Columbia)
provides that, notwithstanding the commitment to pay, any payment of money by
the British Columbia provincial government pursuant to an agreement is subject
to (i) an appropriation being available for that agreement in the year in which
the payment falls due and (ii) the Treasury Board not having controlled or
limited expenditure under any such appropriation. See "Risk Factors --
Government Permits and Payments."
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The compensation, financial assistance and investment of up to $166 million
to be provided by the British Columbia provincial government consist of the
following components described below:
(i) Compensation -- $29 million payable over two years. On April 15,
1996, the Company's wholly owned subsidiary, Kemess Mines Inc., received
the first of two equal compensation payments of $14.5 million. The final
payment is due in April 1997.
(ii) Royalty interest investment -- $50 million to develop on- and
off-site mine infrastructure for the Kemess South Project. The Company
will pay the British Columbia provincial government a royalty of 4.8% on
all copper extracted and processed from the Kemess South Project. The
Company is the general partner and a wholly owned subsidiary of the
Company is currently the sole limited partner of a limited partnership
which is entitled to a royalty on the copper from the Kemess South
Project. The royalty payable to the British Columbia provincial
government will form a portion of the royalty held by the limited
partnership.
(iii) Power line installation -- $49 million payable over three years to
cover the cost of constructing a 320 kilometre power line from the
Kennedy substation to the Kemess Mine site together with related
equipment. The power will initially be supplied by B.C. Hydro. The power
line will be owned and operated by the Company for at least 20 years.
(iv) Regional resource infrastructure -- $14 million payable over 14 years
for emergency health facilities, airport facilities and for developing
and maintaining a connector road.
(v) Human resource development program -- $4.0 million payable over two
years to facilitate recruitment, selection, relocation, mobility,
training, upgrading and safety training for personnel working at the
Kemess South Project.
(vi) Mining development -- $20 million to be matched dollar for dollar for
the development of properties in British Columbia, including the Kemess
and Red Mountain properties and extensions.
(vii) Facilitation and support -- The British Columbia provincial
government agreed to facilitate and support the Company with respect to
the negotiation of appropriate contracts of rail transport, port and
power charges and to facilitate the review and consideration of permits
and other authorizations required for the development of the project.
Ownership
The Kemess property consists of 404 staked mineral claims in three distinct
groups that cover approximately 68,259 acres. The Kemess South property was
owned by El Condor and St. Philips, and the Kemess North property was owned by
El Condor. The property was transferred to Kemess Mines Inc. pursuant to the
winding up of El Condor and St. Philips. There are two royalty agreements that
affect a small number of claims. The Company will pay the British Columbia
provincial government a royalty of 4.8% on all copper extracted and processed
from the Kemess South Project.
Geology
The Kemess South deposit is a large low grade gold-copper porphyry-type
deposit. It is hosted by a flat-lying porphyritic quartz monzodiorite intrusion.
Pyrite, the dominant sulphide, occurs as veins and fracture coatings
accompanying quartz stringers. Chalcopyrite occurs as disseminated grains and in
quartz stockwork veins. Native gold is included within or is peripheral to
grains of chalcopyrite, and gold grades correlate closely with those of copper
in the hypogene zone.
The highest grade of gold and copper mineralization correlate with zones of
intense quartz stockwork development.
A supergene zone, comprising 20% of the deposit, formed during a period of
weathering synchronous with the formation of the Late Cretaceous Sustut Basin.
Copper grades within this zone are locally leached or enriched, while gold
concentrations remain relatively unchanged. Native copper is the dominant
secondary copper mineral except at the base of the supergene zone where
chalcocite becomes more and more abundant.
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Mining and Milling
The deposit will be mined at an average rate of approximately 107,000 tons
per day at an estimated cost of $1.56 per ton. Milling at the rate of
approximately 50,000 tons per day will cost approximately $1.81 per ton. At this
mining rate, the life of the project is estimated to be approximately 15 years.
Ore Reserves
Ore reserves for the Kemess South Project were calculated in a 1993
pre-feasibility study completed by Kilborn Engineering Pacific Ltd., for El
Condor and St. Philips, the former owners of the property. These reserves were
reviewed by Royal Oak prior to the purchase of the property in 1995. In
addition, they were verified for the Company in February, 1996. Reserves for
this property are 221 million tons of ore averaging 0.018 ounces per ton of gold
and 0.224% copper. These reserve estimates contain allowances for mining losses
and dilution, but not for losses in milling. Net smelter return calculations
were carried out on mineralization at Kemess South in order to determine the
value that would be returned from mining and processing. These estimates
included all transportation and smelter charges. The prices of gold and copper
used in the above feasibility studies were US$350 per ounce and US$1.00 per
pound, respectively, with an exchange rate of US$0.78/Cdn $1.00.
RED MOUNTAIN
Background
The Red Mountain project area is located in the Coastal Mountain Range, 11
miles east of the seaport of Stewart, in northwestern British Columbia.
Currently, access to the property is by helicopter from Stewart; however, a road
has been constructed to a potential portal site in Bitter Creek adjacent to the
ore zone but at a lower elevation. The net book value of the plant and equipment
of the Company's British Columbia operations, which include the Red Mountain
deposit, was approximately $10.7 million as of December 31, 1995.
Ownership
The property consists of 147 staked mining claims that cover 86,070 acres.
The Company acquired 100% of the Red Mountain property from Barrick Gold for $1.
The Company assumed all past environmental liabilities, estimated at $3.0
million, as part of this purchase. The Company is committed to spend $3.0
million in exploration and development on the Red Mountain property over three
years. The Company has budgeted for a $9.0 million development program for 1996.
The prior owner will receive a 1% net smelter return royalty on production from
the property, and on production over 1.85 million ounces of gold, an additional
$10.00 per ounce of gold is payable. In addition, the Company is required to pay
a 2.5% net smelter return royalty to a third party.
Geology
The Red Mountain orebody is a hydrothermal gold deposit related to a
multiphase intrusion. The Red Mountain area is underlain by Upper Triassic to
Middle Jurassic sedimentary and volcanic rocks of the Hazelton Group. Early
Jurassic plutons, sills and dykes have intruded this volcanic-sedimentary
assemblage, the largest of which (the Goldslide-Hillside intrusion) lies beneath
Red Mountain. The orebody currently consists of three northwest plunging,
southwest dipping elliptical zones located beneath the summit approximately at
the contact between two phases of the Goldslide intrusion and hosted within both
the stratified sediments and the Hillside intrusion. Both the ore zones and the
host rocks have been disrupted by northwest plunging folds and at least two
phases of brittle faulting.
Mining and Milling
It is estimated that over US$30 million was spent by the former owners of
this property, Lac Minerals and Barrick Gold, between 1991 and 1994 outlining
and developing the Marc, AV and JW Zones, which
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included 300,000 feet of drilling. These zones remain open down-plunge and the
exploration potential for the area north of the deposit is deemed by the Company
to be excellent.
The main development focus for 1996 will be to expand the mineable reserves
at Red Mountain by 500,000 ounces, from the current 800,000 ounces to 1,300,000
ounces of gold through underground and surface delineation drilling of the
down-plunge extension of the orebody. The decline will be extended approximately
1,000 feet to facilitate the drilling.
A joint federal-provincial committee has been established to address
environmental assessment and permitting of the Red Mountain project. Currently,
an updated feasibility study is being completed and the Company expects to file
a development plan with the British Columbia provincial government in the third
quarter of 1996. Subject to receipt of the necessary permits, the project is
expected to produce approximately 150,000 ounces of gold per year commencing in
the fourth quarter of 1999. It is expected that the Red Mountain mine will be
operated as an underground mine. The source of power for this property will be
British Columbia Hydro.
Ore Reserves
The Red Mountain deposit contains 800,000 ounces of gold in the mineable
category, grading 0.262 ounces of gold per ton.
MATACHEWAN
Background
The Matachewan project is located approximately 56 miles southeast of the
City of Timmins, Ontario and is accessed directly by either two-way highway
and/or all-weather roads from Timmins. The main area of interest is called the
Young Davidson property, located two miles west of the Town of Matachewan.
The Matachewan property was mined from 1933 to 1957 by Young Davidson Mines
Limited and Matachewan Consolidated Mines Limited and produced an aggregate of
956,117 ounces of gold grading 0.10 ounces per ton from both underground and
open pit developments. The Matachewan deposit was milled historically using
flotation and cyanidation which achieved excellent recoveries. The current plan
is to produce a concentrate on site that would be transported to the Pamour Mill
for cyanidation. The presence of free gold and the metallurgical testing at
Lakefield Research Limited has necessitated the addition of a gravity circuit to
the mill design. A very coarse cost effective grind was used historically and it
is expected that this will not change. The source of power for this property
will be Ontario Hydro.
To date, the Company has received permits necessary to dewater the existing
mine shaft, to cross the highway with a pipeline and to proceed with advanced
exploration. Discussions are currently underway with respect to environmental
assessment and permitting of the full project. The current discussions relate to
a fish compensation plan and tailings as well as approval under the
Environmental Assessment Act (Canada).
The development plan calls for milling of the open pit ore to commence by
the second half of 1998 while the underground mine is being developed.
Production is targeted for 100,000 ounces of gold per year at an average cash
cost of US$227 per ounce. The existence of a 2,450 foot deep shaft will allow
the underground mine to be economically developed.
Ownership
The Matachewan property is held under two lease agreements. The lease
agreement with Matachewan Consolidated Mines Limited provides for advanced
royalty payments of $15,000 per year or rent of $7,500 per year, depending on
the current gold price. The Young Davidson lease agreement provides for advance
royalty payments of approximately $40,000 per year. The property is subject to a
minimum 3% net smelter return royalty.
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Geology
The Matachewan deposit is hosted within a syenite body which has intruded
along and near the highly deformed contact between Timiskaming Group sedimentary
rocks and Larder Lake Group volcanic rocks. The main syenite body is
approximately 2,460 feet long, 410 feet wide and dips steeply to the south.
Ore Reserves
As of December 31, 1995, the Matachewan property had proven and probable
ore reserves of 13,253,000 tons grading 0.067 ounces of gold per ton. Allowances
are made in these estimates for dilution and mining losses. Ore reserves do not
include allowances for losses in milling. Cut-off grades used in estimating
these mineable reserves are 0.021 ounces per ton for open pit reserves and 0.080
ounces per ton for underground reserves and are based on current mining costs
and a gold price of $517 (US$383) per ounce.
DUPORT
Background
The Duport property is located on Shoal Lake, 28 miles southwest of the
Town of Kenora in northwestern Ontario. The development ramp is located on an
island and is accessible by barge.
Ownership
Intermittent exploration of the Duport deposit was carried out by various
parties from 1930 to 1950, including underground exploration. In 1973,
Consolidated Professor obtained an option on the Duport property and conducted
an extensive sampling and drilling program from 1973 to 1974. Subsequently, this
option was exercised and Consolidated Professor acquired a 100% interest in this
property after amalgamating with Duport Mining Company Limited. The Company
completed the acquisition of all of the shares of Consolidated Professor in May
1996 pursuant to a tender offer followed by a compulsory acquisition. There is a
royalty payable to Union Carbide Canada Limited ("Union Carbide") equivalent to
a 50% net profits interest until recovery of pre-production expenditures, up to
a maximum of $2.0 million. Thereafter, Union Carbide will receive a 10% net
profits interest until a maximum of $5.0 million in the aggregate has been paid.
There is a buyout provision for this royalty.
Mining and Milling Facilities
The Duport project is situated in the environmentally sensitive area of
Shoal Lake, the source of Winnipeg, Manitoba's residential and commercial water
supply. Environmental concerns were raised in 1989 by local cottagers and the
City of Winnipeg, after Consolidated Professor announced its plans to advance
the project to the permitting stage. The main concern was the perception of
potential environmental hazards associated with the processing of the refractory
gold ore and the disposal of cyanide treated tailings. For the past six years,
Consolidated Professor conducted impact and sensitivity studies related to these
concerns. All aspects of mining, ore transport, milling, tailings disposal and
site reclamation were reconsidered and re-engineered with the objective of
alleviating the fears of all concerned parties. Among other features, the
redesigned development plan involved transporting the ore by truck to the
mainland via a year-round ferry to a mill site located 5.2 miles inland, outside
of the Shoal Lake watershed. The new design concept effectively addressed every
concern brought forth during the consultation process. Consolidated Professor
has since submitted a detailed environmental study of the project to the
Ontario, Manitoba and Canadian governments for review.
The Company plans to continue the environmental permitting process
initiated by Consolidated Professor. Development of the project is anticipated
shortly after the permitting process is completed.
Geology
The northern end of the Lake of the Woods District is underlain by the
volcanic and sedimentary rocks of an extensive Keewatin greenstone belt. In the
general Shoal Lake area, two granodiorite intrusions, namely,
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the Canoe Lake Stock and the Snowshoe Bay Stock, intrude the greenstone belt
assemblage and are separated by a five mile broad section of volcanic and
volcaniclastic rocks. Within this volcanic pile is a wide deformation zone which
hosts the gold mineralized zones of the Duport project which occur as en echelon
lenses within highly sheared felsic tuffs.
Ore Reserves
The Duport project has proven and probable ore reserves of approximately
1,008,000 tons grading 0.38 ounces of gold per ton. A cut-off grade of 0.15
ounces per ton, based on current mining costs and a gold price of $517 (US$383)
per ounce, was used in calculating these reserves. Allowances are made in these
estimates for dilution and mining losses. Ore reserves do not include allowances
for losses in milling.
OTHER EXPLORATION PROPERTIES
In June 1995, the Company entered into a lease agreement, which includes a
production royalty, with the owner of the Copperstone gold property, located in
La Paz County, southwestern Arizona. The Company proposes to carry out a 10,000
foot reverse circulation drilling program on the Copperstone property which
consists of 284 unpatented mining claims totalling 5,680 acres and two state
leases totaling 1,300 acres. Mineralized material has been estimated by the
Company at 2,424,000 tons at a grade of 0.172 ounces of gold per ton containing
approximately 417,000 ounces of gold.
Cyprus Gold Corp. operated the Copperstone property between 1987 and 1992
and produced in excess of 500,000 ounces of gold from ore grading 0.10 ounces of
gold per ton in the Main Zone by open pit mining and heap leaching. Compiled
data indicates a down dip extension of the Main Zone as well as parallel
structures in the footwall areas that could possibly be economically mined by
underground methods. The Main Zone has been traced an additional 950 feet along
the dip of the structure below the floor of the pit as well as 425 feet along
strike to the north. Gold mineralization remains open at depth and along strike.
Previous drilling encountered high gold values over significant widths: 0.225
ounces of gold per ton over a core length of 50 feet (0.225/50), and 0.602/10
approximately 2,000 feet to the north of the previous hole. Other intersections
below the Main Zone recorded 0.646/15 at a vertical depth of 900 feet and
collared at the pit floor, and 0.268/40 in another hole.
The objective of the first phase of the Company's drill program is to
develop continuity and expand the existing mineral resource of the Main Zone,
and to evaluate additional high priority gold targets in the footwall of the
deposit.
STRATEGIC INVESTMENTS
The Company has strategic investments in a number of junior resource
companies including Highwood (32% interest) and Asia Minerals (40.1% interest).
Pursuant to an arrangement with the effective date of August 12, 1996,
Highwood acquired all of the outstanding shares of Mountain Minerals. Mountain
Minerals (in which the Company had held a 45.1% interest prior to the
arrangement) is a diversified producer and marketer of high quality industrial
minerals, particularly barite and silica. Mountain Minerals has expanded into
the Chinese barite market and entered the zeolite business in British Columbia.
The principal business of Highwood is the exploration for specialty mineral
deposits such as beryllium, yttrium and zirconium and the development thereof,
where warranted.
Asia Minerals is active in mineral exploration in China. Asia Minerals
recently announced that it had signed a joint venture contract to acquire a 50%
interest in the Yingezhuang gold mine located in Shandong Province, China. The
Chinese partner is Zhaoyuan City Gold Corp. The Yingezhuang gold mine began
production in 1992 and in 1993, 154,280 tons of ore was mined and 12,000 ounces
of gold were produced at a total cost of US$173 per ounce. In July 1994, Asia
Minerals and the Company jointly completed a pre-feasibility study to evaluate a
proposed expansion which outlined a global geological resource of 21.4 million
tons at a grade of 0.09 ounces of gold per ton, based on a 0.06 ounce per ton
cut-off grade. The total contained gold is estimated at 1.76 million ounces.
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Asia Minerals can earn a 50% interest in the Yingezhuang joint venture by
making staged investments in the project. The first stage requires Asia Minerals
to fund a US$3.5 million mine expansion feasibility study. The total investment
required to earn a full 50% interest is estimated to be US$36 million.
Asia Minerals filed a final prospectus dated August 12, 1996 in British
Columbia, Alberta and Ontario qualifying the distribution in such provinces of
common shares issuable upon the exercise of special warrants previously issued
for aggregate gross proceeds of $7.0 million. Royal Oak subscribed for and
purchased 3,531,250 of such special warrants for $2,825,000. Royal Oak has
advised Asia Minerals that it intends to exercise options that it holds to
purchase an aggregate of 2,750,000 common shares of Asia Minerals for an
aggregate exercise price of $1,675,000 on or before December 31, 1996. After
exercise of such options, Royal Oak will hold approximately 46.5% of the shares
of Asia Minerals (on an undiluted basis).
ENVIRONMENTAL
The Canadian mining industry is subject to stringent environmental
regulations. Government regulation of the industry requires extensive monitoring
activities and contingency planning. All phases of the Company's activities are
subject to legislation from exploration through mine development, and mine
operations through decommissioning and reclamation. In 1995, and to date in
1996, all of the Company's operations have continued to be in compliance in all
material respects with applicable environmental legislation. There were no
environmental related legal proceedings pending against the Company in 1995 or
to date in 1996.
The Hope Brook Mine operated in substantial compliance with the terms and
conditions contained in the mine's operating Certificate of Approval in 1995 and
to date in 1996. This Certificate is a perpetual certificate. In December 1995,
the operation failed to comply with effluent quality limits on a weighted
monthly average basis. This noncompliance arose from a circuit upset which
occurred over a three day period. Steps have been taken by management to respond
to such circuit upsets in a more timely fashion. The Newfoundland Department of
Environment was advised of the non-compliance condition and of the action plan
initiated by the Company to prevent reoccurrence. To the Company's knowledge, no
action has been taken at this time by the regulator.
The Pamour Mine and the Nighthawk Mine operated in substantial compliance
with all of the terms and conditions of their respective operating Certificates
of Approval in 1995 and to date in 1996. Both of these certificates are
perpetual.
In 1995 and to date in 1996, the Giant Mine operated in substantial
compliance with all of the terms and conditions of its Water Use Licence. In
response to a complaint filed under the Northwest Territories Environmental
Rights Act alleging damages to vegetation to the northwest of the mine site, the
Northwest Territories government is considering draft regulations under the
Environmental Protection Act (Northwest Territories) that would control the
amount of permissible sulphur dioxide emissions from the Company's roaster
facility at the Giant Mine. The Company has undertaken a cooperative program
with the regulators to evaluate the technical feasibility of such emission
controls and of the environmental and economic impact of such regulations on the
Giant Mine. The Company believes that the economic impact of such regulations on
the Giant Mine will not be material, as installation of a taller roaster stack
in the ordinary course at a cost of $1.5-2.0 million should be sufficient for
compliance. The federal government of Canada is considering the drafting of new
regulations under the Environmental Protection Act (Canada) that would control
the amount of permissible airborne arsenic emissions from the Company's roaster
facility at the Giant Mine. The government is currently assessing the
socio-economic benefits and impacts that would accrue from implementing new
regulations in the area of airborne arsenic emissions. The Company's Giant
roaster facility currently operates in compliance with all existing
environmental requirements. On May 1, 1993, Royal Oak was granted a five-year
renewal of its licence to use water at the Giant Mine to a new expiry date of
April 30, 1998.
The Colomac Mine operated in substantial compliance with all of the terms
and conditions of its Water Use Licence in 1995, which is effective through
February 1999. The Company has recently implemented measures to reduce fresh
water consumption in the Colomac Mill in compliance with new standards that came
into effect in 1996.
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In 1995, the Company spent approximately $0.8 million on capital
improvements and $2.8 million on operations and maintenance for environmental
matters. The Company expects to spend the same amount in 1996 for these matters.
The majority of the operating costs are related to effluent treatment plants at
the Giant Mine and the Hope Brook Mine, as well as increasing the height of
tailings pond dykes at the Pamour Mine.
The Company recognizes that it has a responsibility to operate in a manner
that minimizes the impact of its mining operations on the environment. To this
end, the Company upgrades its policies and practices on a continuing basis with
a view to surpassing regulatory guidelines. In 1994, the Company instituted an
Environmental Code of Practice which established the principles under which the
Company manages the environmental performance of its operations. These
principles encompass compliance with all applicable statutory legislation,
minimizing risk to the environment, self monitoring of environmental protection
management programs, and communicating effectively with governments and the
public on environmental protection matters. In 1996, the Company expects to
commence development of a formal environmental management system, including
periodic internal audits and reporting of results, based on standards developed
by the Canadian Standards Association.
RECLAMATION
Where feasible, reclamation is conducted by the Company concurrently with
mining. In general, the Company is required to mitigate long-term environmental
impacts by stabilizing, contouring, resloping and revegetating various portions
of a site once mining and mineral processing operations are completed as well as
by appropriately managing residual waste. These reclamation activities are
conducted in accordance with detailed plans which have been reviewed and, where
applicable, approved by the appropriate regulatory agencies. In Ontario, the
Northwest Territories and British Columbia, the Company is required to post
security against all or part of the estimated cost of such reclamation and has
done so. The Company has completed and filed reclamation plans for all of its
active operations. Reclamation plans have also been prepared for most of the
Company's inactive sites and reclamation is well advanced on many of these
sites. The Company's total estimated cost of reclamation at all active and
inactive mining properties is $25.8 million. The Company has accrued $4.9
million through December 1995 and will charge the remaining amount to
operations, over the remaining lives of its operations, on a unit-of-production
basis. As of December 31, 1995 and 1994, the Company had outstanding bonds for
reclamation of $3.5 million and $0.8 million, respectively, and letters of
credit for reclamation of $1.4 million in 1995. Further, the Company believes
that the salvage value of its assets at its various mine sites will be
sufficient to fund the majority of these reclamation costs.
LEGAL MATTERS
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims, including proceedings under laws and regulations
related to environmental and other matters. It is the belief of management that
the various asserted claims and litigation in which the Company is currently
involved will not have, individually or in the aggregate, a material adverse
effect on its financial position. However, no assurance can be given as to the
ultimate outcome with respect to such claims and litigation. The resolution of
such claims and litigation could be material to the Company's operating results
of any particular period, depending upon the level of income for such period.
On September 18, 1992, nine miners were murdered in an underground
explosion at the Company's Giant Mine. A member of the union which was on strike
at the time was charged and convicted of nine counts of second degree murder. In
September 1994, dependents of the deceased miners sued the Company and two of
its officers and directors, along with 23 other named defendants unrelated to
the Company, for losses allegedly suffered as a result of the explosion. The
claim against the Company and all defendants but one totals approximately $10.8
million plus taxes, interest and costs. The claim against the two officers and
directors and all other defendants, excluding the Company, totals approximately
$33.65 million plus taxes, interest and costs. The Company's insurers have been
notified and a vigorous defense of the claim is intended. Any liability that
might be imposed in the matter as presently pleaded would be within the
Company's liability insurance coverage.
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EMPLOYEE RELATIONS
As of June 30, 1996, the Company employed 1,461 people, of which 937 are
represented by either the United Steelworkers of America (177 employees at
Colomac, 308 employees at Pamour and at Nighthawk and 202 employees at Hope
Brook) or the Canadian Auto Workers Union (250 employees at Giant). The Company
is currently negotiating a collective agreement with the United Steelworkers of
America in respect of 177 employees employed at the Colomac Mine. Effective July
1, 1996, the Company and the United Steelworkers of America reached a new
collective agreement, expiring June 30, 1999, in respect of the employees
employed at the Pamour and Nighthawk Mines. The collective agreement with the
United Steelworkers of America in respect of 202 of the Hope Brook Mine
employees expires on April 30, 1997 and the collective agreement with the
Canadian Auto Workers Union in respect of 250 of the Giant Mine employees
expires in November 1996. The current agreement with the Canadian Auto Workers
Union provides that there cannot be a strike or a lockout in November 1996 when
the collective agreement expires.
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MANAGEMENT
The following table and associated notes set forth the names of each
director and executive officer of the Company, their age as of July 31, 1996 and
their respective positions with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Margaret K. Witte(1)(2).............. 42 President, Chief Executive Officer and
Chairman of the Board
Ross F. Burns(3)..................... 52 Vice-President, Exploration and a Director
James H. Wood........................ 49 Chief Financial Officer
John R. Smrke........................ 46 Senior Vice-President
Sadek E. El-Alfy..................... 45 Vice-President, Operations
J. Graham Eacott..................... 55 Vice-President, Investor Relations
Edmund Szol.......................... 55 Vice-President, Human Resources
George W. Oughtred(1)(4)............. 66 Director
Matthew Gaasenbeek(1)(2)............. 66 Director
William J. V. Sheridan(2)............ 51 Secretary and a Director
J. Conrad Lavigne(4)................. 79 Director
John L. May(2)(4).................... 61 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Pension Committee.
(4) Member of the Governance and Nominating Committee.
Margaret K. (Peggy) Witte has served as President and Chief Executive
Officer and Chairman of the Board of Royal Oak or a predecessor thereof since
1989. From 1986 to 1989, Ms. Witte was President and Chief Executive Officer of
Neptune Resources Corp. Ms. Witte has a Master of Science degree in
Metallurgical Engineering from the Mackay School of Mines and Geology in Reno,
Nevada and a Bachelor of Science degree in Chemistry from the University of
Nevada. Ms. Witte is a member of the American Institute of Mining, Metallurgical
and Petroleum Engineers and the Canadian Institute of Mining and Metallurgy and
a past director of the Mining Association of Canada and the Prospectors and
Developers Association of Canada. Ms. Witte is the recipient of several awards,
including Special Achievement Award, Canadian Mineral Processors (1985), Woman
of Distinction Award Y.W.C.A. (1991), Developer of the Year, Prospectors and
Developers Association of Canada (1993) and the Financial Post's Newsmaker of
the Year (1994). Ms. Witte is also a director and Chairman of Mountain Minerals,
Talisman Energy, an oil and gas company, and Trans Canada Pipelines, an oil and
gas pipeline company.
Ross F. Burns has served as Vice-President, Exploration of Royal Oak or a
predecessor thereof since 1989. From 1986 to 1989, Mr. Burns was Vice-President
of Neptune Resources Corp. Mr. Burns has a Bachelor of Science (Honours) degree
in Geology from Queens University and is a Fellow of the Geological Association
of Canada, a registered professional geologist in the Northwest Territories, and
a member of the Prospectors and Developers Association and the British Columbia
and Yukon Chambers of Mines. Mr. Burns is also the President and a director of
Ronnoco Gold Mines Limited and a director of Asia Minerals.
James H. Wood has served as Chief Financial Officer of Royal Oak since May
1994. From 1992 to 1994, Mr. Wood was Vice-President, Finance of Maclean Hunter
Publishing Limited and from 1980 to 1992 he held various senior financial
positions at CCL Industries Inc. and its subsidiary companies. Mr. Wood has a
Bachelor of Commerce (Honours) degree from Laurentian University and is a
Chartered Accountant. Mr. Wood is a member of the Canadian Institute of
Chartered Accountants, the British Columbia Institute of Chartered Accountants
and the Ontario Institute of Chartered Accountants.
John R. Smrke has served as Senior Vice-President of Royal Oak since 1993.
From 1989 to 1993, Mr. Smrke held the positions of General Manager,
Vice-President, Corporate and Employee Development, and Vice-President,
Operations of Royal Oak or a predecessor thereof. Mr. Smrke received a diploma
in
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Mining Engineering Technology (Honours) from Cambrian College, Sudbury. Mr.
Smrke is Chief Executive Officer and Chairman of the Board of Highwood, Chief
Executive Officer and a director of Mountain Minerals and a director of Asia
Minerals.
Sadek E. El-Alfy has served as Vice-President, Operations of Royal Oak
since 1995. From 1990 to 1995, Mr. El-Alfy was General Manager, Mining and
Concentrating of Iron Ore Company of Canada, where he managed a large iron ore
open pit mine which produced 17 million tonnes of concentrate per annum. Mr.
El-Alfy holds a Bachelor of Science degree in Mining Engineering (Associate of
the Royal School of Mines) from University of London. Mr. El-Alfy is a member of
the Institute of Mining and Metallurgy, London, United Kingdom, the Canadian
Institute of Mining, Metallurgy and Petroleum, and the Association of
Professional Engineers of Newfoundland.
J. Graham Eacott joined Royal Oak in 1991 as Manager, Investor Relations
and has served as Vice-President, Investor Relations since 1995. From 1987 to
1991, Mr. Eacott was a Senior Financial Analyst at Maison Placements Canada
Inc., Merrill Lynch Canada Inc. and ScotiaMcLeod Inc. Mr. Eacott has a Master of
Science degree in Industrial Metallurgy & Management Techniques from the
University of Aston, Birmingham, and a Bachelor of Science (Honours) degree in
Metallurgy from Manchester University. Mr. Eacott is a professional engineer in
the Province of Ontario and is a graduate of the Canadian Securities Course and
a Registered Representative. He is a member of the Canadian Institute of Mining
and Metallurgy and is the author of several technical papers.
Edmund Szol has served as Vice-President, Human Resources since 1995. Prior
to joining the Company, Mr. Szol was Vice-President, Human Resources and
Administration of Nerco Inc., where he was responsible for all human resources
and administrative functions. Mr. Szol has a Bachelor of Arts degree from
Youngstown University, Youngstown, Ohio and is a graduate of the Advanced
Executive Development Program, Harvard University. Mr. Szol is a member of the
Society for Human Resource Management.
George W. Oughtred has served as a director of Royal Oak since 1991. Mr.
Oughtred is President of Privatbanken Holdings Inc., a private holding company
and a director of C.I. Fund Management Inc., an investment fund manager. Mr.
Oughtred has served as a director and/or officer of numerous other public
companies. Mr. Oughtred has a Bachelor of Commerce degree from McGill University
and a Master of Business Administration degree from the University of Western
Ontario.
Matthew Gaasenbeek has served as a director of Royal Oak since 1993. Mr.
Gaasenbeek is President of Northern Crown Capital Corporation, a private venture
capital company and Chairman of the Ontario Development Corporation. Mr.
Gaasenbeek has been and continues to serve as a director or officer of various
public and private resource and finance companies. Mr. Gaasenbeek has a Bachelor
of Arts (Honours) degree in Business Administration from the University of
Western Ontario. Prior to October 1991, Mr. Gaasenbeek was President and a
director of Camreco Inc., a mining exploration company.
William J.V. Sheridan has served as a director of Royal Oak since 1991. Mr.
Sheridan has a Bachelor of Commerce degree from the University of Toronto and a
law degree from Osgoode Hall Law School, Toronto. Mr. Sheridan joined Lang
Michener, a Canadian law firm, in 1972, became a partner in 1974 and is
currently the Managing Partner. He specializes in mergers and acquisitions,
mining, securities and international joint ventures. Mr. Sheridan is also a
director and/or officer of Eden Roc Mineral Corp., Hydra Capital Corp.,
Pinkerton's of Canada Limited, Witco Canada Inc. and other public and private
companies, and a Governor of the Queen Elizabeth Hospital, Toronto.
J. Conrad Lavigne has served as a director of Royal Oak since 1991. Mr.
Lavigne is President of JCL Corporation, a broadcast consulting firm. Mr.
Lavigne is the former Chairman of Northern Telephone Co. Ltd. and a former
director of Ontario Hydro and National Bank of Canada. Mr. Lavigne is a Lifetime
Honorary Associate Member of the Central Canadian Broadcast Association and was
inducted into the Canadian Broadcasters Hall of Fame in 1990.
John L. May has served as a director of Royal Oak since 1991. Mr. May is a
retired mining executive and prior to his retirement in 1991 was Vice-President
of Exploration of Teck Corporation. Mr. May has a Bachelor of Science degree in
Applied Geology from the University of Toronto. During his career, he has been
64
<PAGE> 71
an officer and/or director of a number of public natural resource companies. He
is currently a director of HRC Development Corporation.
The table below sets forth certain information regarding equity ownership
of each director or executive officer of the Company and all directors and
executive officers of the Company as a group as of July 31, 1996, and the
percentages set forth are based upon 138,319,263 shares outstanding on such date
(excluding the 1,924,816 shares owned by a wholly owned subsidiary of the
Company, see "Certain Relationships and Related Transactions").
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
DIRECTORS AND EXECUTIVE OFFICERS COMMON SHARES(1)(2) COMMON SHARES(1)(2)
- ----------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Margaret K. Witte(3)................................. 2,930,376 2.1%
Ross F. Burns........................................ 349,129 *
William J.V. Sheridan................................ 30,000 *
J. Conrad Lavigne.................................... 55,000 *
John L. May(3)....................................... 4,500 *
George W. Oughtred................................... 520,000 *
Matthew Gaasenbeek................................... 52,500 *
John R. Smrke........................................ 211,370 *
James H. Wood........................................ 112,500 *
J. Graham Eacott..................................... 111,000 *
Edmund Szol.......................................... 50,000 *
Sadek E. El-Alfy..................................... 50,000 *
All directors and executive officers as a group (12
persons)........................................... 4,476,375 3.2%
</TABLE>
- ---------------
* The percentage of shares beneficially owned does not exceed 1% of the class.
(1) The information as to shares beneficially owned, not being to the knowledge
of the Company, has been furnished by the respective directors and officers
individually.
(2) Includes and assumes the issuance of the following number of common shares
issuable upon the exercise by the following individuals of options which are
currently exercisable or exercisable within 60 days of the date hereof: Ms.
Witte 350,000; Mr. Burns 95,000; Mr. Sheridan 15,000; Mr. Lavigne 40,000;
Mr. Gaasenbeek 50,000; Mr. Smrke 160,000; Mr. Wood 110,000; Mr. Eacott
109,000; Mr. Szol 50,000; and Mr. El-Alfy 50,000.
(3) In addition, Ms. Witte has granted 2,200 put options which oblige Ms. Witte
to purchase 220,000 common shares of Royal Oak at a price of $6.00 per share
if the holder requires her to do so prior to the expiry of the options on
September 21, 1996. In addition, Mr. May has granted 100 put options which
oblige Mr. May to purchase 5,000 common shares of Royal Oak at a price of
$6.00 per share and 5,000 common shares of Royal Oak at a price of $5.00 per
share if the holders require him to do so prior to the expiry of the options
on September 21, 1996.
65
<PAGE> 72
EXECUTIVE COMPENSATION
The following table sets forth all compensation for the fiscal years ended
December 31, 1995, 1994 and 1993 for the Chief Executive Officer and the four
other most highly compensated executive officers of the Company (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ----------------
OTHER ANNUAL SECURITIES UNDER
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS
PRINCIPAL POSITION YEAR ($) ($) ($)(3) GRANTED(#)
- ----------------------------- ----- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
M.K. Witte................... 1995 US$250,200 US$150,000 US$132,735(4) --
Chairman, President and 1994 Cdn $250,000 Cdn $75,250 50,000
Chief Executive Officer 1993 Cdn $206,250 Cdn $100,000 -- 300,000
--
J.R. Smrke................... 1995 US$132,800 US$30,000 US$63,400(5) --
Senior Vice-President (4)
US$41,034
1994 Cdn $145,000 Cdn $60,250 -- 50,000
1993 Cdn $136,250 Cdn $40,000 Cdn $52,038 --
J.H. Wood.................... 1995 US$123,600 US$30,000 US$41,034(4) --
Chief Financial Officer(1) 1994 Cdn $87,917 Cdn $40,250 230,000
1993 -- -- -- --
--
R.F. Burns................... 1995 US$124,500 US$30,000 US$25,452(4) --
Vice-President, Exploration 1994 Cdn $145,000 Cdn $5,250 50,000
1993 Cdn $127,500 Cdn $40,000 -- --
Cdn $430,360
J. Graham Eacott............. 1995 US$102,800 US$30,000 US$30,825(4) --
Vice-President, 1994 -- -- --
Investor Relations(2) 1993 -- -- -- --
--
</TABLE>
- ---------------
(1) Mr. Wood was hired and appointed Chief Financial Officer in May 1994.
(2) Mr. Eacott was appointed Vice-President, Investor Relations in January 1995.
Prior to that time, Mr. Eacott was Manager, Investor Relations.
(3) Except as otherwise indicated, the value of perquisites and benefits do not
exceed the lesser of $50,000 and 10% of the total annual salary and bonus.
(4) Relocation payments upon the Company's move of its executive offices to the
United States were made to Ms. Witte for US$100,000, Mr. Smrke for
US$40,000, Mr. Wood for US$40,000, Mr. Burns for US$15,000 and to Mr. Eacott
for US$30,000. Directors' fees were paid to Ms. Witte and Mr. Burns of Cdn
$14,500 and Cdn $13,000, respectively. Other than with respect to Ms. Witte,
the balance relates to the Company's contribution to the employees' 401(k)
savings plan. In respect of Ms. Witte, the balance relates to payment of
life insurance premiums of US$15,396, car lease payments and reimbursements
of US$4,653 and the Company's contribution to the 401(k) savings plan of
US$2,102.
(5) Represents the difference between the market price of the Company's common
shares on the date of exercise and the option exercise price, multiplied by
the number of shares acquired.
STOCK OPTIONS
During 1995, no options were granted to any of the Named Executive
Officers. During 1995, options to purchase a total of 605,000 common shares of
the Company were granted to officers and employees of the Company. Particulars
of the grants of options are as follows:
<TABLE>
<CAPTION>
DATE OF GRANT NUMBER OF SHARES EXERCISE PRICE
- -------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
February 17, 1995....................................... 260,000 US$3.15, Cdn $4.60
June 29, 1995........................................... 70,000 US$3.15
September 6, 1995....................................... 220,000 US$3.85, Cdn $5.13
November 21, 1995....................................... 55,000 US$4.00
</TABLE>
66
<PAGE> 73
AGGREGATE OPTION EXERCISES DURING 1995 AND 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY
SECURITIES AGGREGATE YEAR END OPTIONS AT YEAR END
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
M.K. Witte.............. -- -- 383,333 50,000 $ 364,165 $17,500
J.R. Smrke.............. 20,500 $86,612 100,000 60,000 $ 331,000 $49,000
R.F. Burns.............. -- -- -- 50,000 -- $17,500
J.H. Wood............... -- -- 40,000 190,000 -- $10,500
J.G. Eacott............. -- -- 61,000 30,000 $ 247,050 $10,500
</TABLE>
RETIREMENT PLAN
The officers of the Company participate in the Royal Oak Mines (USA)
Retirement Plan, which covers substantially all of the head office employees of
the Company. Contributions to the Retirement Plan, and the related expense or
income, are based on general actuarial calculations and accordingly, no portion
of the Company's contributions, and related expenses or income, is specifically
attributable to the Company's officers. The current maximum annual pension
benefit payable by the Retirement Plan to any employee is $120,000, subject to
specified adjustments. Upon reaching the normal retirement age of 65, each
participant is eligible to receive annual retirement benefits in monthly
installments for life equal to, for each year of credited service, 1.2% of Final
Average Earnings ("FAE") (defined as the average of the highest 60 consecutive
months of earnings during the 120 months preceding severance date). Officers of
the Company are eligible to receive reduced retirement benefits as early as age
55 with 5 years of eligible service. For purposes of the Retirement Plan,
earnings include "regular salary or wages and any base salary deferrals under
the 401(k) savings plan. Earnings do not include any bonus or commissions,
overtime pay, moving expenses, car allowances, other business expense
reimbursement or non-qualified deferrals."
The following table shows estimated aggregate annual benefits under the
Retirement Plan payable upon retirement to a participant who retires in 1996 at
age 65 having the years of service and FAE, as specified.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
--------------------------------------------------------------
FAE 5 10 15 20 25 30
- ---------------------------------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
75,000............................ 4,500 9,000 13,500 18,000 22,500 27,000
100,000........................... 6,000 12,000 18,000 24,000 30,000 36,000
125,000........................... 7,500 15,000 22,500 30,000 37,500 45,000
150,000........................... 9,000 18,000 27,000 36,000 45,000 54,000
175,000........................... 10,500 21,000 31,500 42,000 52,500 63,000
200,000........................... 12,000 24,000 36,000 48,000 60,000 72,000
225,000........................... 13,500 27,000 40,500 54,000 67,500 81,000
275,000........................... 16,500 33,000 49,500 66,000 82,500 99,000
300,000........................... 18,000 36,000 54,000 72,000 90,000 108,000
</TABLE>
Benefits listed in the pension table are not subject to any deduction for
social security or other offset amounts. As of December 31, 1995, the Named
Executive Officers have completed the indicated number of years of credited
service: R. Burns, five years; G. Eacott, four years; J. R. Smrke, six years, M.
K. Witte, five years and J. Wood, 1.6 years.
SUPPLEMENTAL LIFE INSURANCE PLAN
The Company has established a plan effective January 1, 1996 to provide
certain executives of Royal Oak with supplemental life insurance protection for
their families in the event of death under a split dollar life insurance
arrangement. Under this plan, upon the death of a participant, beneficiaries
designated by such
67
<PAGE> 74
participant will be entitled to receive that portion of the policy proceeds
equal to the greater of the total cash value of the policy or two times the
participant's highest annual compensation from the Company during the three
consecutive calendar years prior to death. The cost to the Company of this plan
in 1996 is estimated to be approximately US$110,000.
EMPLOYMENT AGREEMENTS
Following the transfer in March 1995 of head office staff to its corporate
offices in Kirkland, Washington, the Company guaranteed the performance of
employment agreements (collectively, the "Agreements") made by its wholly-owned
United States subsidiary, Arctic Precious Metals, Inc., carrying on business as
Royal Oak Mines (USA) Inc. ("Arctic"), with Margaret K. Witte, President and
Chief Executive Officer of the Company, and Ross F. Burns, Vice-President of
Exploration. The Company also guaranteed the performance by Arctic of employment
agreements with the Company's Chief Financial Officer and four Vice-Presidents
(collectively, the "Executives"), being Messrs. Wood, Smrke, El-Alfy, Szol, and
Eacott.
The Agreements, which for the five Executives are substantially identical
except for the compensation provisions, were reviewed and approved by the Board
of Directors of the Company following the recommendation of the Compensation
Committee. The Agreements are for initial fixed terms of two years in the case
of Ms. Witte and Mr. Burns and one year for the Executives, with identical
automatic renewal terms of additional 12-month periods until termination. In the
event of a termination of employment without cause and in certain other
specified circumstances, including a change of control of Arctic or the Company,
each employee is entitled to compensation. In the case of Ms. Witte and Mr.
Burns, the acquisition by any person or group acting in concert of more than 30%
of the issued and outstanding common shares of Arctic or the Company or the
election to the Board of Directors of Arctic or the Company of persons employed
by or representing any one person or group acting in concert and constituting
40% or more of the Board of Directors would constitute a "Terminating Event."
In the event that the employment of either Ms. Witte or Mr. Burns is
terminated without cause, each is entitled to 24 months' notice of termination
or payment in lieu thereof, with full continuation of benefits for the notice
period. In the event of termination of either employee upon the occurrence of a
Terminating Event, Ms. Witte is entitled to receive a lump sum representing
three years salary, together with all benefits for a 24-month period and Mr.
Burns is entitled to receive a lump sum representing two years salary, together
with all benefits for the 24-month period. In addition, Ms. Witte and Mr. Burns
will have the right for a period of six months from such Terminating Event to
require the Company to purchase or arrange for the purchase of up to 2,000,000
common shares (in the case of Ms. Witte) and up to 50,000 common shares (in the
case of Mr. Burns) held by them or their spouses or any corporation controlled
by any of them, respectively, for a price per share equal to the simple average
of the closing price of the common shares of the Company on The Toronto Stock
Exchange for each of the business days on which there was a closing price
falling not more than 20 business days prior to the receipt by the Company of
the notice of exercise of the right herein described. If such right is not
exercised and Ms. Witte or Mr. Burns, as the case may be, is then indebted to
the Company, the outstanding principal amount of such loan will be forgiven by
the Company. As of the date hereof, Mr. Burns is currently not indebted to the
Company and Ms. Witte is indebted to the Company in the amount of US$700,000.
See "Certain Relationships and Related Transactions."
In the event that the employment of any one of the five Executives is
terminated without cause, including a dismissal arising from or related to a
change of ownership of Arctic or the Company, each is entitled to receive
compensation tied to length of service. When termination occurs prior to the
completion of 12 months of service, the employee is entitled to payment of an
amount equal to one year's salary plus the cost to the Company of one year of
benefits; where termination occurs after 12 months of service but before the
completion of 48 months of service, the employee is entitled to 18 months' base
salary plus the cost to the Company of 18 months of benefits; and where
termination occurs any time after 48 months of service, the employee is entitled
to 24 months' base salary including bonus, plus the cost to the Company of two
years of benefits. In the event of a change of control of Arctic or the Company,
the Executive is entitled upon dismissal to payments of any bonus earned but
unpaid and has the immediate right to exercise all valid option agreements.
Loans outstanding under the Agreements with the Executives are secured and must
be repaid in
68
<PAGE> 75
full within 120 days following termination of employment. Several of the
Executives are indebted to Arctic. See "Certain Relationships and Related
Transactions." Each of Ms. Witte, Mr. Burns and the Executives are participants
in the Company's Retirement Plan. See "-- Retirement Plan."
COMPENSATION OF DIRECTORS
The directors of the Company are entitled to receive an annual fee of
$8,000 plus $1,000 for each meeting of the Board of Directors or a committee
thereof attended. The directors are also entitled to reimbursement from the
Company for all reasonable out-of-pocket expenses incurred in connection with
their attendance at meetings of the Board of Directors or a committee thereof.
DESCRIPTION OF SHARE CAPITAL
The attributes of the common and special shares of the Company are
summarized below.
SHARE CAPITAL
The authorized capital of Royal Oak consists of an unlimited number of
common shares and an unlimited number of special shares, issuable in series, of
which, as of July 31, 1996, 138,319,263 common shares (excluding the 1,924,816
common shares owned by a wholly owned subsidiary of the Company, see "Certain
Relationships and Related Transactions") and no special shares were issued and
outstanding.
COMMON SHARES
Holders of common shares are entitled to one vote for each share held on
all votes taken at meetings of the shareholders of Royal Oak (other than
meetings at which only holders of another class or series of shares will be
entitled to vote). Subject to the rights of holders of the special shares and
other shares of Royal Oak ranking prior to the common shares, holders of common
shares participate ratably in any dividend declared by the directors of Royal
Oak on the common shares and the common shares carry the right to receive a
proportionate share of the assets of Royal Oak available for distribution to
holders of common shares in the event of the liquidation, dissolution or
winding-up of Royal Oak.
SPECIAL SHARES
The special shares may be issued from time to time in one or more series
with such rights, privileges, restrictions, conditions and designations attached
thereto as are fixed by resolution of the board of directors of Royal Oak. Each
series of special shares will rank on a parity with the special shares of every
other series. The special shares as a class rank prior to the common shares and
any other shares ranking junior to the special shares with respect to the
payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of Royal Oak. Except in limited
circumstances, holders of the special shares will not be entitled to receive
notice of any meeting of the shareholders of Royal Oak (except a meeting called
for the purpose of authorizing the dissolution of Royal Oak or the sale of all
or a substantial part of its undertaking) or to attend or vote thereat.
69
<PAGE> 76
STOCK OPTIONS
As of July 31, 1996, 3,745,500 common shares of the Company are reserved
for issuance upon exercise of options to purchase such shares. The following
table sets out information with respect to such options:
EXECUTIVE OFFICERS (7)
<TABLE>
<CAPTION>
MARKET PRICE ON
NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE
- ------------------------------------------- --------------- -------------- -------------------
<S> <C> <C> <C>
61,000.................................... $0.80 $0.80 September 6, 1996
40,000.................................... $1.40 $1.40 December 12, 1996
40,000.................................... $1.75 $1.60 May 14, 1997
30,000.................................... $1.70 $1.70 October 27, 1997
300,000.................................... $5.25 $4.90 September 19, 2000
200,000.................................... $5.50 $5.50 April 19, 2000
410,000.................................... $4.15 $4.50 December 18, 1999
200,000.................................... $4.10 US$3.15 February 16, 2000
420,000.................................... $4.85 $4.90 January 2, 2001
63,000.................................... n.a.(1) $2.67 May 10, 2000
</TABLE>
DIRECTORS OTHER THAN EXECUTIVE OFFICERS (5)
<TABLE>
<CAPTION>
MARKET PRICE ON
NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE
- ------------------------------------------- --------------- -------------- -------------------
<S> <C> <C> <C>
50,000.................................... $4.80 $3.95 April 5, 2000
40,000.................................... $4.45 $4.45 April 21, 2000
300,000.................................... $4.85 $4.90 January 2, 2001
15,000.................................... n.a.(1) $2.67 May 10, 2000
</TABLE>
EMPLOYEES
<TABLE>
<CAPTION>
MARKET PRICE ON
NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE
- ------------------------------------------- --------------- -------------- -------------------
<S> <C> <C> <C>
30,000.................................... $1.70 $1.70 October 27, 1997
27,500.................................... $4.45 $4.45 April 21, 1998
65,000.................................... $6.25 $6.25 October 18, 1998
50,000.................................... $6.00 $6.00 December 2, 1998
440,000.................................... $4.15 $4.50 December 18, 1999
60,000.................................... $4.10 $4.60 February 16, 2000
180,000.................................... $4.70 $5.13 September 6, 2000
40,000.................................... $4.70 US$3.85 September 6, 2000
55,000.................................... $5.50 US$4.00 November 20, 2000
24,000.................................... n.a.(1) $2.67 May 10, 2000
50,000.................................... $6.00 $6.00 January 31, 2001
20,000.................................... $6.75 $6.75 February 15, 2001
35,000.................................... $6.50 $6.38 February 15, 2001
40,000.................................... $6.50 $6.50 February 15, 2001
100,000.................................... $5.30 $5.30 July 30, 2001
</TABLE>
OTHER
<TABLE>
<CAPTION>
MARKET PRICE ON
NUMBER OF SHARES DATE OF GRANT EXERCISE PRICE EXPIRY DATE
- ------------------------------------------- --------------- -------------- -------------------
<S> <C> <C> <C>
300,000.................................... n.a.(1) $ 2.27 July 13, 1997
</TABLE>
- ---------------
(1) Outstanding options to purchase common shares of Geddes, converted to
options to purchase shares of the Company upon the arrangement involving the
Company, Geddes, El Condor and St. Philips becoming effective on January 11,
1996.
70
<PAGE> 77
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1995, the only transactions involving the Company, in
which any director, executive officer or any member of their immediate family
had any material interest are as set out below.
Witteck Development Inc. ("Witteck"), a private Ontario, Canada
corporation, was wholly-owned by Margaret K. Witte, a director and the Chairman,
Chief Executive Officer and President of the Company. Ms. Witte was a director
and the sole officer of Witteck. Witteck's only asset consisted of 1,924,816
common shares of the Company. Pursuant to the terms of an agreement dated April
28, 1995, the Company acquired all of the outstanding shares of Witteck in
exchange for 1,924,816 common shares of the Company. The common shares of the
Company owned by Witteck will be disposed of by Witteck within five years of the
acquisition of Witteck by the Company in accordance with the requirements of the
Business Corporations Act (Ontario). The shares of the Company owned by Witteck
may not be voted for as long as the shares are owned by Witteck (and such shares
are not considered to be outstanding for financial reporting purposes, including
the calculation of the Company's earnings per share). All costs and expenses
associated with the transaction were paid by Ms. Witte. In addition, Ms. Witte
has agreed to indemnify the Company for any and all losses incurred by the
Company as a result of the transaction, including any liabilities of Witteck and
any costs incurred by the Company in connection with this transaction. The
acquisition was approved by the shareholders of the Company on May 31, 1995.
The aggregate amount of indebtedness to the Company or its subsidiaries
incurred in connection with the purchase of securities of the Company by all
present and former officers, directors and employees of the Company outstanding
as at June 30, 1996 was US$31,525. The following table sets forth the
indebtedness incurred by directors, senior officers and executive officers of
the Company for the purchase of securities of the Company:
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS UNDER
SECURITIES PURCHASE PROGRAMS
<TABLE>
<CAPTION>
FINANCIALLY
AMOUNT ASSISTED
INVOLVEMENT LARGEST AMOUNT OUTSTANDING SECURITIES
OF ISSUER OUTSTANDING AS OF PURCHASES
NAME AND PRINCIPAL POSITION OR SUBSIDIARY(1) DURING 1995(1) JUNE 30, 1996 DURING 1995
- --------------------------------- ------------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
J.R. Smrke, Senior Loan by Subsidiary US$31,525 US$31,525 20,500 shares
Vice-President.................
</TABLE>
- ---------------
(1) Arctic Precious Metals, Inc., a subsidiary of Royal Oak, provided loans to
Mr. Smrke. The loans do not bear interest and will be secured by a mortgage
on real property owned by Mr. Smrke. The loans are repayable from future
bonus amounts earned by Mr. Smrke and from the aggregate net value of any
stock options exercised by Mr. Smrke at the rate of one-half of the
after-tax value to Mr. Smrke of such amounts.
As of June 30, 1996, the aggregate amount of indebtedness to Royal Oak
incurred, other than in connection with the purchase of securities of Royal Oak,
by all current and former directors, officers and employees of Royal Oak was
US$1,080,000.
71
<PAGE> 78
The following table sets forth the indebtedness to Royal Oak incurred by
the executive officers, senior officers and directors of Royal Oak, other than
for the purchase of securities of the Royal Oak:
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS
<TABLE>
<CAPTION>
LARGEST AMOUNT AMOUNT OUTSTANDING
INVOLVEMENT OF ISSUER OUTSTANDING DURING AS OF JUNE 30,
NAME AND PRINCIPAL POSITION OR SUBSIDIARY 1995 1996
- ---------------------------------------- --------------------- ------------------ ------------------
<S> <C> <C> <C>
M.K. Witte.............................. Subsidiary(1) -- US$700,000
Chairman, President and
Chief Executive Officer
S. El-Alfy.............................. Subsidiary(2) US$100,000 US$97,182
Vice-President, Operations
J. Wood................................. Subsidiary(3) US$75,000 US$66,300
Chief Financial Officer
J.R. Smrke.............................. Subsidiary(4) US$31,400 US$23,000
Senior Vice-President
</TABLE>
- ---------------
(1) In 1996, loans were made to Ms. Witte by Arctic Precious Metals, Inc., a
subsidiary of Royal Oak. The loans bear interest at prescribed rates, are
repayable on demand, provided that the maximum amount repayable in any one
year is one third of the principal amount of the loans and will be secured
by a mortgage on real property owned by Ms. Witte. Ms. Witte's compensation
will be increased to the extent that any interest is paid.
(2) In February 1995, a housing loan was made to Mr. El-Alfy by Arctic Precious
Metals, Inc., a subsidiary of Royal Oak. The loan does not bear interest and
is secured against Mr. El-Alfy's residence. The loan is repayable over a
maximum of 10 years from future bonus amounts earned by Mr. El-Alfy and from
the aggregate net value of any stock options exercised by Mr. El-Alfy, at
the rate of up to one-half of the after-tax value to Mr. El-Alfy of such
amounts.
(3) In May 1995, a housing loan was made to Mr. Wood by Arctic Precious Metals,
Inc. The loan does not bear interest and is secured against Mr. Wood's
residence. The loan is repayable over a maximum of ten years from future
bonus amounts earned by Mr. Wood and from the aggregate net value of any
stock options exercised by Mr. Wood, at the rate of one-half of the
after-tax value to Mr. Wood of such amounts.
(4) In January 1995, a loan was made to Mr. Smrke by Arctic Precious Metals,
Inc. The loan does not bear interest and will be secured by a mortgage on
real property owned by Mr. Smrke. The loan is repayable from future bonus
amounts earned by Mr. Smrke and from the aggregate net value of any stock
options exercised by Mr. Smrke, at the rate of one-half of the after-tax
value to Mr. Smrke of such amounts.
SECURITY OWNERSHIP
To the knowledge of the directors and officers of the Company, no person or
corporation beneficially owns, directly or indirectly, or exercises control or
direction over shares carrying more than 5% of the voting rights attached to the
Company's common shares. The Company's class of common shares is the only class
of shares outstanding.
DESCRIPTION OF CREDIT FACILITY
Currently, the Company has a $28 million unsecured, revolving term credit
facility (the "Credit Facility") with The Bank of Nova Scotia ("BNS"). As of
August 27, 1996, the Company had outstanding under the Credit Facility letters
of credit in the aggregate amount of $1,940,000. The Credit Facility was
established for the Company's general corporate purposes, matures on February
14, 1997 and is renewable annually at the discretion of BNS. At the Company's
option, loans under the Credit Facility will bear interest at either the
lender's prime rate ("Prime Rate Loans"), the lender's base rate ("Base Rate
Loans") or the lender's reserve adjusted LIBOR rate ("LIBOR Loans"), plus the
applicable margin. The applicable margin for Base Rate Loans and LIBOR Loans is
1/2% and 3/4%, respectively. No margins are applicable to Prime Rate Loans.
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The Credit Facility requires the Company to meet certain financial tests
which, among other things, limit the incurrence of additional indebtedness. The
Credit Facility contains customary representations, warranties, covenants and
events of default, including payment defaults, incorrectness of representations
and warranties, covenant defaults, cross-defaults to certain other indebtedness
and certain events relating to bankruptcy and insolvency.
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under the same Indenture, dated as of
August 12, 1996, by and among the Company, the Guarantor and Mellon Bank,
F.S.B., as Trustee (the "Trustee"), under which the Notes were issued. The
following summary of certain provisions of the Indenture, the Exchange Notes and
the Guarantee does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the United States Trust Indenture Act
of 1939, as amended, (the "TIA") and to all of the provisions of the Indenture
(a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part, and is incorporated by reference herein), including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. The
definitions of certain capitalized terms used in the following summary are set
forth under "-- Certain Definitions."
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of US$1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the Exchange Notes. The Company will pay principal (and premium, if any) on the
Exchange Notes at the Trustee's corporate office in New York, New York. At the
Company's option, interest may be paid at the Trustee's corporate trust office
or by check mailed to the registered addresses of holders.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be general unsecured obligations of the Company
limited in aggregate principal amount to US$175,000,000 and will mature on
August 15, 2006. Interest on the Exchange Notes will accrue at the rate per
annum set forth on the cover page of this Prospectus and will be payable
semi-annually on each of February 15 and August 15 in each year commencing on
February 15, 1997, to the persons who are registered holders thereof at the
close of business on the February 1 and August 1 immediately preceding the
applicable interest payment date. Interest on the Exchange Notes will accrue
from and including the most recent date to which interest has been paid or, if
no interest has been paid, from and including the Issue Date. The Company will
pay interest on overdue principal and on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of 2% per annum in excess of the rate shown on the cover page of this
Prospectus. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after August 15, 2001, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on August 15 of the year
set forth below, plus, in each case, accrued interest thereon to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------------------------- ----------
<S> <C>
2001...................................................................... 105.500%
2002...................................................................... 103.667%
2003...................................................................... 101.833%
2004 and thereafter....................................................... 100.000%
</TABLE>
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<PAGE> 80
Notwithstanding the foregoing, at any time prior to August 15, 1999, the
Company may redeem up to 35% of the aggregate principal amount of the Notes and
the Exchange Notes with the net proceeds from one or more Public Equity
Offerings of the Company at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the twelve-month period
commencing on August 15 of the year set forth below, plus, in each case, accrued
interest thereon to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------------------------- ----------
<S> <C>
1996...................................................................... 111.000%
1997...................................................................... 109.778%
1998...................................................................... 108.556%
</TABLE>
Any such redemption must occur on or prior to 120 days after the receipt of
such net proceeds.
In addition, the Notes and the Exchange Notes are redeemable, as a whole
but not in part, at the option of the Company at any time upon not less than 30
nor more than 60 days' notice at a redemption price equal to 100% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest thereon
to the date of redemption, if the Company has become or would become obligated
to pay, on the next date on which any amount would be payable under or with
respect to the Notes or Exchange Notes, any additional amounts ("Additional
Amounts") as a result of any change in, or amendment to, the laws (or any
regulations promulgated thereunder) of Canada (or any political subdivision or
taxing authority thereof or therein), or any change in, or amendment to, any
official position regarding the application or interpretation of such laws or
regulations, which change or amendment is announced or becomes effective on or
after August 5, 1996.
ADDITIONAL AMOUNTS
The Indenture provides that if the Company is required to make any
withholding or deduction for or on account of any Canadian taxes from any
payment made under or with respect to the Exchange Notes, the Company will pay
such Additional Amounts as may be necessary so that the net amount received by
each holder of the Exchange Notes (including Additional Amounts) will not be
less than the amount such holder would have received had such Canadian taxes not
been withheld or deducted; provided that no Additional Amounts will be payable
with respect to a payment made to a holder (an "Excluded Holder") (i) with which
the Company does not deal at arm's length (within the meaning of the Income Tax
Act (Canada)) at the time of making such payment, or (ii) which is subject to
such Canadian taxes by reason of its being connected with Canada otherwise than
by the mere holding of the Exchange Notes or the receipt of payments thereunder.
The Company will also (i) make such withholding or deduction and (ii) remit
the full amount deducted or withheld to the relevant authority in accordance
with applicable law. The Company will furnish, within 30 days after the date the
payment of any Canadian taxes is due pursuant to applicable law, to the holders
of Exchange Notes that are outstanding on the date of the withholding or
deduction copies of tax receipts evidencing that such payment has been made by
the Company. The Company will indemnify and hold harmless each holder of
Exchange Notes that are outstanding on the date of the withholding or deduction
(other than an Excluded Holder) and upon written request reimburse each such
holder for the amount of (i) any Canadian taxes so levied or imposed and paid by
such holder as a result of payments made under or with respect to the Exchange
Notes, (ii) any liability (including penalties, interest and expense) arising
therefrom or with respect thereto, and (iii) any Canadian taxes imposed with
respect to any reimbursement under clause (i) or (ii) above.
At least 30 days prior to each date on which any payment under or with
respect to the Exchange Notes is due and payable, if the Company becomes
obligated to pay Additional Amounts with respect to such payment, the Company
will deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable, and the amounts so payable and will set
forth such other information as is necessary to enable the Trustee to pay such
Additional Amounts to the holders of Exchange Notes on the payment date.
Whenever in the Indenture there is mentioned, in any context, (a) the payment of
principal (and premium, if any), (b) purchase prices in connection with a
repurchase of Exchange Notes, (c) interest, or (d) any other amount payable on
or with respect to any of the Exchange Notes, such mention shall be deemed to
include
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<PAGE> 81
mention of the payment of Additional Amounts provided for in this section to the
extent that, in such context, Additional Amounts are, were or would be payable
in respect thereof.
For a discussion of the exemption from Canadian withholding taxes
applicable to payments under or with respect to the Exchange Notes, see "Certain
Income Tax Considerations -- Certain Canadian Federal Income Tax
Considerations." If, as a result of a change to Canadian withholding tax laws,
the Company has become or would become obligated to pay, on the next date on
which any amount would be payable under or with respect to the Notes or the
Exchange Notes, any Additional Amounts, the Company may redeem all, but not less
than all, the Notes and the Exchange Notes at a redemption price equal to 100%
of the aggregate principal amount so redeemed, plus accrued and unpaid interest
thereon to the date of redemption. See "-- Optional Redemption."
SINKING FUND
There will be no mandatory sinking fund payments for the Exchange Notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Exchange Notes are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed or, if such Exchange
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Exchange Notes of a principal amount of US$1,000 or
less shall be redeemed in part. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each holder of Exchange Notes to be redeemed at its registered address.
If any Exchange Note is to be redeemed in part only, the notice of redemption
that relates to such Exchange Note shall state the portion of the principal
amount thereof to be redeemed. A new Exchange Note in a principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Exchange Note. On and after the
redemption date, interest will cease to accrue on Exchange Notes or portions
thereof called for redemption.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the
Exchange Notes will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the Issue Date or thereafter incurred, including, without
limitation, any interest accruing subsequent to a bankruptcy or other similar
proceeding whether or not such interest is an allowed claim enforceable against
the Company in a bankruptcy case under applicable law.
Upon any distribution of assets of the Company of any kind or character,
whether in cash, property or securities upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company (including, without
limitation, in bankruptcy, insolvency, or receivership proceedings or upon any
assignment for the benefit of creditors or any other marshalling of the
Company's assets and liabilities), the holders of Senior Indebtedness shall
first be entitled to receive payment in full of all amounts payable under Senior
Indebtedness (including, without limitation, interest after the commencement of
any such proceeding at the rate specified in the applicable Senior Indebtedness
whether or not interest is an allowed claim enforceable against the Company in
any such proceeding) before the holders will be entitled to receive any payment
with respect to the Exchange Notes, and until all Obligations with respect to
Senior Indebtedness are paid in full, any distribution to which the holders
would be entitled shall be made to the holders of Senior Indebtedness.
No direct or indirect payment by or on behalf of the Company of principal
of, premium, if any, or interest on, the Exchange Notes whether pursuant to the
terms of the Exchange Notes or upon acceleration or otherwise shall be made if,
at the time of such payment, there exists a default in the payment of all or any
portion of principal of, premium, if any, or interest on, any Senior
Indebtedness with a principal amount in excess of US$5.0 million (and the
Trustee has received written notice thereof), and such default shall not have
been cured or waived or the benefits of this sentence waived by or on behalf of
the holders of Senior
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<PAGE> 82
Indebtedness. In addition, during the continuance of any other event of default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, upon the occurrence of (a) receipt by the
Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their representative,
or (b) if such event of default results from the acceleration of the Exchange
Notes, the date of such acceleration, no such payment may be made by the Company
upon or in respect of the Exchange Notes for a period ("Payment Blockage
Period") commencing on the earlier of the date of receipt of such notice or the
date of such acceleration and ending 179 days thereafter (unless such Payment
Blockage Period shall be terminated by written notice to the Trustee from the
holders of a majority of the outstanding principal amount of such Designated
Senior Indebtedness or their representative who delivered such notice).
Notwithstanding anything herein to the contrary, in no event will a Payment
Blockage Period extend beyond 179 days from the date on which such Payment
Blockage Period was commenced. Not more than one Payment Blockage Period may be
commenced with respect to the Exchange Notes during any period of 360
consecutive days. For all purposes of this paragraph, no event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by the holders of such
Designated Senior Indebtedness or their representative whether or not within a
period of 360 consecutive days unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or the
holders of the Exchange Notes or any Paying Agent (or, if the Company is acting
as its own Paying Agent, money for any such payment or distribution shall be
segregated or held in trust) on account of principal of, premium, if any, or
interest on, the Exchange Notes before all Senior Indebtedness is paid in full,
such payment or distribution shall be received and held in trust by the Trustee
or such holder or Paying Agent for the benefit of the holders of the Senior
Indebtedness, or their respective representative, ratably according to the
respective amounts of Senior Indebtedness held or represented by each, and shall
be paid over or delivered to the holders of the Senior Indebtedness remaining
unpaid to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid after giving effect to all concurrent payments and
distributions to or for the holders of such Senior Indebtedness.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of the Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Indebtedness or
trade creditors. The Indenture limits, subject to certain financial tests, the
amount of additional Indebtedness, including Senior Indebtedness, that the
Company and its Subsidiaries can incur. See "-- Certain Covenants -- Limitation
on Indebtedness."
SUBSIDIARY GUARANTEE
Each Guarantor unconditionally guarantees, jointly and severally, on a
senior subordinated basis to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Exchange
Notes, including the payment of principal of, and interest on, the Exchange
Notes. As of the date of this Prospectus, there is a single Guarantor, Kemess
Mines Inc., a wholly owned subsidiary of the Company. The obligations of each
Guarantor are limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in a pro rata amount, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a wholly owned Restricted Subsidiary of the
Company without limitation, or with other Persons upon the terms and conditions
set forth in the Indenture. See "-- Certain Covenants -- Mergers,
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<PAGE> 83
Consolidations and Sale of Assets." In the event all of the capital stock of a
Guarantor is sold by the Company and the sale complies with the provisions set
forth in "-- Certain Covenants -- Limitation on Sale of Assets," the Guarantor's
Guarantee will be released.
Separate financial statements of the Guarantor are not included herein
because the aggregate net assets, earnings and equity of the Guarantor and the
Company are substantially equivalent to the net assets, earnings and equity of
the Company on a consolidated basis.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control
Triggering Event, the Company will be required to offer to repurchase (the
"Change of Control Offer") all of the outstanding Notes and Exchange Notes
pursuant to the offer described below, at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase.
Within 30 days following the date upon which the Change of Control
Triggering Event occurred, the Company must send, by first class mail, a notice
to each holder of Exchange Notes, with a copy to the Trustee, which notice shall
govern the terms of the Change of Control Offer. Such notice will state, among
other things, the purchase date, which must be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be required
by law (the "Change of Control Payment Date"). The Change of Control Offer is
required to remain open for at least 20 Business Days and until the close of
business on the Change of Control Payment Date.
A Change of Control Triggering Event requires both the occurrence of a
Change of Control and a Rating Event. A Rating Event will occur if the rating on
the Notes or Exchange Notes is downgraded by one or more Gradations at any time
within a specified 90-day period (subject to extension under certain
circumstances). See "-- Certain Definitions -- Change of Control," "-- Certain
Definitions -- Change of Control Triggering Event" and "-- Certain Definitions
- -- Rating Event."
If a Change of Control Triggering Event were to occur, there can be no
assurance that the Company would have sufficient funds to pay the repurchase
price for all Notes and Exchange Notes that the Company is required to
repurchase. In the event that the Company were required to repurchase
outstanding Notes and Exchange Notes pursuant to a Change of Control Offer, the
Company expects that it would need to seek third-party financing to the extent
it does not have available funds to meet its repurchase obligations. However,
there can be no assurance that the Company would be able to obtain such
financing.
If an offer is made to repurchase the Notes and Exchange Notes pursuant to
a Change of Control Offer, the Company will comply with all tender offer rules
under state and Federal securities laws, including, but not limited to, Section
14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable
to such offer.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Indebtedness. (a) The Indenture provides that neither the
Company nor any of its Restricted Subsidiaries will, directly or indirectly,
Incur any Indebtedness, including, without limitation, any Acquired Indebtedness
(other than Permitted Indebtedness).
(b) Notwithstanding the foregoing limitations, in addition to Permitted
Indebtedness, the Company may Incur Indebtedness (including, without limitation,
Acquired Indebtedness) and Restricted Subsidiaries of the Company may Incur
Acquired Indebtedness, in each case, if (i) no Default or Event of Default shall
have occurred and be continuing on the date of the proposed Incurrence thereof
or would result as a consequence of such proposed Incurrence and (ii)
immediately after giving effect to such proposed Incurrence, (x) the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.0
to 1.0 if such proposed Incurrence is on or prior to December 31, 1998, at least
equal to 2.5 to 1.0 if such proposed Incurrence is after December 31, 1998 and
on or prior to December 31, 1999, and at least equal to 2.75 to 1.0 if such
proposed
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<PAGE> 84
Incurrence occurs after December 31, 1999 and (y) the Adjusted Consolidated Net
Tangible Assets of the Company are at least equal to 150% of the aggregate
consolidated Indebtedness of the Company.
(c) The Company will not, directly or indirectly, in any event Incur any
Indebtedness which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated to any other Indebtedness of the Company ranking
pari passu with the Notes or the Exchange Notes unless such Indebtedness is also
by its terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate to the Notes and the Exchange Notes to the same extent and
in the same manner as such Indebtedness is subordinated to such pari passu
Indebtedness pursuant to the subordination provisions that are most favorable to
the holders of any such pari passu Indebtedness of the Company.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Exchange Notes, the Indenture
and the Guarantee;
(ii) Commodity Agreements of the Company; provided, however, that such
Commodity Agreements are entered into to reduce the exposure of the Company
and its Restricted Subsidiaries to fluctuations in the prices of
commodities, in each case consistent with past practice of the Company;
(iii) Interest Swap Obligations and Foreign Exchange Obligations of
the Company; provided, however, that such Interest Swap Obligations and
Foreign Exchange Obligations are entered into to protect the Company and
its Restricted Subsidiaries from fluctuations in interest or exchange rates
on Indebtedness Incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligation or Foreign
Exchange Obligation does not exceed the principal amount of the
Indebtedness to which such Obligation relates; and provided, further, that
the Company may enter into Foreign Exchange Obligations to protect the
Company and its Restricted Subsidiaries from fluctuations in exchange rates
related to the operating costs of the Company and its Restricted
Subsidiaries, in each case consistent with past practice of the Company;
(iv) Indebtedness under the Working Capital Facility not to exceed $28
million, less any amounts repaid from Net Cash Proceeds pursuant to the
"Limitation on Asset Sales" covenant;
(v) Capitalized Lease Obligations and Purchase Money Obligations of
the Company or any Restricted Subsidiary not to exceed US$20 million
outstanding at any one time;
(vi) additional Indebtedness Incurred by the Company not to exceed
US$25 million outstanding at any time;
(vii) Indebtedness of a direct or indirect Restricted Subsidiary of
the Company to the Company or to a direct or indirect wholly owned
Restricted Subsidiary of the Company for so long as such Indebtedness is
held by the Company or a direct or indirect wholly owned Restricted
Subsidiary of the Company in each case subject to no Lien held by a Person
other than the Company or a direct or indirect wholly owned Restricted
Subsidiary of the Company; provided that if as of any date any Person other
than the Company or a direct or indirect wholly owned Restricted Subsidiary
of the Company owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the Incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(viii) Indebtedness of the Company to a direct or indirect wholly
owned Restricted Subsidiary of the Company for so long as such Indebtedness
is held by a direct or indirect wholly owned Restricted Subsidiary of the
company in each case subject to no Lien; provided that (a) any Indebtedness
of the Company to any direct or indirect Restricted Subsidiary of the
Company is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Indenture and the Exchange Notes, and
(b) if as of any date any Person other than a direct or indirect wholly
owned Restricted Subsidiary of the Company owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the Incurrence of Indebtedness not constituting
Permitted Indebtedness under this clause (viii) by the issuer of such
Indebtedness;
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<PAGE> 85
(ix) guarantees by Restricted Subsidiaries of the Company of
Indebtedness of the Company (other than Permitted Indebtedness) Incurred on
or after the Issue Date; provided that such Indebtedness was Incurred in
compliance with the covenant " -- Limitation on Indebtedness"; and
(x) Refinancing Indebtedness.
Limitation on Restricted Payments. The Indenture provides that neither the
Company nor any of its Restricted Subsidiaries will, directly or indirectly (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable solely in Qualified Capital Stock of the Company) on
shares of the Company's Capital Stock to holders of such Capital Stock, (b)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, or any warrants, rights or options to acquire shares of any class
of such Capital Stock, other than through the exchange therefor solely of
Qualified Capital Stock of the Company or warrants, rights or options to acquire
Qualified Capital Stock of the Company, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or the Exchange Notes or (d) make any
Investment (other than Permitted Investments) in any Person (each of the
foregoing prohibited actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such proposed
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default has occurred and is continuing or would result therefrom, or
(ii) the Company is not able to Incur at least US$1.00 of additional
Indebtedness in accordance with paragraph (b) of "-- Limitation on Indebtedness"
above (as if such Restricted Payment had been made as of the last day of the
Four Quarter Period), or (iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in good faith by the
board of directors of the Company) exceeds or would exceed the sum of: (x) 50%
of the cumulative Consolidated Net Income (or if cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss) of the Company during the
period (treating such period as a single accounting period) subsequent to the
Issue Date and prior to the date of the making of such Restricted Payment; and
(y) 100% of the aggregate Net Equity Proceeds received by the Company from any
Person (other than from a Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date of Qualified Capital Stock of the Company
(excluding (A) any Qualified Capital Stock of the Company paid as a dividend on
any Capital Stock of the Company and (B) any Qualified Capital Stock of the
Company with respect to which the purchase price thereof has been financed
directly or indirectly using funds (i) borrowed from the Company or from any of
its Subsidiaries, unless and until and to the extent such borrowing is repaid,
or (ii) contributed, extended, guaranteed or advanced by the Company or by any
of its Subsidiaries (including, without limitation, in respect of any employee
stock ownership or benefit plan)).
Notwithstanding the foregoing, these provisions do not prohibit: (1) the
payment of any dividend or making of any distribution within 60 days after the
date of its declaration if the dividend or distribution would have been
permitted on the date of declaration; (2) the acquisition of Capital Stock of
the Company or warrants, rights or options to acquire Capital Stock of the
Company either (i) solely in exchange for shares of Qualified Capital Stock of
the Company or warrants, rights or options to acquire Qualified Capital Stock of
the Company, or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of shares
of Qualified Capital Stock of the Company or warrants, rights or options to
acquire Qualified Capital Stock of the Company; and (3) the acquisition of any
Indebtedness of the Company that is subordinate or junior in right of payment to
the Notes and the Exchange Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company, or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of (A) shares of Qualified Capital Stock of the Company or
warrants, rights or options to acquire Qualified Capital Stock of the Company or
(B) Refinancing Indebtedness; provided, however, that in the case of clauses (2)
and (3) of this paragraph, no Default or Event of Default shall have occurred
and be continuing at the time of such payment or as a result thereof. In
determining the aggregate amount of Restricted Payments
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made subsequent to the Issue Date, amounts expended pursuant to clauses (1) and
(2) shall, in each case, be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Sale of Assets. Neither the Company nor any of its
Restricted Subsidiaries will consummate any Asset Sale unless (i) such Asset
Sale is for at least fair market value, (ii) at least 85% of the consideration
therefrom received by the Company or such Restricted Subsidiary is in the form
of cash or Cash Equivalents, and (iii) the Company or such Subsidiary shall
apply the Net Cash Proceeds of such Asset Sale within 180 days of receipt
thereof as follows:
(a) to repay any Indebtedness secured by the assets involved in such
Asset Sale together with a concomitant permanent reduction in the amount of
such Indebtedness (including a permanent reduction in committed amounts
therefor in the case of any revolving credit facility so repaid); and
(b) with respect to any Net Cash Proceeds remaining after application
pursuant to the preceding paragraph (a) (the "Available Proceeds Amount"),
the Company shall make an offer to purchase (the "Asset Sale Offer") from
all holders of Notes and Exchange Notes up to a maximum principal amount
(expressed as an integral multiple of US$1,000) of Notes and Exchange Notes
equal to the Available Proceeds Amount at a purchase price equal to 100% of
the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of purchase; provided, that the Company will not be
required to apply pursuant to this paragraph (b) Net Cash Proceeds received
from any Asset Sale if, and only to the extent that, such Net Cash Proceeds
are (i) applied to or invested in Mining Related Assets, within 180 days of
such Asset Sale or (ii) applied on or prior to the date of such Asset Sale,
to the purchase, redemption, payment or other permanent reduction of then
outstanding Senior Indebtedness. If at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall
be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds
thereof shall be applied in accordance with this "Limitation on Sale of
Assets" covenant. The Company may defer the Asset Sale Offer until there is
an aggregate unutilized Available Proceeds Amount equal to or in excess of
US$10 million resulting from one or more Asset Sales (at which time, the
entire unutilized Available Proceeds Amount, and not just the amount in
excess of US$10 million, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Mergers,
Consolidations and Sale of Assets," the successor corporation shall be deemed to
have sold the properties and assets of the Company and its Restricted
Subsidiaries not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale. In addition, the fair market value of such properties and
assets of the Company or its Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant.
Notice of an Asset Sale Offer will be mailed to the holders of Exchange
Notes as shown on the register of such holders not less than 30 days nor more
than 60 days before the payment date for the Asset Sale Offer, with a copy to
the Trustee, and shall comply with the procedures set forth in the Indenture.
Upon receiving notice of the Asset Sale Offer, such holders may elect to tender
their Exchange Notes in whole or in part in integral multiples of US$1,000
principal amount at maturity in exchange for cash. To the extent holders thereof
properly tender Exchange Notes and Notes in an amount exceeding the Available
Proceeds Amount, Exchange Notes and Notes of such tendering holders will be
repurchased on a pro rata basis (based on the aggregate amount tendered). An
Asset Sale Offer shall remain open for a period of 20 Business Days or such
longer periods as may be required by law.
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Notwithstanding the foregoing, the Company shall not be obligated to
purchase Notes or Exchange Notes pursuant to an Asset Sale Offer on or prior to
the fifth anniversary of the Issue Date to the extent that such purchase would
result in the aggregate of the principal amount of Exchange Notes and Notes
purchased pursuant thereto or prior thereto being in excess of 25% of the
principal amount of Notes originally issued; provided, however, that to the
extent that the Available Proceeds Amount is not required to be applied to
purchase Exchange Notes or Notes pursuant to an Asset Sale Offer, the Company
shall apply such proceeds to make an Asset Sale Offer immediately after the
fifth anniversary of the Issue Date. The Company has no present intention to
trigger an Asset Sale Offer on or prior to the fifth anniversary of the Issue
Date which would result in a purchase of the aggregate of the principal amount
of Exchange Notes and Notes purchased pursuant thereto or prior thereto being in
excess of 25% of the principal amount of Notes originally issued.
If an offer is made to repurchase the Exchange Notes or Notes pursuant to
an Asset Sale Offer, the Company will and will cause its Subsidiaries to comply
with all tender offer rules under state and federal securities laws, including,
but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1
thereunder, to the extent applicable to such offer.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, create or otherwise cause
or permit or suffer to exist or become effective any encumbrance or restriction
on the ability of any Restricted Subsidiary to (a) pay dividends or make any
other distributions on its Capital Stock; (b) make loans or advances or pay any
Indebtedness or other obligation owed to the Company or to any Restricted
Subsidiary of the Company; or (c) transfer any of its property or assets to the
Company or to any Restricted Subsidiary of the Company (each such encumbrance or
restriction in clause (a), (b), or (c) a "Payment Restriction"), except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Indenture; (3) customary non-assignment provisions of any lease
governing a leasehold interest of any Restricted Subsidiary of the Company; (4)
any instrument governing Acquired Indebtedness Incurred in accordance with
paragraph (b) of the covenant "-- Limitation on Indebtedness," provided that
such encumbrance or restriction is not, and will not be, applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or asset of the Person, becoming a Restricted Subsidiary of the
Company; (5) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (6) restrictions imposed
by Liens granted pursuant to clauses (v) and (vii) - (ix) of the definition of
Permitted Liens solely to the extent such Liens encumber the transfer or other
disposition of the assets subject to such Liens; (7) any restriction or
encumbrance contained in contracts for the sale of assets to be consummated in
accordance with the Indenture solely in respect of the assets to be sold
pursuant to such contract; or (8) any encumbrance or restriction contained in
Refinancing Indebtedness Incurred to Refinance the Indebtedness issued, assumed
or Incurred pursuant to an agreement referred to in clause (2), (4) or (5)
above; provided that the provisions relating to such encumbrance or restriction
contained in any such Refinancing Indebtedness are no less favorable to the
Company or to the holders of Exchange Notes and Notes in any material respect in
the reasonable and good faith judgment of the board of directors of the Company
than the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Restricted Subsidiaries. The Indenture
provides that the Company will not cause or permit any of its Restricted
Subsidiaries to issue any Preferred Stock (other than to the Company or to a
wholly owned Restricted Subsidiary of the Company) or permit any Person (other
than the Company or a wholly owned Restricted Subsidiary of the Company) to own
or hold any Preferred Stock of any Restricted Subsidiary of the Company or any
Lien or security interest therein.
Limitation on Liens. The Indenture provides that the Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or permit or suffer to exist or remain in
effect any Liens (other than Permitted Liens) upon any properties or assets of
the Company or of any of its Restricted Subsidiaries whether owned on the Issue
Date or acquired after the Issue Date, or on any income or profits therefrom, or
assign or otherwise convey any right to receive income or profits thereon;
provided that in addition to creating Permitted Liens on its properties or
assets, (i) the Company may create any Lien upon any of its properties or assets
(including, but not limited to, any Capital Stock of its
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Subsidiaries) if the Notes and the Exchange Notes are equally and ratably
secured thereby, and (ii) a Guarantor may create any Lien upon any of its
properties or assets (including, but not limited to, any Capital Stock of its
Subsidiaries) if its Subsidiary Guarantee is equally and ratably secured
thereby; and provided, further, that if (a) the Company creates any Lien on its
assets to secure any Indebtedness of the Company subordinated to the Notes and
the Exchange Notes, the Lien securing such Indebtedness shall be subordinated
and junior to the Lien securing the Notes and the Exchange Notes with the same
or lesser priorities as the subordinated Indebtedness shall have with respect to
the Notes and the Exchange Notes, and (b) a Guarantor creates any Lien on its
assets to secure any Indebtedness of such Guarantor subordinated to the Notes
and the Exchange Notes, the Lien securing such subordinated Indebtedness shall
be subordinated and junior to the Lien securing the Guarantee of such Guarantor
with the same or lesser priorities as the subordinated Indebtedness shall have
with respect to the Guarantee.
Mergers, Consolidations and Sale of Assets. The Indenture provides that the
Company will not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person, or sell, assign, transfer, lease,
convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of
the Company to sell, assign, transfer, lease, convey or otherwise dispose of)
all or substantially all of the Company's assets (determined on a consolidated
basis for the Company and the Company's Restricted Subsidiaries) whether as an
entirety or substantially as an entirety to any Person unless: (i) either (1)
the Company shall be the surviving or continuing corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and of the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia or Canada or any province thereof and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
Exchange Notes and the performance of every covenant of the Notes and the
Exchange Notes, the Indenture and the Registration Rights Agreement on the part
of the Company to be performed or observed; (ii) immediately after giving effect
to such transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness Incurred
or anticipated to be Incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to Incur at least US$1.00 of additional Indebtedness pursuant to paragraph
(b) of " -- Limitation on Indebtedness"; provided that in determining the
Consolidated Fixed Charge Coverage Ratio of the resulting, transferee or
surviving Person, such ratio shall be calculated as if the transaction
(including the Incurrence of any Indebtedness or Acquired Indebtedness) took
place on the first day of the Four Quarter Period; (iii) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness Incurred or anticipated to
be Incurred and any Lien granted in connection with or in respect of the
transaction), no Default and no Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied, which Opinion of Counsel may
rely, as to factual matters, upon an Officer's Certificate.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
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Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, lease or
transfer is made will succeed to, and be substituted for, and may exercise every
right and power of, the Company under the Indenture with the same effect as if
such successor had been named as the Company therein, and thereafter (except in
the case of a sale, assignment, transfer, lease, conveyance or other
disposition) the predecessor corporation will be relieved of all further
obligations and covenants under the Indenture, the Notes and the Exchange Notes.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of " -- Limitation on Sale of
Assets") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantors unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor), or to which sale, lease,
conveyance or other disposition shall have been made, is a corporation organized
and existing under the laws of the United States, any state thereof or the
District of Columbia, or under the laws of Canada or any province thereof; (ii)
such entity assumes by supplemental indenture all of the obligations of the
Guarantor on the Guarantee; (iii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (ii) of the first paragraph of this covenant.
Any merger or consolidation of a Guarantor with and into the Company (with the
Company being the surviving entity) or another Guarantor that is a wholly owned
Restricted Subsidiary of the Company need only comply with clause (iv) of the
first paragraph of this covenant.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any Subsidiary of the Company will conduct any business
or enter into any transaction or series of transactions with or for the benefit
of any of their Affiliates (each an "Affiliate Transaction"), except in good
faith and on terms that are no less favorable to the Company or such Subsidiary,
as the case may be, than those that could have been obtained in a comparable
transaction on an arm's-length basis from a Person not an Affiliate of the
Company or such Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other property with a fair market value in
excess of US$5 million shall be approved by the board of directors of the
Company, such approval to be evidenced by a Board Resolution stating that such
board of directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than US$15 million, the Company or such Subsidiary shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to customary directors' fees, indemnification and similar
arrangements.
Additional Subsidiary Guarantees. The Indenture provides that in the event
that any Subsidiary, directly or indirectly, guarantees any Indebtedness of the
Company other than the Notes or the Exchange Notes (the "Other Indebtedness")
the Company shall cause such Subsidiary (an "Additional Guarantor") to
concurrently guarantee (an "Additional Guarantee") the Company's Obligations
under the Indenture, the Notes and the Exchange Notes to the same extent that
such Subsidiary guaranteed the Company's Obligations under the Other
Indebtedness (including waiver of subrogation, if any); provided that if such
Other Indebtedness is (i) Senior Indebtedness, the Additional Guarantee shall be
subordinated in right of payment to the guarantee of such Other Indebtedness on
the same basis that the Notes and the Exchange Notes are subordinated to such
Other Indebtedness, (ii) pari passu Indebtedness, the Additional Guarantee shall
be pari passu in right of payment to the guarantee of such Other Indebtedness or
(iii) subordinated Indebtedness, the Additional Guarantee shall be senior in
right of payment with respect to the guarantee of the Other Indebtedness,
provided, however, that each Additional Guarantor will be automatically and
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unconditionally released and discharged from its obligations under such
Additional Guarantee upon the release or discharge of the guarantee of the Other
Indebtedness that resulted in the creation of such Additional Guarantee, except
(i) a discharge or release by, or as a result of, any payment under the
guarantee of such Other Indebtedness by such Additional Guarantor or (ii) a
discharge or release of an initial Guarantee.
Limitation on Conduct of Business. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, engage in
the conduct of any business other than the Mining Business on a basis congruent
with the conduct of such business as conducted on the Issue Date.
Senior Subordinated Indebtedness. The Company shall not incur or suffer to
exist any Indebtedness that is senior in right of payment to the Exchange Notes
and subordinate in right of payment to any other Indebtedness of the Company.
Reports to Holders. The Company will file with the Commission all
information, documents and reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company
is then subject to such filing requirements. The Company will file with the
Trustee, within 15 days after it files them with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Regardless of whether the Company is
required to furnish such reports to its stockholders pursuant to the Exchange
Act, the Company will cause its consolidated financial statements, comparable to
that which would have been required to appear in annual or quarterly reports, to
be delivered to the Trustee and the holders of the Exchange Notes. The Company
will also make such reports available to prospective investors, securities
analysts and broker-dealers upon their request. In addition, the Indenture
requires that the Company provide on request to any holder of the Exchange Notes
any information reasonably requested concerning the Company necessary to permit
such holder to sell or transfer Exchange Notes in compliance with Rule 144A
under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Note or Exchange Note for a
period of 30 days or more after such interest becomes due and payable; or
(ii) the failure to pay the principal on any Note or Exchange Note,
when such principal becomes due and payable, at maturity, upon redemption,
pursuant to an Asset Sale Offer or a Change of Control Offer or otherwise;
or
(iii) (x) the failure of the Company or any Guarantor to comply with
any of the terms or provisions described under "-- Certain Covenants --
Mergers, Consolidations and Sale of Assets" or (y) a default in the
observance or performance of any other covenant or agreement contained in
the Indenture which default continues for a period of 30 days after the
Company receives written notice specifying the default from the Trustee or
from Holders of at least 25% in aggregate principal amount of outstanding
Notes and Exchange Notes; or
(iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary of the Company
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary of the Company) which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness after any
applicable grace period provided in such Indebtedness on the date of such
default (a "payment default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates US$10 million; or
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(v) one or more judgments in an aggregate amount in excess of US$10
million (which are not covered by third-party insurance as to which a
financially sound insurer has not disclaimed coverage) being rendered
against the Company or any of its Subsidiaries and such judgments remain
undischarged, or unstayed or unsatisfied for a period of 60 days after such
judgment or judgments become final and non-appealable; or
(vi) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any of its Restricted Subsidiaries; or
(vii) any of the Guarantees cease to be in full force and effect or
any of the Guarantees are declared to be null and void and unenforceable or
any of the Guarantees are found to be invalid or any of the Guarantors
denies its liability under its Guarantee (other than by reason of release
of a Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) occurs and is continuing, then and in
every such case the Trustee or the holders of not less than 25% in aggregate
principal amount of the then outstanding Notes and Exchange Notes may declare
the unpaid principal of, premium, if any, and accrued and unpaid interest on,
all the Notes and Exchange Notes then outstanding to be due and payable, by a
notice in writing to the Company (and to the Trustee, if given by such holders)
and upon such declaration such principal amount, premium, if any, and accrued
and unpaid interest will become immediately due and payable. If an Event of
Default with respect to the Company specified in clause (vi) above occurs, all
unpaid principal of, and premium, if any, and accrued and unpaid interest on,
the Notes and Exchange Notes then outstanding will ipso facto become due and
payable without any declaration or other act on the part of the Trustee or any
such holder.
The holders of a majority in aggregate principal amount of the Notes and
Exchange Notes then outstanding by notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default (other than
the nonpayment of principal of and premium, if any, and interest on the Notes
and Exchange Notes which has become due solely by virtue of such acceleration)
have been cured or waived and if the rescission would not conflict with any
judgment or decree. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
The holders of a majority in aggregate principal amount of the Notes and
Exchange Notes may waive any existing Default or Event of Default under the
Indenture, and its consequences, except a Default in the payment of the
principal of or interest on any Notes or Exchange Notes or a Default in respect
of any term or provision of the Notes or Exchange Notes or the Indenture that
cannot be modified or amended without the consent of all holders.
Holders of the Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the holders of the
Exchange Notes, unless such holders have offered to the Trustee reasonable
indemnity. Subject to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the then outstanding
Notes and Exchange Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have the obligations of the Company and the Guarantors discharged in
accordance with the provisions set forth below with respect to the Exchange
Notes then outstanding. Such defeasance means that the Company shall be deemed
to have
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paid and discharged the entire indebtedness represented by such outstanding
Exchange Notes and the Company and the Guarantors shall be deemed to have
satisfied all their respective other obligations under the Exchange Notes, the
Guarantees and the Indenture, except for (i) the rights of holders of such
outstanding Exchange Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Exchange Notes when such payments are due,
(ii) the Company's and the Guarantors' respective obligations with respect to
the Exchange Notes concerning issuing temporary Exchange Notes, registration of
Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the respective
obligations of the Company and the Guarantors released with respect to certain
covenants in the Indenture ("covenant defeasance"), and any omission to comply
with such obligations shall not constitute a Default or an Event of Default with
respect to the Exchange Notes. In order to exercise either defeasance or
covenant defeasance, (i) the Company must irrevocably deposit with the Trustee,
in trust, for the benefit of the holders of the Notes and Exchange Notes, cash
in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on such outstanding Notes and Exchange Notes on the stated maturity of
such principal and each installment of interest; (ii) in the case of defeasance,
the Company shall have delivered to the Trustee an opinion of counsel stating
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the Issue Date, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the holders
of the outstanding Notes and Exchange Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance had not occurred;
(iii) in the case of covenant defeasance, the Company shall have delivered to
the Trustee an opinion of counsel to the effect that the holders of the
outstanding Notes and Exchange Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; (v) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a default
under, the Indenture or any other material agreement or instrument to which the
Company is a party or by default under, the Indenture or any other material
agreement or instrument to which the Company is a party or by which it is bound;
(vi) in the case of defeasance or covenant defeasance, the Company shall have
delivered to the Trustee an opinion of counsel to the effect that, assuming no
intervening bankruptcy of the Company between the date of deposit and the 91st
day following the deposit, after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar law affecting creditors' rights generally
and that such defeasance or covenant defeasance will not result in the Trustee
or the trust arising from such deposit constituting an Investment Company as
defined in the Investment Company Act of 1940, as amended; and (vii) the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating that all conditions precedent provided for relating to
either the defeasance or the covenant defeasance, as the case may be, have been
complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
holders of the Notes or Exchange Notes, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, so
long as such change does not, in the opinion of the Trustee, adversely affect
the rights of any of such holders. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an Opinion of Counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the holders of a majority in aggregate principal amount of the then outstanding
Notes and Exchange Notes issued under the Indenture, except that, without the
consent of each holder of Notes or Exchange Notes affected thereby, no amendment
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may, directly or indirectly: (i) reduce the amount of Notes or Exchange Notes
whose Holders must consent to an amendment; (ii) reduce the rate of or change
the time for payment of interest, including defaulted interest, on any Notes or
Exchange Notes; (iii) reduce the principal of or change the fixed maturity of
any Notes or Exchange Notes, or change the date on which any Notes or Exchange
Notes may be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor; (iv) make any Notes or Exchange Notes payable in
money other than that stated in such Notes or Exchange Notes; (v) make any
change in provisions of the Indenture protecting the right of each holder of
Notes or Exchange Notes to receive payment of principal of and interest on such
Notes or Exchange Notes on or after the due date thereof or to bring suit to
enforce such payment, or permitting holders of a majority in aggregate principal
amount of the Notes and Exchange Notes to waive Defaults or Events of Default;
(vi) amend, modify or change the obligation of the Company to make or consummate
a Change of Control Offer, an Asset Sale Offer or waive any default in the
performance thereof or modify any of the provisions or definitions with respect
to any such offers; (vii) adversely affect the ranking of the Notes, Exchange
Notes or the corresponding Guarantees; or (viii) release any Guarantor from any
of its obligations under its Guarantee or the Indenture otherwise than in
accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Exchange Notes will be governed by,
and construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person s own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of its Subsidiaries existing at the time such other Person becomes a
Restricted Subsidiary of such Person or at the time it merges or consolidates
with such Person or any of such Person's Restricted Subsidiaries or is assumed
by such Person or any Restricted Subsidiary of such Person in connection with
the acquisition of assets from such other Person and in each case not Incurred
by such Person or any Restricted Subsidiary of such Person or such other Person
in connection with, or in anticipation or contemplation of, such other Person
becoming a Restricted Subsidiary of such Person or such acquisition, merger or
consolidation, and which Indebtedness is without recourse to the Company or any
of its Restricted Subsidiaries or to any of their respective properties or
assets other than the Person or the assets to which such Indebtedness related
prior to the time such Person becomes a Restricted Subsidiary of the Company or
the time of such acquisition, merger or consolidation.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
consolidated assets of the Company and its Restricted Subsidiaries (net of
applicable depletion, depreciation, amortization and other valuation reserves),
except to the extent resulting from write-ups of capital assets (excluding
write-ups in
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connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recently available
quarterly or annual consolidated balance sheet of the Company and its Restricted
Subsidiaries, prepared in conformity with GAAP.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For the purposes of this definition, "control"
when used with respect to any specified Person means the power to direct or
cause the direction of management or policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth in "-- Certain Covenants
- -- Limitation on Transactions with Affiliates."
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
with or into the Company or any Restricted Subsidiary of the Company or (ii) the
acquisition by the Company or any Restricted Subsidiary of the Company of assets
of any Person comprising a division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value by the Company or by any
of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than to the Company or to a direct or indirect wholly owned
Restricted Subsidiary of the Company of (i) any Capital Stock of any Restricted
Subsidiary of the Company or (ii) any other property or assets of the Company or
of any Restricted Subsidiary of the Company, other than with respect to this
clause (ii) any disposition of mineral products for value in the ordinary course
of business.
"Asset Sale Offer" has the meaning set forth in "-- Certain Covenants --
Limitation on Sale of Assets."
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the board of directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the City of New York are required or authorized
by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease that are required to be
classified and accounted for as capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall be
the capitalized amount of such obligations at such date, determined in
accordance with GAAP. The stated maturity of such obligations shall be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or Canadian
Government or issued by any agency thereof and backed by the full faith and
credit of the United States or Canada, in each case maturing within one year
from the date of acquisition thereof; (ii) marketable direct obligations issued
by any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof or any province of Canada or
any political subdivision of any such province or any public instrumentality
thereof maturing within one year
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from the date of acquisition thereof and, at the time of acquisition, having one
of the two highest ratings obtainable from either S&P or Moody's; (iii)
commercial paper maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having a rating of at least A-1 from
S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by any commercial bank organized under the laws of the United States of America
or any state thereof or the District of Columbia or Canada or any province
thereof or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than US$250 million; and (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the board of directors of the Company): (i)
the Company or any of its Restricted Subsidiaries, directly or indirectly,
sells, assigns, conveys, transfers, leases or otherwise disposes of, in one
transaction or a series of related transactions, all or substantially all of the
property or assets of the Company and its Restricted Subsidiaries (determined on
a consolidated basis) to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act other than the Company or a Person which is a
Restricted Subsidiary (a "Group of Persons"); or (ii) the adoption of any plan
of liquidation or dissolution of the Company; or (iii) any Person or Group of
Persons is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 30% or more of the Voting Stock of the
Company; or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors. See "Risk Factors --
Change of Control."
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Event.
"Commodity Agreement" of any Person means any option or futures contract
or similar agreement or arrangement.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income plus (ii) to the
extent that any of the following shall have been taken into account in
determining Consolidated Net Income, (A) all income taxes of such Person and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or non-recurring
gains or losses or taxes attributable to sales or dispositions of assets outside
the ordinary course of business), Consolidated Interest Expense, amortization
expense and depreciation expense, and (B) other non-cash items (other than
non-cash interest) reducing Consolidated Net Income, other than any non-cash
item which requires the accrual of or a reserve for cash charges for any future
period and other than any non-cash charge constituting an extraordinary item of
loss, less other non-cash items increasing Consolidated Net Income, all as
determined on a consolidated basis for such Person and its Restricted
Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction or event giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed
Charges of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect
on a pro forma basis for the period of such calculation to (i) the Incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any Incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
Incurrence or repayment of Indebtedness in the ordinary course of business for
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working capital purposes pursuant to working capital facilities, at any time
subsequent to the first day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of any
such Asset Acquisition) Incurring, assuming or otherwise being liable for
Acquired Indebtedness at any time subsequent to the first day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the Incurrence, assumption or liability for any
such Indebtedness or Acquired Indebtedness) and also including any Consolidated
EBITDA associated with such Asset Acquisition) occurred on the first day of the
Four Quarter Period; provided that the Consolidated EBITDA of any Person
acquired shall be included only to the extent includable pursuant to the
definition of "Consolidated Net Income." If such Person or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third person,
the preceding sentence shall give effect to the Incurrence of such guaranteed
Indebtedness as if such Person or any Restricted Subsidiary of such Person had
directly Incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date (including Indebtedness actually Incurred on
the Transaction Date) and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; and (2)
notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Swap Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(including amortization or write-off of deferred financing costs of such Person
and its consolidated Restricted Subsidiaries during such period and any premium
or penalty paid in connection with redeeming or retiring Indebtedness of such
Person and its consolidated Restricted Subsidiaries prior to the stated maturity
thereof pursuant to the agreements governing such Indebtedness) and (ii) the
product of (x) the amount of all dividend payments on any series of Preferred
Stock of such Person (other than dividends paid in Common Stock) paid, accrued
or scheduled to be paid or accrued during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Restricted Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, and including (a) all
amortization of original issue discount; (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries during such period; (c)
net cash costs under all Interest Swap Obligations (including amortization of
fees); (d) all capitalized interest; and (e) the interest portion of any
deferred payment obligations for such period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or non-recurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a wholly
owned Restricted
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Subsidiary of the referent Person by such Person, (f) any restoration to income
of any contingency reserve, except to the extent that provision for such reserve
was made out of Consolidated Net Income accrued at any time following the Issue
Date, (g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued), and (h) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, less
(without duplication) amounts attributable to Disqualified Capital Stock of such
Person.
"Continuing Director" means, as of the date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
election or nomination; provided, however, that in the event of a business
combination involving the Company, by merger or consolidation or otherwise, from
the time of effectiveness of such business combination until the next annual
general meeting of the shareholders of the surviving entity, Continuing
Directors shall only be directors of the Company not elected in anticipation of,
or in connection with, any such transaction who are also directors of the
surviving entity.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means Indebtedness constituting Senior
Indebtedness which, at the time of designation, has an aggregate principal
amount of at least US$25 million and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the final maturity date of the Exchange Notes.
"Events of Default" has the meaning set forth in "Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended or
any successor statute or statutes thereto.
"fair market value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair market value shall be determined by
the board of directors of the Company acting reasonably and in good faith and
shall be evidenced by a Board Resolution delivered to the Trustee; provided,
however, that if the aggregate non-cash consideration to be received by the
Company or any of its Restricted Subsidiaries from any Asset Sale could be
reasonably likely to exceed US$15 million the fair market value shall be
determined by an Independent Financial Advisor.
"Financial Advisor" means an accounting, appraisal or investment banking
firm of nationally recognized standing that is, in the reasonable and good faith
judgment of the board of directors of the Company, qualified to perform the task
for which such firm has been engaged.
"Foreign Exchange Obligations" means the obligations of any Person under
any foreign currency future, option, swap or cap or other foreign currency hedge
or arrangement.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Gradation" means a gradation within a Rating Category, which shall be "+"
and "-", in the case of S&P's current Rating Categories (e.g., a decline from
BB+ to BB would constitute a decrease of one gradation); "1", "2" and "3", in
the case of Moody's current Rating Categories (e.g., a decline from B1 to B2
would constitute a decrease of one gradation); or the equivalent in respect of
successor Rating Categories of S&P or Moody's or Rating Categories used by
Rating Agencies other than S&P and Moody's.
"Guarantor" means (i) Kemess Mines Inc. and (ii) each of the Company's
Subsidiaries that in the future executes a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"Holder" or "Noteholder" means the Person in whose name a Note or
Exchange Note is registered on the Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the initial recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that (A) any Indebtedness
assumed in connection with an acquisition of assets and any Indebtedness of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) of the Company or at the
time such Person is merged or consolidated with the Company or any Restricted
Subsidiary of the Company shall be deemed to be Incurred at the time of the
acquisition of such assets or by such Restricted Subsidiary at the time it
becomes, or is merged or consolidated with, a Restricted Subsidiary of the
Company or by the Company at the time of such merger or consolidation, as the
case may be, and (B) any amendment, modification or waiver of any document
pursuant to which Indebtedness was previously Incurred shall be deemed to be an
Incurrence of Indebtedness unless such amendment, modification or waiver does
not (i) increase the principal or premium thereof or interest rate thereon
(including by way of original issue discount) or (ii) change to an earlier date
the stated maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under which such Indebtedness shall
be redeemed.
"Indebtedness" means, with respect to any Person, any liability of such
Person or such Person's Restricted Subsidiaries, without duplication, (i) for
borrowed money, (ii) evidenced by bonds, debentures, notes or other similar
instruments, (iii) for Capitalized Lease Obligations, (iv) issued or assumed as
the deferred purchase price of property, all conditional sale obligations and
under any title retention agreement (but excluding trade accounts payable and
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) for all Indebtedness of others (including all
dividends of other Persons for the payment of which is) guaranteed, directly or
indirectly, by such Person or its Restricted Subsidiaries or that is otherwise
its legal liability or which such Person or its Restricted Subsidiaries has
agreed to purchase or repurchase or in respect of which such Person or its
Restricted Subsidiaries has agreed contingently to supply or advance funds,
(vii) comprising net liabilities under Interest Swap Obligations and Commodity
Agreements, (viii) for all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on any asset or property (including, without limitation,
leasehold interests and any other tangible or intangible property) of such
Person or its Restricted Subsidiaries, whether or not such Indebtedness is
assumed by such Person or its
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Restricted Subsidiaries or is not otherwise such Person's or its Restricted
Subsidiaries' legal liability; provided that if the Obligations so secured have
not been assumed by such Person or its Restricted Subsidiaries or are otherwise
not such Person's or its Restricted Subsidiaries' legal liability, the amount of
such Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such Indebtedness secured by such Lien or the fair
market value of the assets or property securing such Lien, and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends if any. The amount of Indebtedness of any
Person or its Restricted Subsidiaries at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date; provided that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the full amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP.
"Independent" means, when used with respect to any specified Person, such
a Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries
and (c) is not an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions for the Company or any of its
Subsidiaries. Whenever it is provided in the Indenture that any Independent
Person's opinion or certificate shall be furnished to the Trustee, such Person
shall be appointed by the Company and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
thereof.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate option,
interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Investment" by any Person means any direct or indirect (i) loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property (valued at the fair market value thereof as of the date
of transfer) to others or payments for property or services for the account or
use of others, or otherwise); (ii) purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by any other Person; (iii) guarantee or assumption of any Indebtedness or any
other obligation of any other Person (except for an assumption of Indebtedness
for which the assuming Person receives consideration at the time of such
assumption in the form of property or assets with a fair market value at least
equal to the principal amount of the Indebtedness assumed); and (iv) all other
items that would be classified as investments (including, without limitation,
purchases of assets outside the ordinary course of business) on a balance sheet
of such Person prepared in accordance with GAAP. The amount of any Investment
shall not be adjusted for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Common
Stock of any direct or indirect Restricted Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Common Stock of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any
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jurisdiction other than to reflect ownership by a third party of property leased
to the referent Person or any of its Subsidiaries under a lease that is not in
the nature of a conditional sale or title retention agreement).
"Mining Business" means (i) the acquisition, exploration, development,
operation and disposition of mineral interests, (ii) the gathering, marketing,
treating, processing, storage, selling and transporting of any production from
such interests and (iii) ancillary activities that are directly related to, and
necessary in connection with, the activities described in clauses (i) and (ii)
above.
"Mining Related Assets Investment" means any Investment or capital
expenditure (but not including additions to working capital or repayments of any
revolving credit or working capital borrowings) by the Company or any Restricted
Subsidiary of the Company which is related to the business of the Company and
its Restricted Subsidiaries as it is conducted on the date of the Asset Sale
giving rise to the Net Cash Proceeds to be reinvested.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, brokerage, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable ((1)
including, without limitation, income taxes reasonably estimated to be actually
payable as a result of any disposition of property within two years of the date
of disposition and (2) after taking into account any reduction in tax liability
due to available tax credits or deductions and any tax sharing arrangements) and
(c) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds received
by the Company, after payment of expenses, commissions and the like (including,
without limitation, brokerage, legal, accounting and investment banking fees and
commissions) incurred in connection therewith, and (b) in the case of any
exchange, exercise, conversion or surrender of any outstanding Indebtedness of
the Company or any Restricted Subsidiary issued after the Issue Date for or into
shares of Qualified Capital Stock of the Company, the amount of such
Indebtedness (or, if such Indebtedness was issued at an amount less than the
stated principal amount thereof, the accrued amount thereof as determined in
accordance with GAAP) as reflected in the consolidated financial statements of
the Company prepared in accordance with GAAP as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder of such Indebtedness to the
Company or to any wholly owned Restricted Subsidiary of the Company upon such
exchange, exercise, conversion or surrender and less any and all payments made
to the holders of such Indebtedness, and all other expenses incurred by the
Company in connection therewith), in each case (a) and (b) to the extent
consummated after the Issue Date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two officers of the
Company.
"Opinion of Counsel" means a written opinion from legal counsel which and
who are acceptable to the Trustee.
"Paying Agent" shall initially be Mellon Securities Trust Co., a New York
chartered trust company, until a successor paying agent for the Notes is
selected in accordance with the Indenture.
"payment default" has the meaning set forth in "Events of Default."
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"Permitted Investments" means (a) investments in cash and Cash Equivalents;
(b) Investments by the Company or by any Restricted Subsidiary of the Company in
any Person (i) that is or will become immediately after such Investment a direct
or indirect Restricted Subsidiary of the Company, or (ii) such that such
Investment, when combined with all other outstanding Investments of the Company
permitted pursuant to this clause (ii) would not exceed, in the aggregate, 5% of
the Company's Adjusted Consolidated Net Tangible Assets; (c) any Investments in
the Company by any Restricted Subsidiary of the Company; provided that any
Indebtedness evidencing such Investment is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations in respect of the Notes and
the Indenture; and (d) Investments made by the Company or by its Restricted
Subsidiaries as a result of an Asset Sale made in compliance with the covenant
described under "-- Certain Covenants -- Limitation on Sale of Assets".
"Permitted Liens" means (i) Liens on assets or property of the Company
that secure Senior Indebtedness of the Company and Liens on assets or property
of a Restricted Subsidiary that secure Senior Indebtedness of such Restricted
Subsidiary, in each case to the extent such Senior Indebtedness is permitted
under paragraph (b) of the covenant described under "-- Certain Covenants --
Limitation on Indebtedness" or clause (vi) of the definition of Permitted
Indebtedness; (ii) Liens securing Indebtedness permitted under clause (iv) of
the definition of Permitted Indebtedness; (iii) Liens securing Indebtedness of a
Person existing at the time that such Person is merged into or consolidated with
the Company or a Restricted Subsidiary, provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of such Person; (iv) Liens on property
acquired by the Company or a Restricted Subsidiary, provided that such Liens
were in existence prior to the contemplation of such acquisition and do not
extend to any other property; (v) Liens relating to royalty payments to be made
by the Company to the British Columbia provincial government in respect of
copper extracted and processed from the Kemess South property; (vi) Liens in
respect of Interest Swap Obligations, Commodity Agreements, Capitalized Lease
Obligations or Purchase Money Obligations, in each case permitted under the
Indenture; (vii) Liens in favor of the Company or any Restricted Wholly Owned
Subsidiary; (viii) Liens incurred, or pledges and deposits in connection with,
workers' compensation, unemployment insurance and other social security
benefits, and leases, appeal bonds and other obligations of like nature incurred
by the Company or any Restricted Subsidiary in the ordinary course of business;
(ix) Liens imposed by law, including, without limitation, mechanics', carriers',
warehousemen's, materialmen's, suppliers' and vendors' Liens, incurred by the
Company or any Restricted Subsidiary in the ordinary course of business; and (x)
Liens for ad valorem, income or property taxes or assessments and similar
charges which either are not delinquent or are being contested in good faith by
appropriate proceedings for which the Company has set aside on its books
reserves to the extent required by GAAP.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Public Equity Offering" means a public offering of Common Stock of the
Company resulting in net proceeds to the Company in excess of US$20 million.
"Purchase Money Obligations" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in connection with the purchase of property or
assets of the business of the Company; provided that any Lien so created in
connection with such incurrence is limited solely to the property or assets so
purchased.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Rating Agencies" mean (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both of them are not making publicly available ratings of the Notes, a
nationally recognized U.S. rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the
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following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent
successor categories); and (iii) the equivalent of any such categories of S&P or
Moody's used by another Rating Agency, if applicable.
"Rating Event" means that at any time within 90 days (which period shall
be extended so long as the rating of the Notes or the Exchange Notes is under
publicly announced consideration for possible downgrade or for review without
indication of direction by any Rating Agency) after the earlier of the date of
public notice of a Change of Control or of the intention of the Company or of
any Person to effect a Change of Control, the rating of the Notes is decreased
by any Rating Agency by one or more Gradations.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company of
Indebtedness Incurred in accordance with "-- Certain Covenants -- Limitation on
Indebtedness" (other than pursuant to clause (iv), (v), (vi), (vii) or (viii) of
the definition of Permitted Indebtedness), in each case that does not (1) result
in an increase in the aggregate principal amount of Indebtedness of such Person
as of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company, and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes and the
Exchange Notes, then such Refinancing Indebtedness shall be subordinate to the
Notes and the Exchange Notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Registrar" shall initially mean the Trustee, as the registration agent for
the Exchange Notes, until a successor registrar for the Exchange Notes is
appointed in accordance with the Indenture.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"Senior Indebtedness" means any Indebtedness of the Company (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Exchange Notes.
Notwithstanding the foregoing, Senior Indebtedness shall not include (i) any
Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness
to, or guaranteed on behalf of, any shareholder, director, officer or employee
of the Company or any Subsidiary (including, without limitation, amounts owed
for compensation), (iii) Indebtedness and other amounts incurred in connection
with obtaining goods, materials or services owing to trade creditors, (iv)
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of
the covenant described in "-- Certain Covenants -- Limitation on Indebtedness"
and (vii) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Company.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
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"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
an Unrestricted Subsidiary by the Board of Directors of the Company; provided,
however, that (i) the Subsidiary to be so designated (x) (I) has total assets
with a fair market value at the time of such designation of US$1,000 or less or
(II) is being so designated prior to the acquisition by the Company of such
Subsidiary by merger or consolidation with an Unrestricted Subsidiary, and (y)
does not own any Capital Stock of the Company or any Restricted Subsidiary, (ii)
if such Subsidiary is acquired by the Company, such Subsidiary is designated as
an Unrestricted Subsidiary prior to the consummation of such acquisition, (iii)
no Default or Event of Default shall have occurred and be continuing, (iv) no
portion of any Indebtedness or any other obligation (contingent or otherwise) of
such Subsidiary (a) is guaranteed by, or is otherwise the subject of credit
support provided by the Company or any of its Restricted Subsidiaries, (b) is
recourse to or obligates the Company or any of its Restricted Subsidiaries in
any way, or (c) subjects any property or asset of the Company or any of its
Restricted Subsidiaries directly or indirectly, contingently or otherwise, to
the satisfaction of such Indebtedness or other obligation, (v) neither the
Company nor any of its Restricted Subsidiaries has any contract, agreement,
arrangement or understanding with such Subsidiary other than on terms as
favorable to the Company or such Restricted Subsidiary as those that might be
obtained at the time from Persons that are not Affiliates of the Company, and
(vi) neither the Company nor any of its Restricted Subsidiaries has any
obligations (a) to subscribe for additional shares of Capital Stock of such
Subsidiary, or (b) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve certain levels of operating results. Any
such designation by the Company's Board of Directors shall be evidenced to the
Trustee by filing with the trustee a certified certificate stating that such
designation complies with the foregoing conditions. The Company's Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing, including, without limitation, under the covenants described under
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Certain
Covenants -- Limitation on Liens," assuming the incurrence by the Company and
its Restricted Subsidiaries at the time of such designation of all existing
Indebtedness and Liens of the Unrestricted Subsidiary to be so designated as a
Restricted Subsidiary. In the event of any Disposition involving the Company in
which the Company is not the Surviving Person, the Board of Directors of the
Surviving Person may (x) prior to such Disposition, designate any of its
Subsidiaries, and any of the Company's Subsidiaries being acquired pursuant to
such Disposition that are not Restricted Subsidiaries, as Unrestricted
Subsidiaries, and (y) after such Disposition, designate any of its direct or
indirect Subsidiaries as an Unrestricted Subsidiary under the same conditions
and in the same manner as the Company under the terms of the Indenture.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"wholly owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than directors' qualifying
shares or similar legally required de minimis holdings) which normally have the
right to vote in the election of directors are owned by such Person or any
wholly owned Subsidiary of such Person.
"Working Capital Facility" means the existing working capital facility
provided to the Company pursuant to a credit agreement between BNS and the
Company dated February 15, 1996, and any agreement, as the same may be amended
from time to time, and any agreement evidencing the refinancing, modification,
replacement, renewal, restatement, refunding, deferral, extension, substitution,
supplement, reissuance or resale thereof.
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DESCRIPTION OF NOTES
The Notes evidence the same indebtedness as that which will be evidenced by
the Exchange Notes and are entitled to the benefits of the Indenture. The form
and terms of the Notes are the same as the form and terms of the Exchange Notes
(which replace the Notes) except that none of the Notes (or the related
guarantees) was registered under the Securities Act. Therefore, the Notes may
not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
Accordingly, the Notes bear legends restricting the transfer thereof. In
addition, with certain exceptions, the Notes may not be sold or transferred to,
or acquired on behalf of, any pension or welfare plan (as described in Section 3
of the Employee Retirement Income Security Act of 1974). For a description of
the terms of the Exchange Notes, see "Description of Exchange Notes."
EXCHANGE OFFER AND REGISTRATION RIGHTS
The Company, the Guarantor and the Initial Purchasers entered into the
Registration Rights Agreement on August 12, 1996 pursuant to which each of the
Company and the Guarantor agreed, for the benefit of the Holders, that it would,
at its own cost (i) within 45 days after the Issue Date (September 26, 1996),
file a registration statement under the Securities Act with the Commission with
respect to the Exchange Notes (which obligation has been satisfied by the filing
of the Registration Statement of which this Prospectus is a part) and (ii) use
its best efforts to cause such registration statement to be declared effective
under the Securities Act within 120 days after the Issue Date (December 10,
1996). Upon the Registration Statement being declared effective, the Company and
the Guarantor will offer the Exchange Notes (and the related guarantees) in
exchange for surrender of the Notes and the related guarantees. The Company and
the Guarantor will keep the Exchange Offer open for not less than 20 business
days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the Holders of the Notes. For each of the Notes
surrendered pursuant to the Exchange Offer, the Holder who has surrendered such
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Note and a related guarantee. Interest on each Exchange Note
will accrue from the last interest payment date on which interest was paid on
the Note surrendered in exchange therefor or, if no interest has been paid on
such Note, from the original issue date of the Note. Under existing Commission
interpretations, the Exchange Notes (and the related guarantees) would be freely
transferable by Holders thereof, other than affiliates of the Company and the
Guarantor, after the Exchange Offer, without further registration under the
Securities Act, if the Holder of the Exchange Notes represents that it is
acquiring the Exchange Notes in the ordinary course of business, that it has no
arrangement or understanding with any person to participate in the distribution
of the Exchange Notes and that it is not an affiliate of any of the Company and
the Guarantor, as such terms are interpreted by the Commission; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Exchange Offer will have a prospectus delivery requirement with respect to
resales of such Exchange Notes. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Notes) with the prospectus contained in the
Registration Statement. The Company and the Guarantor have agreed for a period
of 180 days after consummation of the Exchange Offer (or such longer period as
may be required under the Securities Act) to make available a prospectus meeting
requirements of the Securities Act to Participating Broker-Dealers and other
persons, if any, with similar prospectus delivery requirements for use in
connection with any resale of such Exchange Notes.
Each Holder who wishes to exchange its Notes for Exchange Notes in the
Exchange Offer will be required to represent that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business and that
at the time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
affiliate of any of the Company or the Guarantor.
If the Holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
applicable Exchange Notes. If the Holder is a broker-dealer that
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will receive Exchange Notes for its own account in exchange for Notes that were
acquired as a result of market-making activities or other trading activities, it
will be required to acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Guarantor to effect such an Exchange Offer, or
if for any other reason the Exchange Offer is not consummated within 180 days
after the original issue date of the Notes (February 8, 1997), or, under certain
circumstances, if the Initial Purchasers shall so request, each of the Company
and the Guarantor, jointly and severally, will, at its cost, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Notes
(a "Shelf Registration Statement"), (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use its best efforts to keep effective such Shelf Registration Statement until
the earlier of three years after the Issue Date and such time as all of the
applicable Notes have been sold thereunder. The Company will, in the event of
the filing of a Shelf Registration Statement, provide to each Holder of the
Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such Holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes (and the related guarantees). A Holder that
sells its Notes pursuant to a Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such Holder (including certain indemnification obligations).
Although the Company and the Guarantor have filed the registration
statement described above, there can be no assurance that such registration
statement will become effective. If the Company and the Guarantor fail to comply
with the above provisions or if such registration statement fails to become
effective, then the Company shall pay, as liquidated damages, additional
interest ("Liquidated Damages"), to the Holders of the Notes as follows:
(i) if the Registration Statement or Shelf Registration Statement is
not filed within 45 days following the Issue Date (which requirement has
been satisfied by the filing with the Commission of the Registration
Statement of which this Prospectus is a part), Liquidated Damages shall
accrue at a rate of 0.50% per annum of the principal amount of the Notes
for the first 90 days commencing on the 46th day after the Issue Date, such
Liquidated Damages rate increasing by an additional 0.50% per annum of the
principal amount of the Notes at the beginning of each subsequent 90-day
period;
(ii) if the Registration Statement or Shelf Registration Statement is
not declared effective within 120 days following the Issue Date, then,
commencing on the 121st day after the Issue Date, Liquidated Damages shall
accrue at a rate of 0.50% per annum of the principal amount of the Notes
for the first 90 days immediately following the 121st day after the Issue
Date, such Liquidated Damages rate increasing by an additional 0.50% per
annum of the principal amount of the Notes at the beginning of each
subsequent 90-day period; or
(iii) if (A) the Company and the Guarantor have not exchanged Notes
validly tendered in accordance with the terms of the Exchange Offer on or
prior to 180 days after the Issue Date or (B) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the time
prior to the third anniversary of the Issue Date (unless all the Notes have
been sold thereunder), then Liquidated Damages shall accrue at a rate of
0.50% per annum of the principal amount of the Notes for the first 90 days
commencing on (x) the 181st day after the Issue Date, in the case of (A)
above, or (y) the day such Shelf Registration Statement ceases to be
effective in the case of (B) above, such Liquidated Damages rate increasing
by an additional 0.50% per annum of the principal amount of the Notes at
the beginning of each subsequent 90-day period;
provided, however, that the Liquidated Damages rate may not exceed in the
aggregate 2.0% per annum of the principal amount of the Notes; and provided,
further, that (1) upon the filing of the Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Registration
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Statement or Shelf Registration Statement (in the case of (ii) above), or (3)
upon the exchange of Notes for all Notes tendered (in the case of clause
(iii)(A) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii)(B) above),
Liquidated Damages as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Notes. The amount of Liquidated Damages will be determined by multiplying
the applicable Liquidated Damages rate by the principal amount of the Notes
multiplied by a fraction, the numerator of which is the number of days such
Liquidated Damages rate was applicable during such period (determined on the
basis of a 360-day year comprised of 12 30-day months), and the denominator of
which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
CERTAIN INCOME TAX CONSIDERATIONS
THE DISCUSSION BELOW IS INTENDED TO BE A GENERAL DESCRIPTION OF THE
CANADIAN AND UNITED STATES TAX CONSIDERATIONS MATERIAL TO AN INVESTMENT IN THE
EXCHANGE NOTES AND THE NOTES. IT DOES NOT TAKE INTO ACCOUNT THE INDIVIDUAL
CIRCUMSTANCES OF ANY PARTICULAR INVESTOR. THEREFORE, PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE EXCHANGE NOTES.
FOR INFORMATION WITH RESPECT TO THE TAX CONSEQUENCES OF THE EXCHANGE OFFER,
SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER."
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to a person (a "United States holder") who
becomes a beneficial owner of Exchange Notes pursuant to this Exchange Offer (or
who acquired Notes in the Offering) and who, for the purposes of the Income Tax
Act (Canada) (the "Canadian Tax Act") and at all relevant times, is not resident
in Canada, deals at arm's length with the Company and does not use or hold (and
is not deemed or considered to use or hold) the Notes or Exchange Notes in
carrying on a business in Canada. Special rules which are not discussed in this
summary, may apply to a United States holder that is an insurer that carries on
an insurance business in Canada and elsewhere. For purposes of the Canadian Tax
Act, related persons (as therein defined) are deemed not to deal at arm's length
and it is a question of fact whether persons not related to each other deal at
arm's length.
This summary is based on the current provisions of the Canadian Tax Act,
the regulations thereunder (the "Canadian Regulations") in force on the date
hereof, all specific proposals to amend the Canadian Tax Act and the Canadian
Regulations publicly announced by the Minister of Finance (Canada) prior to the
date hereof and counsel's understanding of the published administrative
practices of Revenue Canada, Customs, Excise & Taxation ("Revenue Canada"). This
summary does not take into account or anticipate any other changes in law or
administrative practice, whether by legislative, governmental or judicial
decision or action, nor does it take into account provincial, territorial or
foreign income tax legislation or considerations.
Under the Canadian Tax Act, payments by the Company to a United States
holder of interest, principal or premium, if any, on the Notes should not be
subject to Canadian withholding tax. Under the Canadian Tax Act, payments by the
Company to a United States holder of interest, principal or premium, if any, on
the Exchange Notes will not be subject to Canadian withholding tax.
No other taxes on income (including taxable capital gains) will be payable
by a United States holder solely as a consequence of the ownership, acquisition
or disposition of the Exchange Notes.
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<PAGE> 107
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Notes or the
Exchange Notes by a United States Holder (as defined below). This summary deals
only with United States Holders that will hold the Notes or the Exchange Notes
as capital assets. The discussion does not cover all aspects of federal taxation
that may be relevant to, or the actual tax effect that any of the matters
described herein will have on, the acquisition, ownership or disposition of the
Notes or the Exchange Notes by particular investors, and does not address state,
local, foreign or other tax laws. In particular, this summary does not discuss
all of the tax considerations that may be relevant to certain types of investors
subject to special treatment under the federal income tax laws (such as banks,
insurance companies, investors liable for the alternative minimum tax,
individual retirement accounts and other tax-deferred accounts, tax-exempt
organizations, dealers in securities or currencies, investors that will hold the
Notes or the Exchange Notes as part of straddles, hedging transactions or
conversion transactions for federal tax purposes or investors whose functional
currency is not the United States Dollars).
As used herein, the term "United States Holder" means a beneficial owner of
the Notes or the Exchange Notes that is (i) a citizen or resident of the United
States for United States federal income tax purposes, (ii) a corporation created
or organized under the laws of the United States or any State thereof, (iii) a
person or entity that is otherwise subject to United States federal income tax
on a net income basis in respect of income derived from the Notes or the
Exchange Notes, or (iv) a partnership to the extent the interest therein is
owned by a person who is described in clause (i), (ii) or (iii) of this
paragraph.
The following discussion assumes that the payment of Additional Amounts or
Liquidated Damages are remote contingencies, which the Company believes to be
the case. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed regulations thereunder, published rulings
and court decisions, all as currently in effect and all subject to change at any
time, perhaps with retroactive effect.
INTEREST
Interest (including any Additional Amounts and any Liquidated Damages) paid
on a Note or an Exchange Note will be taxable to a United States Holder as
ordinary income at the time it is received or accrued, depending on the holder's
method of accounting for tax purposes. Interest paid by the Company on the Notes
or the Exchange Notes generally will constitute income from sources outside the
United States. Prospective investors should consult their tax advisers
concerning the applicability of the source of income rules to income
attributable to the Notes or the Exchange Notes.
ACQUISITION PREMIUM
If a United States Holder acquires an Exchange Note or has acquired a Note,
in each case, for an amount more than its redemption price, the Holder may elect
to amortize such bond premium on a yield to maturity basis.
EFFECT OF CANADIAN WITHHOLDING TAXES
For United States federal income tax purposes, if payments on the Notes or
the Exchange Notes were subject to Canadian withholding taxes, United States
Holders will be treated as having actually received the amount of Canadian taxes
withheld by the Company with respect to a Note or an Exchange Note, as the case
may be, and then having paid over such withheld taxes to the Canadian taxing
authorities. Such treatment will be required regardless of whether the Company
is required to pay Additional Amounts so that the amount of Canadian withholding
taxes does not reduce the net amount actually received by the holder of such
Note or Exchange Note. As a result of this rule, the amount of interest income
included in gross income for United States federal income tax purposes by a
United States Holder with respect to a payment of interest may be greater than
the amount of cash actually received (or receivable) by the United States Holder
from the Company with respect to such payment.
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<PAGE> 108
Subject to certain limitations, a United States Holder will generally be
entitled to a credit against the United States federal income tax liability, or
a deduction in computing its United States federal taxable income, for Canadian
income taxes withheld by the Company (which, as described above, will include
Additional Amounts paid by the Company with respect to such taxes). Prospective
participants should consult their tax advisors as to the United States federal
income tax consequences of Canadian withholding taxes and the availability of a
foreign tax credit or deduction.
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES
In general, a United States Holder's tax basis in an Exchange Note will
equal the price paid for the Note for which such Exchange Note was exchanged
pursuant to the Exchange Offer. A United States Holder generally will recognize
gain or loss on the sale, exchange, retirement, redemption or other disposition
of a Note or an Exchange Note (or portion therof) equal to the difference
between the amount realized on such disposition and the United States Holder's
tax basis in the Note or the Exchange Note (or portion thereof). Except to the
extent attributable to accrued but unpaid interest, gain or loss recognized on
such disposition of a Note or an Exchange Note will be capital gain or loss and
will be longterm capital gain or loss if such Note or Exchange Note was held for
more than one year. Any such gain will generally be United States source gain.
A purchase of an Exchange Note or Note in a subsequent resale may be
affected by the market discount provisions of the Code. These rules generally
provide that subject to a statutorily defined de minimis exception, if a United
States Holder purchases an Exchange Note (or purchased a Note) at a "market
discount," as defined below, and thereafter recognizes gain upon a disposition
of the Exchange Note (including dispositions by gift or redemption), the lesser
of such gain (or appreciation, in the case of gift) or the portion of the market
discount that has accrued ("accrued market discount") while the Exchange Note
(and its predecessor Note, if any) was held by such United States Holder will be
treated as ordinary interest income at the time of disposition rather than as
capital gain. For an Exchange Note or a Note, "market discount" is the excess of
the stated redemption price at maturity over the tax basis immediately after its
acquisition by a United States Holder. Market discount generally will accrue
ratably during the period from the date of acquisition to the maturity date of
the Exchange Note, unless the United States Holder elects to accrue such
discount on the basis of the constant yield method.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a Note acquired at a market discount) may
elect to include the accrued market discount in income currently either ratably
or using the constant yield method. Once made, such an election applies to all
other obligations that the United States Holder purchases at a market discount
during the taxable year for which the election is made and in all subsequent
taxable years of the United States Holder, unless the Internal Revenue Service
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of an Exchange Note in
the hands of the United States Holder will be increased by the accrued market
discount thereon as it is includible in income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest (including any Additional Amounts and any Liquidated
Damages) and principal on, and the proceeds of sale or other disposition of the
Notes or the Exchange Notes payable to a United States Holder may be subject to
information reporting requirements, and backup withholding at a rate of 31% will
apply to such payments if the United States Holder fails to provide an accurate
taxpayer identification number or to report all interest and dividends required
to be shown on its federal income tax returns. Certain United States Holders
(including, among others, corporations) are not subject to backup withholding.
United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
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BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes issued in exchange for the Notes (and the related
guarantees) initially will be represented by a single permanent global
certificate in definitive, fully registered form (the "Global Exchange Note").
Notwithstanding the foregoing, Notes held in certificated form, if any, will be
exchanged solely for Exchange Notes in certificated form. As of the date of this
Prospectus, no Notes were held in certificated form. The Global Exchange Note
will be deposited upon issuance with, or on behalf of, the Depository Trust
Company, New York, New York and registered in the name of a nominee of DTC. The
Global Exchange Note will be subject to certain restrictions on transfer set
forth therein.
The Global Exchange Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Exchange Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Exchange Note to
the respective accounts of persons who have accounts with such depositary and
(ii) ownership of beneficial interests in the Global Exchange Note will be shown
on, and the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants) and
the records of participants (with respect to interests of persons other than
participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Exchange
Note for all purposes under the Indenture. No beneficial owner of an interest in
the Global Exchange Note will be able to transfer that interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture with respect to the Exchange Notes.
Payments of the principal of, premium, if any, interest, Additional Amounts
and Liquidated Damages, if any, on the Global Exchange Note will be made to DTC
or its nominee, as the case may be, as the registered owner thereof. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Exchange Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest, Additional Amounts or Liquidated Damages,
if any, in respect of the Global Exchange Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Exchange Note as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Exchange Note held
through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery in definitive
form of a Security for any reason, including to sell Exchange Notes to persons
in states which require physical delivery of the Exchange Notes, or to pledge
such securities, such holder must transfer its interest in the Global Exchange
Note, in accordance with the normal procedures of DTC and with the procedures
set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such participant has or participants have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Exchange Note for Certificated Securities, which it
will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the
103
<PAGE> 110
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Notes among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Exchange Note and a successor depositary
is not appointed by the Company within 90 days, certificated securities will be
issued in exchange for the Global Exchange Note.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Prospectus,
as it may be amended or supplemented from time to time, may be used by any
person subject to the prospectus delivery requirements of the Securities Act,
including a broker-dealer in connection with resales of Exchange Notes received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company and the
Guarantor have agreed that, for a period of 180 days after the Expiration Date,
they will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition,
until , 1996 (90 days after commencement of the Exchange Offer), all
dealers effecting transactions in the Exchange Notes may be required to deliver
a Prospectus.
Neither the Company nor the Guarantor will receive any proceeds from any
sales of the Exchange Notes by broker-dealers. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to the purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, the Company or the
Guarantor will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company and the Guarantor have
agreed to pay certain expenses incident to the Exchange Offer, other than
commission or concessions of any brokers or dealers, and will indemnify the
holders of the Exchange Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
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<PAGE> 111
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company or the Guarantor of the happening of any
event which makes any statement in the Prospectus untrue in any material respect
or which requires the making of any changes in the Prospectus in order to make
the statements therein not misleading (which notice the Company and the
Guarantor agree to deliver promptly to such broker-dealer), such broker-dealer
will suspend use of the Prospectus until the Company or the Guarantor have
amended or supplemented the Prospectus to correct such misstatement or omission
and have furnished copies of the amended or supplemental Prospectus to such
broker-dealer.
VALIDITY OF EXCHANGE NOTES
Certain legal matters relating to validity of the Exchange Notes will be
passed upon for the Company by Lang Michener, Toronto, Ontario with respect to
matters of Canadian law and by Wachtell, Lipton, Rosen & Katz, New York, New
York with respect to matters of United States law. William J.V. Sheridan, a
director and the Secretary of the Company, is a partner of Lang Michener.
EXPERTS
The financial statements for each of the three fiscal years in the period
ended December 31, 1995 included in this Prospectus have been audited by Arthur
Andersen & Co., independent chartered accountants, as stated in their report
herein with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving such
report.
105
<PAGE> 112
GLOSSARY OF CERTAIN MINING TERMS
ASSAY -- The testing of a rock sample to determine its mineral content.
CASH COST PER OUNCE -- Includes all site operating expenses but excludes capital
and exploration expenditures, depreciation, post-closure restoration
accruals, finance and corporate administrative expenses; divided by units
produced. Cash costs has the same meaning, except not on a unit production
basis.
CHALCOPYRITE -- A sulphide mineral of copper and iron, a common ore of copper.
CIP -- Carbon-in-pulp.
CONCENTRATE -- A fine powdery product containing the valuable metal from which
most of the waste material in the ore has been eliminated and discarded.
CONTAINED OUNCES -- Reserves are estimated to encompass a stated number of
ounces of gold in place. The number of ounces ultimately recovered and
available depends upon mining efficiency and processing efficiency.
CONTANGO -- Contango on gold is the positive difference between the spot market
gold price and the forward market gold price. It is often expressed as an
interest rate and is the difference between inter-bank deposit rates and
gold lending rates.
CYANIDATION -- A method of extracting gold or silver by dissolving it in a weak
solution of sodium or potassium cyanide.
DECLINE -- A sloping underground opening for machine access from level to level
or from surface; also called a "ramp."
DILUTION -- The effect of waste or low grade ore being included and removed
along with the ore in the mining process, subsequently lowering the grade
of the ore.
DORE -- Unrefined gold consisting of 60% to 90% gold which will be further
refined to almost pure gold by a smelter or refinery.
DRILLING --
Blasthole: Drilling holes deep into rock to place an explosive charge that
breaks up the rock.
Diamond: Drilling with a hollow bit with a diamond cutting rim to produce a
cylindrical core that is used for geological study and assays. Used in mine
exploration.
DYKE -- A tabular intrusive igneous rock that cuts across or along pre-existing
country rock.
EN ECHELON -- Refers to geological features that are in an overlapping or
staggered arrangement and collectively form a linear zone.
FELDSPAR -- A group of abundant rock-forming minerals of the general formula, M
Al (Al, Si3) where M can be K, Na, Ca, Ba or Fe. Feldspars are the most
widespread of any mineral group and constitute 60% of the earth's crust.
FLOTATION -- A milling process by which some mineral particles are induced to
become attached to bubbles of froth and float, and others to sink so that
the valuable minerals are concentrated and separated from the worthless
gangue.
FLUID BED ROASTER -- The use of a rising current of hot air (or other gas) to
suspend finely ground particles of concentrate. The hot gases react with
the material to oxidize sulphide mineralization.
FOOTWALL -- The mass of rock beneath a geological structure (ore body, fault,
etc.).
FORWARD SELLING -- An agreement to sell a certain quantity of future production
at a set future date at a predetermined price.
GANGUE -- Valueless rock or mineral aggregates in an ore that cannot be avoided
in mining.
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GRADE -- The amount of valuable mineral in each ton of ore, expressed as troy
ounces per ton for precious metals and as a percentage for other metals.
Cut-off grade: The minimum content level at which an ore body can be
economically mined.
HEAP LEACHING -- A low-cost process in which ore is placed in a large heap on an
impermeable pad. A weak cyanide solution is sprinkled or dripped over the
heap and is collected at the bottom after percolating through the ore and
dissolving the metals.
HYPOGENE ZONE -- Ores, or mineralized material, formed by an upward moving
enrichment process, typically found beneath the supergene.
JURASSIC -- A geological period which identifies the formation date of the
strata. Jurassic is in the Mesozoic era.
MILL -- A plant where ore is ground fine and undergoes physical or chemical
treatment to extract the valuable metals.
MILL FEED GRADES -- The average grade of ore processed in a mill over a given
period of time.
MINEABLE ORE RESERVES -- Ore reserves which include allowances for dilution in
mining and take into account losses which are likely to occur in mining.
All ore reserves reported by Royal Oak are mineable ore reserves.
MINERAL DEPOSIT -- A deposit of mineralization which may or may not be ore, the
determination of which requires a comprehensive feasibility study.
MINERALIZATION -- Rock containing minerals or metals of economic interest.
MINERALIZED MATERIAL -- A natural aggregate of one or more minerals which either
is not sufficiently delineated as to size, tonnage and grade or, even if so
delineated, cannot be economically extracted at the time of the reserve
determination and, accordingly, cannot be classified as mineable ore
reserves.
NET PROFIT INTEREST -- The excess of gross income from the sale of minerals over
all expenses properly incurred with respect to production of such mineral
products in accordance with GAAP, excluding taxes on income.
NET SMELTER RETURN -- Cash or actual metal recoveries per ton of concentrate
delivered to the smelter net of metallurgical recovery losses,
transportation costs and smelter treatment-refining charges and deductions.
ORE -- Mineralization that can be mined at a profit.
ORE BODY -- A mineral deposit that can be mined at a profit under existing
economic conditions.
ORE RESERVES -- The tonnage and grade of an economically and legally extractable
ore body.
PORPHYRY -- An igneous rock in which a number of mineral crystals are
conspicuously much larger than the majority of the crystals which make up
the rock. These large crystals are often of the mineral feldspar. Porphyry
copper and gold deposits are mineral deposits hosted in large intrusive
igneous bodies made up of porphyritic rock. These deposits usually contain
very fine disseminations of minerals containing gold and copper.
PROBABLE ORE RESERVES -- Ore reserves that have reasonable geologic continuity
but cannot be considered proven because inspection and measurement
locations are not detailed enough to estimate accurately the size, shape,
and mineral content of the body. The degree of assurance, although lower
than that for proven reserves, is high enough to assume continuity between
points of observation.
PROVEN ORE RESERVES -- Ore reserves that can be accurately estimated by
establishing the size, shape, and mineral content of an ore body by
inspection and closely spaced samples.
PYRITE -- A common sulfide mineral, shiny and yellow in color and composed of
sulphur and iron, sometimes known as "fool's gold."
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RAISE -- A vertical hole between mine levels used to move ore or waste rock or
to provide ventilation.
RAMP -- An inclined underground tunnel which provides access for exploration or
a connection between levels or a mine.
REFINING -- The final stage of metal production in which impurities are removed
from the molten metal.
RESOURCE -- Mineralization based on geological evidence and assumed continuity.
May or may not be supported by samples but is supported by geological,
geochemical, geophysical or other data.
REVERSE CIRCULATION DRILLING -- A process that uses a drill with a dual-wall
pipe through which compressed air travels down the outside channel,
returning bit-cut chips up the interior channel for sampling.
SAG OR SEMI-AUTOGENOUS GRINDING MILL -- A large diameter grinding mill utilizing
steel balls and large rock pieces to grind ore from a coarse feed size to a
relatively small particle size.
SHAFT -- A vertical or steeply inclined opening providing access to a mine for
equipment, personnel and supplies and to hoist out ore and waste. It can
also be used for ventilation and as an auxiliary exit from the mine.
SPOT DEFERRED CONTRACT -- A spot deferred contract is like a forward sale except
Royal Oak has the option to extend the contract (roll it over). The
ultimate delivery date and sale price are not fixed on the contract. It is
rolled over, the new contract price is based on the price at maturity in
the old contract plus a contango premium on the rollover date.
STOPE -- An excavation in a mine from which ore is being, or has been,
extracted.
STRIP RATIO -- The ratio of waste tons mined to total tons mined.
SULPHIDES -- Compounds of sulphur with other metallic elements.
SUPERGENE -- Ores or mineralized material formed by downward moving enrichment
process.
TAILINGS -- The material that remains after all metals considered economical
have been removed from ore during milling.
TONNE -- One metric ton or 2,204.62 pounds.
TONS -- Short tons. Two thousand pounds.
WASTE ROCK -- Barren rock in a mine, or mineralized material, that is too low in
grade to be economically mined and milled.
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ROYAL OAK MINES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Chartered Accountants........................................... F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-3
Consolidated Statements of Income and Retained Earnings for the years ended December
31, 1993, 1994 and 1995.......................................................... F-4
Consolidated Statements of Cash Flow for the years ended December 31, 1993, 1994 and
1995............................................................................. F-5
Notes to the Annual Consolidated Financial Statements............................... F-6
Unaudited Consolidated Financial Statements (except for the December 31, 1995
Consolidated Balance Sheet, which has been audited):
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995............... F-22
Consolidated Statements of Income and Retained Earnings for the periods ended June
30, 1996 and 1995................................................................ F-23
Consolidated Statements of Cash Flow for the periods ended June 30, 1996 and 1995... F-24
Notes to the Unaudited Consolidated Financial Statements............................ F-25
</TABLE>
F-1
<PAGE> 116
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Shareholders of Royal Oak Mines Inc.:
We have audited the consolidated balance sheets of Royal Oak Mines Inc. as
at December 31, 1995 and 1994 and the consolidated statements of income and
retained earnings and cash flow for the years ended December 31, 1995, 1994 and
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1995 and 1994 and the results of its operations and its cash flows for the years
ended December 31, 1995, 1994 and 1993 in accordance with generally accepted
accounting principles.
Arthur Andersen & Co.
Chartered Accountants
Vancouver, British Columbia
February 16, 1996
(except as to note 14(b), which is as of February 27, 1996)
F-2
<PAGE> 117
ROYAL OAK MINES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $139,410 $148,524
Short-term investments (note 2)...................................... 2,971 30,413
Receivables.......................................................... 7,138 6,842
Inventories (note 3)................................................. 46,136 36,250
Prepaid expenses..................................................... 5,620 4,821
-------- --------
201,275 226,850
PROPERTY, PLANT AND EQUIPMENT (note 4)................................. 191,381 137,954
LONG-TERM INVESTMENTS (note 5)......................................... 36,307 19,270
-------- --------
$428,963 $384,074
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable..................................................... $ 13,640 $ 12,654
Accrued payroll costs................................................ 5,267 5,650
Deferred revenue (note 6)............................................ 4,523 1,282
Income taxes payable (note 8)........................................ 3,350 2,415
Other current liabilities............................................ 15,654 13,799
-------- --------
42,434 35,800
DEFERRED REVENUE AND OTHER LIABILITIES (note 6)........................ 40,800 39,742
DEFERRED INCOME TAXES (note 8)......................................... 5,064 5,064
MINORITY INTEREST IN SUBSIDIARY COMPANIES.............................. 170 737
-------- --------
88,468 81,343
-------- --------
CONTINGENCIES AND COMMITMENTS (note 11)
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 7)
Common stock
Authorized -- unlimited
Outstanding -- 119,118,714; (1994 -- 114,494,747)................. 261,957 247,362
RETAINED EARNINGS...................................................... 78,538 55,369
-------- --------
340,495 302,731
-------- --------
$428,963 $384,074
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-3
<PAGE> 118
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of Canadian dollars except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE.................................................... $208,311 $162,111 $135,326
-------- -------- --------
EXPENSES
Operating................................................ 182,214 117,790 110,258
Royalties and marketing.................................. 2,535 2,490 1,248
Administrative and corporate............................. 8,549 5,271 3,411
Depreciation and amortization............................ 14,895 8,525 4,998
Provision for (Recovery of) loss on foreign currency
contracts (note 6(b))................................. (5,244) 15,267 --
-------- -------- --------
202,949 149,343 119,915
-------- -------- --------
OPERATING INCOME........................................... 5,362 12,768 15,411
OTHER INCOME (EXPENSES)
Interest and other income, net (note 9).................. 20,902 7,074 2,289
Write-down of resource properties and other assets....... (891) -- (388)
Gain on issuance of shares by associated company (note
5).................................................... -- 3,020 --
Other.................................................... (619) (85) (1,508)
-------- -------- --------
NET INCOME BEFORE UNDERNOTED............................... 24,754 22,777 15,804
Income taxes (note 8).................................... (1,542) (636) (215)
Minority interest........................................ 594 -- 136
Equity in income (loss) of associated companies.......... (637) 25 (102)
-------- -------- --------
NET INCOME................................................. 23,169 22,166 15,623
RETAINED EARNINGS -- BEGINNING OF YEAR..................... 55,369 33,203 17,580
-------- -------- --------
RETAINED EARNINGS -- END OF YEAR........................... $ 78,538 $ 55,369 $ 33,203
======== ======== ========
EARNINGS PER SHARE -- BASIC (note 7)....................... $ 0.20 $ 0.22 $ 0.19
======== ======== ========
EARNINGS PER SHARE -- FULLY DILUTED........................ $ 0.20 $ 0.22 $ 0.18
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
<PAGE> 119
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income for the year.................................... $ 23,169 $ 22,166 $ 15,623
Items not affecting cash:
Depreciation and amortization............................ 14,895 8,525 4,998
Provision for (Recovery of) loss on foreign currency
contracts............................................. (5,244) 15,267 --
Write-down of resource properties and other assets....... 891 -- 388
Gain on issuance of shares by associated company......... -- (3,020) --
Other.................................................... 43 187 (595)
-------- -------- -------
33,754 43,125 20,414
Net change in non-cash working capital (note 12)........... (7,588) (9,914) (1,571)
-------- -------- -------
CASH FLOW FROM OPERATIONS.................................. 26,166 33,211 18,843
-------- -------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase in deferred revenue, net........................ 5,593 22,768 78
Issue of common shares (note 7(a))....................... 14,595 95,203 87,804
Accrued reclamation on acquisition (note 4).............. 3,000 -- --
Other.................................................... (300) 1,037 --
-------- -------- -------
22,888 119,008 87,882
-------- -------- -------
CASH USED IN INVESTING ACTIVITIES:
Net additions to property, plant and equipment........... (66,018) (52,461) (26,803)
Investments, net of sales................................ (19,025) (415) (12,746)
Other.................................................... (567) (50) (251)
-------- -------- -------
(85,610) (52,926) (39,800)
-------- -------- -------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS
DURING THE YEAR.......................................... (36,556) 99,293 66,925
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR....... 178,937 79,644 12,719
-------- -------- -------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR............. $142,381 $178,937 $ 79,644
======== ======== =======
Cash paid for:
Income taxes............................................. $ 1,542 $ 636 $ 215
Interest expense......................................... $ 298 $ 62 $ 97
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
<PAGE> 120
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Royal Oak Mines Inc. (the
"Company"), amalgamated under the laws of Ontario, have been prepared by
management in Canadian dollars in accordance with accounting principles
generally accepted in Canada. In all material respects, these accounting
policies are in conformity with accounting policies generally accepted in the
United States except as disclosed in note 13.
Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. The Company's principal subsidiaries include: Arctic
Precious Metals, Inc., Beaverhouse Resources Ltd., 934962 Ontario Inc. and
Witteck Development Inc. (all 100% owned); Ronnoco Gold Mines Limited (87%
owned).
Joint ventures are accounted for on the proportionate consolidation method.
Cash equivalents
The Company defines cash equivalents as highly liquid financial instruments
purchased with a maturity of ninety days or less.
Short-term investments
Short-term investments are recorded at the lower of cost or quoted market
value.
Inventories
Bullion which is in process but not yet in deliverable form is recorded at
estimated realizable value. Stores and operating supplies are recorded at the
lower of average cost or replacement cost.
Property, plant and equipment
(i) Plant and equipment and mining properties are recorded at cost.
(ii) For underground operations, development expenditures incurred to expose
ore, increase production or extend the life of a mine which is currently in
production are capitalized.
(iii) For open pit operations, mining costs are deferred when the ratio of waste
tons mined to ore tons mined exceeds the estimated life-of-mine strip
ratio. These deferred costs are charged to operating costs when the actual
ratio is below the life-of-mine strip ratio.
(iv) Exploration, development and other pre-production expenditures incurred on
projects under development are capitalized.
(v) Costs relating to the acquisition and exploration of non-producing
properties on which economically recoverable ore reserves have yet to be
identified are capitalized. The ultimate recovery of these costs depends
upon the discovery and development of economic ore reserves or the sale of
the mineral rights. When it has been established that a mineral property
has development potential, the exploration costs incurred are reclassified
to the category of mining properties. If an exploration property is
abandoned, the capitalized costs for that property are charged to income.
The amounts shown for non-producing properties do not necessarily reflect
present or future values.
F-6
<PAGE> 121
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(vi) Depreciation and amortization of plant and equipment, mining properties and
capitalized expenditures are provided on the unit-of-production method
based upon estimated total mineral inventory.
(vii) Reviews are undertaken regularly to evaluate the carrying values of
operating mines and development properties. If it is determined that the
net recoverable amount is significantly less than the carrying value and
the impairment in value is permanent, a write-down is made with a charge to
income.
Investments in associated companies
Investments in associated companies in which the Company has significant
influence are accounted for by the equity method.
Reclamation and site restoration costs
Estimated reclamation and site restoration costs are charged against income
on the unit-of-production method based upon estimated total mineral inventory.
Ongoing reclamation activities are charged against income as incurred.
Revenue recognition
Revenue from gold production is recognized when the ore is mined and
processed at the on-site facility. Revenue is subject to adjustment on final
settlement to reflect changes in metal prices, weights and assays.
Hedging transactions
Hedging transactions include spot deferred contracts, forward sale
contracts and option contracts. Contracted prices on spot deferred and forward
sales contracts are recognized in revenue as production is delivered against the
commitment. If actual delivery is not made against a particular spot deferred
contract at the time of maturity, losses, if any, are recognized at that time.
Gains arising from the early liquidation of hedges are deferred and are
recognized in revenue when the original contract would have matured.
Net proceeds realized on the sale of options are deferred and are
recognized in revenue on the expiry date for options which expire or are
repurchased, or on the delivery date for options which have been exercised and
for which the settlement of the underlying ounces has been deferred.
Income taxes
The Company follows the deferral method of applying the tax allocation
basis of accounting for income taxes. Under this method, timing differences
between the period when income or expenses are reported for tax purposes and the
period when they are recorded for accounting purposes result in provisions or
recoveries of deferred income taxes.
Foreign currency translation
Financial statements of the Company's principal United States subsidiary,
Arctic Precious Metals, Inc., are translated into Canadian dollars using the
temporal method. Under this method, monetary assets and liabilities are
translated at the year-end exchange rate and non-monetary assets and liabilities
and operating results are translated at the historical exchange rate prevailing
at the date of the transaction. Gains and losses arising from the translation of
the financial statements are included in the results of operations.
F-7
<PAGE> 122
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
Segmented information
The Company operates within one dominant industry segment, gold mining,
carried out in the Northwest Territories, Newfoundland, and Ontario, Canada.
Comparative figures
Certain of prior years' amounts have been reclassified to conform with the
current year's presentation.
2. FAIR VALUES OF CERTAIN FINANCIAL INSTRUMENTS
The carrying amount and fair value of the following financial instruments
are:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $139,410 $139,410 $148,524 $148,524
Short-term investments............................ $ 2,971 $ 4,536 $ 30,413 $ 30,594
</TABLE>
The fair value of short-term investments is based on quoted market values.
3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
<S> <C> <C>
Bullion in process..................................................... $18,574 $16,386
Stores and operating supplies.......................................... 27,562 19,864
------- -------
$46,136 $36,250
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
----------------------------------- --------
NET NET
ACCUMULATED BOOK BOOK
COST AMORTIZATION VALUE VALUE
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Plant and Equipment............................... $ 75,391 $ 14,570 $ 60,821 $ 53,500
Mining Properties and Deferred Development........ 127,058 22,061 104,997 62,732
Exploration Costs and other Non-producing
Properties...................................... 25,563 -- 25,563 21,722
-------- ------- -------- --------
$228,012 $ 36,631 $191,381 $137,954
======== ======= ======== ========
</TABLE>
Mining Properties and Deferred Development includes $20,890,000 (1994 --
$5,898,000) which comprises mining properties that are under development and are
expected to be put into production over the next five years. Depreciation and
amortization of these costs will be provided in the future based on the unit-
of-production method.
F-8
<PAGE> 123
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The following is a summary of the net book value of the Property, Plant and
Equipment by location:
<TABLE>
<CAPTION>
MINING
PROPERTIES DECEMBER 31
PLANT AND AND DEFERRED EXPLORATION --------------------
EQUIPMENT DEVELOPMENT AND OTHER 1995 1994
--------- ------------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Division
NWT -- Giant......................... $18,258 $ 17,458 $14,220 $ 49,936 $ 38,384
NWT -- Colomac....................... 15,630 29,692 596 45,918 44,121
Ontario.............................. 13,376 39,735 4,106 57,217 33,881
Newfoundland......................... 8,420 9,228 2,049 19,697 18,983
British Columbia..................... 850 8,884 996 10,730 --
U.S.................................. 4,287 -- 3,596 7,883 2,585
------- -------- ------- -------- --------
$60,821 $104,997 $25,563 $191,381 $137,954
======= ======== ======= ======== ========
</TABLE>
During fiscal 1995, the Company acquired 100% of the Red Mountain property
located in northwestern British Columbia for $1. The Company assumed the
environmental liabilities, estimated at $3.0 million, as part of this purchase.
The Company is committed to spend $3.0 million in exploration and development on
the Red Mountain property over three years. The vendor will receive a 1% net
smelter return royalty on all production from the property and on production
over 1.85 million ounces, an additional $10.00 per ounce is payable.
5. LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1994
------- -------
<S> <C> <C>
Partially-owned companies fully acquired subsequent to year end (note
14):
Geddes Resources Limited............................................... $12,143 $ 9,769
El Condor Resources Ltd................................................ 7,408 --
St. Philips Resources Inc.............................................. 7,331 --
------- -------
26,882 9,769
Mountain Minerals Co. Ltd................................................ 7,056 6,419
Other.................................................................... 2,369 3,082
------- -------
$36,307 $19,270
======= =======
</TABLE>
In 1994, Mountain Minerals Co. Ltd. ("Mountain Minerals") issued additional
share capital which reduced the Company's equity interest from 51% to 41%. As a
result of this share issuance by Mountain Minerals, the Company recorded a gain
on dilution of $3,020,000. During 1995, the Company increased its interest in
Mountain Minerals to 45% by way of open market purchases.
F-9
<PAGE> 124
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
6. DEFERRED REVENUE AND OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1994
------- -------
<S> <C> <C>
Deferred revenue......................................................... $29,711 $24,118
Provision for loss on foreign currency contracts......................... 10,023 15,267
Accrued reclamation costs................................................ 4,852 602
Other.................................................................... 737 1,037
------- -------
45,323 41,024
Less current portion..................................................... 4,523 1,282
------- -------
$40,800 $39,742
======= =======
</TABLE>
(a) Deferred Revenue
The following table summarizes the years in which the deferred revenue is
expected to be recorded in income.
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------------- -------
<S> <C>
1996...................................................... $ 4,523
1997...................................................... 7,293
1998...................................................... 7,612
1999...................................................... 10,283
-------
$29,711
=======
</TABLE>
(b) Provision for loss on foreign currency contracts
In prior years, to protect the Company from foreign currency fluctuations
and to provide a minimum Canadian dollar conversion rate for its U.S. dollar
gold sales revenue, the Company entered into foreign currency contracts for
conversion into Canadian dollars. These contracts were associated with the
Company's contractual obligation to deliver future gold production at specified
prices in U.S. dollars. At the end of 1995, the Company had contracts to deliver
approximately US$116 million (1994 -- US$119 million) at an average exchange
rate of 1.2806 (1994 -- 1.2744) Cdn $/US$. In 1994, the Company began marking to
market these foreign currency contracts because of the significant weakening of
the Canadian dollar since the time these contracts had first been entered into.
The Company follows a policy of rolling forward these contracts as they mature
and expects to delay delivery of U.S. dollars against these contracts.
7. CAPITAL STOCK
(a) Changes in Capital Stock
Authorized: An unlimited number of special shares issuable in series and an
unlimited number of common shares.
Issued, outstanding and fully paid -- special: nil (1994 -- nil)
F-10
<PAGE> 125
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
Issued, outstanding and fully paid -- common:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AMOUNT
---------- --------
<S> <C> <C>
BALANCE, DECEMBER 31, 1992......................................... 69,946,751 $ 64,355
Issued via special warrants........................................ 9,000,000 25,200
Acquisition of Colomac Mine........................................ 3,500,000 7,875
Acquisition of gross production royalty on Colomac property........ 1,000,000 4,000
Issued via unit offering........................................... 6,000,000 42,000
Exercise of warrants -- Series 1................................... 6,941,393 11,453
Exercise of warrants -- Series 2................................... 5,000 16
Employee gain sharing program...................................... 78,102 152
Issued for share purchase options.................................. 484,967 600
Share issue costs.................................................. (3,492)
----------- --------
BALANCE, DECEMBER 31, 1993......................................... 96,956,213 152,159
Issued via public offering......................................... 17,400,000 100,050
Exercise of warrants -- Series 2................................... 19,000 61
Issued for share purchase options.................................. 119,534 132
Share issue costs.................................................. -- (5,040)
----------- --------
BALANCE, DECEMBER 31, 1994......................................... 114,494,747 247,362
Exercise of warrants -- Series 2................................... 4,475,300 14,545
Issued for share purchase options.................................. 148,667 190
Issued to acquire Witteck Development Inc.......................... 1,924,816 8,854
Share issue costs.................................................. -- (140)
----------- --------
BALANCE, DECEMBER 31, 1995
Issued and outstanding............................................. 121,043,530 270,811
Company shares held by Witteck Development Inc. (note 7(b))........ (1,924,816) (8,854)
----------- --------
Balance, December 31, 1995 for financial reporting purposes........ 119,118,714 $261,957
=========== ========
</TABLE>
(b) Acquisition of Witteck Development Inc.
During 1995, the Board of Directors and the shareholders approved the
acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose
sole asset is an investment in the Company of 1,924,816 shares. This investment
has been recorded as a reduction of capital stock on the balance sheet.
Consequently, the shares of the Company that are held by Witteck have been
excluded from the determination of earnings per share information.
(c) Warrants
During the year, 4,475,300 Series 2 warrants were exercised and converted
into common shares at a price of $3.25 per share.
At December 31, 1995, the Company had 3,000,000 Series 3 warrants
outstanding which were issued in 1993. Each warrant entitles the holder to
purchase one common share of the Company at a price of $8.75 per share until May
30, 1996.
F-11
<PAGE> 126
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(d) Weighted Average Number of Common Shares
Earnings per share has been calculated on the basis of the weighted average
number of common shares outstanding for the year which was 117,900,306 shares
(1994 -- 101,399,347; 1993 -- 84,073,179).
(e) Stock Options
The Company grants stock options to employees and directors in recognition
of their service to the Company.
The following table outlines activity with respect to the Company's stock
options:
<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE PER SHARE
---------------- ---------------
<S> <C> <C>
OUTSTANDING, DECEMBER 31, 1992............................... 1,103,834 $0.48 - $2.04
Granted...................................................... 1,360,000
Exercised.................................................... (484,967) $0.48 - $3.95
Cancelled/Expired............................................ (572,500)
---------
OUTSTANDING, DECEMBER 31, 1993............................... 1,406,367 $0.48 - $6.25
Granted...................................................... 1,100,000
Exercised.................................................... (119,534) $0.48 - $2.85
Cancelled/Expired............................................ (166,000)
---------
OUTSTANDING, DECEMBER 31, 1994............................... 2,220,833 $0.48 - $6.25
Granted...................................................... 605,000
Exercised.................................................... (148,667) $0.90 - $2.85
Cancelled/Expired............................................ (215,000)
---------
OUTSTANDING, DECEMBER 31, 1995............................... 2,462,166 $0.48 - $6.25
=========
</TABLE>
F-12
<PAGE> 127
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
8. INCOME TAXES
The provisions for income tax are analyzed in the following table to show
the taxes that would be payable by applying statutory tax rates to the Company's
pre-tax earnings, and the taxes actually provided in the accounts:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Pre-tax income, as reported................................. $24,754 $22,777 $15,804
Combined statutory tax rates................................ 43% 43% 44%
Tax at combined statutory rates............................. $10,644 $ 9,794 $ 6,954
Adjust for tax effect of:
Resource allowance........................................ (771) (3,782) (2,233)
Non-taxable portion of capital gains...................... (829) (547) --
Deductible financing costs................................ (1,152) (860) (393)
Other..................................................... 43 -- --
Utilization of previously unrecognized deferred tax assets
and net adjustment to deferred taxes...................... (7,157) (4,605) (4,328)
Foreign earnings subject to different tax rates............. (117) -- --
Large corporation capital tax............................... 639 336 215
Corporate minimum tax....................................... 242 300 --
------- ------- -------
$ 1,542 $ 636 $ 215
======= ======= =======
</TABLE>
For income tax purposes, the Company has tax deductions available to be
utilized in future years totalling $167 million. When claimed, a substantial
portion of these tax deductions will result in the creation of deferred income
tax liabilities.
The Company also has $16 million of earned depletion and mining exploration
depletion base carry forward available to be deducted against certain future
resource profits.
Because of reorganizations undertaken by the Company, utilization of tax
deductions and earned depletion base may be restricted.
9. INTEREST AND OTHER INCOME, NET
Interest and other income is comprised of:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Interest income............................................... $10,640 $4,078 $2,194
Gain on sale of securities.................................... 8,309 1,290 19
Other, net.................................................... 1,953 1,706 76
------- ------ ------
$20,902 $7,074 $2,289
======= ====== ======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company has defined benefit and defined contribution pension plans
covering substantially all of its regular full-time employees. Pension benefits
are based, in defined benefit plans, on employees' earnings and
F-13
<PAGE> 128
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
years of service. Most of the plans are funded currently by contributions from
the Company, based on periodic actuarial valuations. Contributions to its
defined contribution plan are based on a specific percentage of base earnings.
The market related value of the defined benefit pension plans' assets was
$35,359,000 at December 31, 1995 (1994 -- $32,226,000) and the actuarial present
value of accrued pension benefits was $31,321,000 at December 31, 1995 (1994 --
$30,789,000). The total pension expense for the year was $1,324,000 (1994 --
$1,163,000; 1993 -- $908,000).
11. CONTINGENCIES AND COMMITMENTS
(a) Legal Claim
On September 18, 1992, nine miners were murdered in an underground
explosion at the Company's Giant Mine. A member of the union which was on strike
at the time was charged and convicted of nine counts of second degree murder. In
September, 1994, dependents of the deceased miners sued the Company and two of
its officers and directors, along with 23 other named defendants including
Procon Miners Inc., Pinkerton's of Canada Limited, the Government of the
Northwest Territories, and National Automobile, Aerospace and Agricultural
Implement Workers Union of Canada, for losses allegedly suffered as a result of
the explosion. The claim against the Company and all defendants but one, totals
approximately $10.8 million plus taxes, interest and costs. The claim against
the two officers and directors and all other defendants, excluding the Company,
totals approximately $33.65 million plus taxes, interest and costs.
The claim is being vigorously defended. Counsel for the Company's insurer
has stated that, based on allegations in the amended Statement of Claim -- being
the only pleading filed to date -- any liability that might be imposed would be
within the Company's liability insurance coverage. The Company believes that the
claim is without merit.
(b) Laws and Regulations
The Company's current and proposed mining and exploration activities are
subject to various laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect its employees, the general public and the environment and believes
its operations are in compliance with all applicable laws and regulations, in
all material respects. The Company has made, and expects to make in the future,
submissions and expenditures to comply with such laws and regulations.
Where estimated reclamation and closure costs are reasonably determinable,
the Company has recorded a provision for environmental liabilities based on
management's estimate of these costs. Such estimates are subject to adjustment
based on changes in laws and regulations and as new information becomes
available.
The Company is from time to time involved in various claims, legal
proceedings and complaints arising in the ordinary course of business. The
Company is also subject to reassessment for income and mining taxes for certain
years. It does not believe that adverse decisions in any potential tax
reassessments or any amount which it may be required to pay by reason thereof
will have a material adverse effect on the financial condition or future results
of operations of the Company.
(c) Forward Sales and Hedging Contracts
The Company engages in hedging transactions to minimize the impact of
fluctuations in gold, oil and foreign currency prices.
F-14
<PAGE> 129
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The credit risk related to hedging activities is limited to the unrealized
gains on outstanding contracts based on current market prices. The Company
believes it has minimized credit risk by dealing with large credit-worthy
institutions and by limiting credit exposure to each.
(i) At December 31, 1995 the Company had contractual arrangements, in
U.S. and Canadian dollars, to deliver the following ounces of gold:
<TABLE>
<CAPTION>
GOLD FORWARD SALES PRICE OF FORWARD SALES
YEAR (OZ.) (PER OZ.)
----------------------------------------------- ------------------ ----------------------
<S> <C> <C>
1996........................................... 39,028 US$385
1997........................................... 140,000 Cdn $614
1998........................................... 140,000 Cdn $629
1999........................................... 140,000 Cdn $654
2000........................................... -- --
-------
459,028
=======
</TABLE>
Delivery under these contracts can be deferred at the Company's option for
up to five years depending on the individual contract.
(ii) The Company's call option position as at December 31, 1995 was as
follows:
<TABLE>
<CAPTION>
GOLD CALL
OPTIONS SOLD STRIKE PRICE
YEAR (OZ.) (PER OZ.)
----------------------------------------------------------- ------------ ------------
<S> <C> <C>
1996....................................................... 305,000 US$410
1997....................................................... 187,792 Cdn $624
1998....................................................... 200,000 Cdn $639
1999....................................................... 200,000 Cdn $664
2000....................................................... -- --
-------
892,792
=======
</TABLE>
If called, the Company has the ability to delay delivery of these ounces by
entering into fixed forward or spot deferred contracts originating with the same
number of ounces and strike prices as in the exercised option.
(iii) At December 31, 1995, the Company's obligations to sell U.S. dollars
were as follows:
<TABLE>
<CAPTION>
EXCHANGE
U.S. DOLLARS RATE (CDN CARRYING FAIR
YEAR (000'S) $/US$) AMOUNT VALUE
------------------------------------ ------------ ----------- -------- --------
<S> <C> <C> <C> <C>
1996................................ US$ 106,229 1.2807 $ (9,190) $ (9,190)
1997................................ US$ 9,636 1.2801 (833) (833)
1998-2000........................... -- -- -- --
---------- ------ -------- --------
US$ 115,865 1.2806 $(10,023) $(10,023)
========== ====== ======== ========
</TABLE>
F-15
<PAGE> 130
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The Company marks to market these contracts based on the applicable
exchange rate at the date of the balance sheet. See note 6(b).
(iv) At December 31, 1995 the Company had oil swap agreements to hedge the
cost of Western Texas Intermediate ("WTI") crude oil to be used for the
operations of the Colomac Mine. These agreements call for settlement as
follows:
<TABLE>
<CAPTION>
YEAR BARRELS OF WTI PURCHASED PRICE PER BARREL
--------------------------------------------- ------------------------ ----------------
<S> <C> <C>
1996......................................... 200,000 US$17.40
1997......................................... 200,000 US$16.85
1998-2000.................................... -- --
-------
400,000
=======
</TABLE>
(d) Operating Royalties
(i) Under the terms of the Hope Brook Mine Asset Purchase Agreement, the
Company is obligated to pay an operating royalty when the average price
of gold exceeds US$380 per ounce. Amounts payable vary between
$1,300,000 and $3,300,000 annually depending on the average price of
gold. In respect of 1995, the Company was obligated to pay $1,300,000
(1994 -- $1,300,000; 1993 -- nil). Obligations under this agreement
expire in 1996.
(ii) Under the terms of the Colomac Mine Asset Purchase Agreement, the
Company is obligated to pay an operating royalty when the average price
of gold exceeds US$400 per ounce. Amounts payable vary between $1.0
million and $2.0 million annually depending on the average price of
gold. In respect of 1995, no amount was payable under this royalty (1994
-- nil; 1993 -- nil). Obligations under this agreement are expected to
expire in 1999.
12. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Cash provided by (used for):
Receivables.............................................. $ (296) $ (3,905) $ 2,973
Inventories.............................................. (9,886) (17,530) (6,862)
Prepaid expenses......................................... (799) (1,533) (427)
Accounts payable......................................... 986 (1,498) 2,922
Accrued payroll costs.................................... (383) 1,717 (63)
Income taxes payable..................................... 935 802 (115)
Other current liabilities................................ 1,855 12,071 1
Mountain Minerals deconsolidation........................ -- (38) --
------- ------- -------
$(7,588) $ (9,914) $(1,571)
======= ======= =======
</TABLE>
F-16
<PAGE> 131
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of net income in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP") to net income in accordance with United
States generally accepted accounting principles ("U.S. GAAP") is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net income in accordance with Canadian GAAP.................... $23,169 $22,166 $15,623
Decrease:
Depreciation and amortization................................ (5,633) (2,188) (1,683)
Employee benefit plans....................................... (359) -- --
------- ------- -------
Net income in accordance with U.S. GAAP........................ $17,177 $19,978 $13,940
======= ======= =======
Earnings per share in accordance with U.S. GAAP:
Primary earnings............................................. $ 0.15 $ 0.19 $ 0.17
Fully diluted earnings....................................... $ 0.15 $ 0.19 $ 0.16
</TABLE>
The effects on the balance sheets of the Company at December 31, prepared
in accordance with U.S. GAAP, are:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Decrease:
Property, plant and equipment.................................. $11,794 $6,161 $3,973
Prepaid expenses (pension asset)............................... 359 -- --
------- ------ ------
Retained earnings.............................................. $12,153 $6,161 $3,973
======= ====== ======
</TABLE>
(a) Depreciation and Amortization
Under U.S. GAAP, depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas under
Canadian GAAP, total mineral inventory may be used in the calculations.
(b) Employee Benefit Plans
Under U.S. GAAP, for defined benefit pension plans, the projected benefit
obligation should be discounted using interest rates at which the obligation
could be effectively settled whereas under Canadian GAAP, the projected benefit
obligation may be discounted using interest rates which are consistent with
long-term assumptions. Also, under U.S. GAAP, experience gains and losses as
well as adjustments arising from changes in assumptions must be amortized only
if it exceeds a specified range. Under Canadian GAAP, these amounts must be
amortized over the expected average remaining service life of the employee group
regardless of the amount.
Pension expense is determined each year based on actuarial recommendations.
The actuarial assumptions applied in determining the expense in accordance with
U.S. GAAP include a discount rate on the benefit obligation, rate of
compensation increases and long-term rate of return on the plan assets of 8.5%,
7.0% and 8.5%, respectively. Assets of the plans are held in a range of
investments, which include fixed-income securities, equities and money market
securities. At January 1, 1987, as a result of an actuarial valuation of the
plans, a surplus was identified which is being amortized over the estimated
average remaining service lives of the employees (EARSL) which, for the
Company's defined benefit pension plans, ranges from 12 to 18 years.
F-17
<PAGE> 132
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The components of pension expense, for the Company's defined benefit
pension plans, calculated in accordance with U.S. GAAP are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the year................ $ 1,374 $ 1,292 $ 944
Interest cost on projected benefit obligation.................. 2,541 2,445 2,267
Return on assets............................................... (4,999) (169) (2,448)
Other.......................................................... 2,575 (2,586) (92)
------- ------- -------
$ 1,491 $ 982 $ 671
======= ======= =======
</TABLE>
The funded status and differences between amounts expensed and amounts
funded calculated under U.S. GAAP for the Company's defined benefit pension
plans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------
1995 1994
------------------------------- -------------------------------
PLANS WHERE PLAN WHERE PLANS WHERE PLAN WHERE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Plans' assets at market value.................. $29,912 $ 8,743 $27,070 $ 7,657
------- ------ ------- ------
Projected benefits based on:
Employment service to date and present pay
levels
Vested.................................... 20,144 8,787 18,731 8,323
Non-vested................................ 68 42 983 40
Additional amount related to compensation
increases................................. 3,246 -- 2,712 --
------- ------ ------- ------
Projected benefit obligations.................. 23,458 8,829 22,426 8,363
------- ------ ------- ------
Plans' assets in excess of (less than)
projected benefit obligations................ 6,454 (86) 4,644 (706)
Unamortized January 1, 1987 surplus, net....... (1,932) (774) (2,148) (863)
Unamortized net experience (gains) losses...... (3,055) 1,029 (1,243) 1,320
Unamortized prior service cost................. -- 1,408 -- 1,515
------- ------ ------- ------
$ 1,467 $ 1,577 $ 1,253 $ 1,266
======= ====== ======= ======
Difference between amounts charged to
operations and amounts funded................ $3,044 $2,519
------- -------
------- -------
</TABLE>
In addition to the defined benefit pension plans noted above, the Company
maintains a defined contribution pension plan for certain of its hourly
employees. Under this plan, the Company contributes 2.5% of each member's base
earnings to the pension plan. The pension expense for the year under this
pension plan was $192,000 (1994 -- $181,000; 1993 -- $237,000).
F-18
<PAGE> 133
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(c) Income Taxes
In accordance with the Financial Accounting Standards Board Statement No.
109 ("SFAS 109"), U.S. GAAP requires that income taxes be accounted for by the
liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial statement reporting and
the tax bases of the assets and liabilities and are measured at the enacted tax
rates that will be in effect when the differences are expected to reverse. Such
differences principally arise from the timing of income and expense recognition
for accounting and tax purposes. The application of SFAS 109 would have no
material effect on the assets, liabilities or operations for the years presented
in these consolidated financial statements as additional deferred tax assets
arising from the table of reconciling items have been offset by the recording of
an additional valuation allowance. The following additional disclosures with
respect to income taxes are required by U.S. GAAP:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Deferred Tax Liabilities:
Exploration expenditures................................... $ 4,643 $ 5,519 $ 5,985
Mining properties and deferred development................. 6,979 941 (835)
Pension asset.............................................. 985 997 957
Investments................................................ 1,057 1,057 --
Other...................................................... -- 58 --
------- ------- -------
$13,664 $ 8,572 $ 6,107
======= ======= =======
Deferred Tax Assets:
Provision for loss on foreign currency contracts........... $ 3,567 $ 5,343 $ --
Operating losses........................................... -- -- 1,043
Property, plant and equipment.............................. 7,670 6,126 10,569
Accrued reclamation costs.................................. 648 163 49
Other...................................................... 1,030 571 595
Valuation allowance........................................ (2,134) (4,838) (9,034)
------- ------- -------
$10,781 $ 7,365 $ 3,222
======= ======= =======
</TABLE>
The net change in the valuation allowance from 1994 to 1995 was a decrease
of $2,704,000. The Company decreased its beginning-of-the-year balance of the
valuation allowance by approximately $3,063,000 to reflect changes in
circumstances.
14. SUBSEQUENT ACQUISITIONS
(a) Acquisition of Geddes Resources Limited, El Condor Resources Ltd. and St.
Philips Resources Inc.
On January 11, 1996, the Company acquired all of the outstanding shares of
Geddes Resources Limited ("Geddes"), El Condor Resources Ltd. ("El Condor") and
St. Philips Resources Inc. ("St. Philips") not already owned by the Company
pursuant to a series of signed agreements (the "Plan of Arrangement") on the
following terms:
Geddes: 0.30 shares of the Company for each share of Geddes.
El Condor: 0.95 shares of the Company plus $2.00 cash for each share of El
Condor.
St. Philips: $3.40 cash for each share of St. Philips.
F-19
<PAGE> 134
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The Company issued 19,011,883 common shares and paid approximately $56
million in cash pursuant to the Plan of Arrangement. The January 11, 1996
closing price on the Toronto Stock Exchange for the Company's common shares was
$6.00. This price was used to value the common shares issued under the Plan of
Arrangement.
The following outlines the details of the purchase price and its allocation
to the assets and liabilities acquired:
<TABLE>
<CAPTION>
GEDDES EL CONDOR ST. PHILIPS TOTAL
------- --------- ----------- --------
<S> <C> <C> <C> <C>
Purchase price:
Cash paid, including open market purchases....... $ 3,220 $ 34,222 $38,562 $ 76,004
Issue of common shares........................... 37,650 76,421 -- 114,071
------- -------- ------- --------
$40,870 $ 110,643 $38,562 $190,075
======= ======== ======= ========
Allocated to:
Cash and cash equivalents........................ $ 561 $ 1 $ 378 $ 940
Property, plant and equipment.................... 40,619 111,407 38,336 190,362
Other assets..................................... 31 151 9 191
Total liabilities................................ (341) (916) (161) (1,418)
------- -------- ------- --------
$40,870 $ 110,643 $38,562 $190,075
======= ======== ======= ========
</TABLE>
The Company incurred transaction and other costs totaling $3,649,000. In
May 1993, the Company had purchased an approximate 39% interest in Geddes. See
note 5 for the year-end carrying amount. These transaction and other costs
together with the carrying amount of the initial purchase of Geddes have been
allocated to property, plant and equipment.
The following is a condensed consolidated balance sheet of the Company as
at January 11, 1996, after giving effect to the acquisitions:
<TABLE>
<CAPTION>
JANUARY 11, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Cash and cash equivalents........................................... $ 79,982 $139,410
Other current assets................................................ 62,057 61,865
-------- --------
142,039 201,275
Property, plant and equipment....................................... 394,583 191,381
Long-term investments............................................... 9,445 36,307
-------- --------
546,067 428,963
======== ========
Current liabilities................................................. $ 43,852 $ 42,434
Long-term liabilities and other..................................... 47,649 46,034
-------- --------
91,501 88,468
Capital stock
(Outstanding: January 11, 1996 -- 138,130,597).................... 376,028 261,957
Retained earnings(a)................................................ 78,538 78,538
-------- --------
$ 546,067 $428,963
======== ========
</TABLE>
F-20
<PAGE> 135
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
(a) Income for the interim period has been ignored for the purposes of this
comparative balance sheet.
These acquisitions were linked to the resolution of the claim for
compensation from the Government of British Columbia (the "B.C. Government")
which, in 1993, appropriated the Windy Craggy property from Geddes and declared
the area a provincial park. Under the terms of an agreement among the B.C.
Government, the Company and Geddes, the B.C. Government has agreed to an
economic assistance package and compensation valued at $166 million. The
majority of these funds are payable to the Company over the next three years.
(b) Offer to Purchase Consolidated Professor Mines Limited
On February 5, 1996, the Company made a public offer to purchase all of the
outstanding common shares of Consolidated Professor Mines Limited ("Consolidated
Professor") at a cash price of $0.80 per share for a total purchase price of
approximately $16 million. On February 27, 1996 the Company acquired 16,135,891
common shares of Consolidated Professor representing 81.2% of the outstanding
common shares and extended its offer to purchase all of the common shares until
March 29, 1996.
F-21
<PAGE> 136
ROYAL OAK MINES INC.
CONSOLIDATED BALANCE SHEETS
(unaudited -- Cdn$ 000s)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......................................... $ 14,797 $139,410
Short-term investments............................................. 24,886 2,971
Receivables........................................................ 7,505 7,138
Inventories (note 4)............................................... 72,829 46,136
Prepaid expenses................................................... 8,525 5,620
-------- --------
Total Current Assets............................................ 128,542 201,275
Property, Plant and Equipment, net................................... 435,690 191,381
Long-term Investments................................................ 15,886 36,307
-------- --------
TOTAL ASSETS......................................................... $580,118 $428,963
======== ========
LIABILITIES
Current Liabilities
Accounts payable................................................... $ 9,585 $ 13,640
Accrued payroll.................................................... 3,870 5,267
Current portion of deferred revenue................................ 16,491 4,523
Income taxes payable............................................... 3,751 3,350
Other current liabilities.......................................... 23,537 15,654
-------- --------
Total Current Liabilities....................................... 57,234 42,434
Deferred Revenue..................................................... 38,318 25,188
Other Liabilities.................................................... 17,397 15,612
Deferred Income Taxes................................................ 7,070 5,064
Minority Interest in Subsidiary Companies............................ 140 170
-------- --------
TOTAL LIABILITIES.................................................... 120,159 88,468
-------- --------
SHAREHOLDERS' EQUITY
Capital Stock (note 11)
Common stock
Authorized -- unlimited
Outstanding -- 138,218,430 (Dec. 31, 1995 -- 119,118,714)....... 376,316 261,957
Retained Earnings.................................................... 83,643 78,538
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................................... 459,959 340,495
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $580,118 $428,963
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-22
<PAGE> 137
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(unaudited -- Cdn$ 000s except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- --------------------
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUE............................................ $ 54,797 $53,453 $105,846 $100,839
------- ------- -------- --------
EXPENSES
Operating........................................ 39,354 45,650 81,383 89,714
Royalties and marketing.......................... 846 889 1,408 1,108
Administrative and corporate..................... 2,712 3,323 4,861 4,945
Depreciation and amortization.................... 6,131 2,988 11,366 6,270
Exploration...................................... 1,449 141 2,409 254
Recovery of loss on foreign currency contracts... (209) (3,772) (976) (3,772)
------- ------- -------- --------
Total operating expenses...................... 50,283 49,219 100,451 98,519
------- ------- -------- --------
OPERATING INCOME................................... 4,514 4,234 5,395 2,320
Interest and other income, net (note 3)............ 1,119 6,357 2,462 12,135
------- ------- -------- --------
NET INCOME BEFORE UNDERNOTED....................... 5,633 10,591 7,857 14,455
Income and mining taxes -- current............... (368) (653) (723) (969)
Income and mining taxes -- deferred.............. (1,466) -- (2,006) --
Minority interest................................ (80) 9 (53) 9
Equity in income (loss) of associated
companies..................................... 30 (199) 30 (244)
------- ------- -------- --------
NET INCOME......................................... 3,749 9,748 5,105 13,251
RETAINED EARNINGS -- BEGINNING OF PERIOD........... 79,894 58,872 78,538 55,369
------- ------- -------- --------
RETAINED EARNINGS -- END OF PERIOD................. $ 83,643 $68,620 $ 83,643 $ 68,620
======= ======= ======== ========
EARNINGS PER SHARE................................. $0.03 $0.08 $0.04 $0.11
======= ======= ======== ========
Weighted average number of common shares
outstanding (000s)............................... 138,196 119,021 135,006 116,754
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-23
<PAGE> 138
ROYAL OAK MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited -- Cdn$ 000s)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Consolidated net income for the period.......... $ 3,749 $ 9,748 $ 5,105 $ 13,251
Items not affecting cash:
Depreciation and amortization................ 6,131 2,988 11,366 6,270
Deferred income tax.......................... 1,466 -- 2,006 --
Recovery of loss on foreign currency
contracts.................................. (209) (3,772) (976) (3,772)
Other........................................ 51 596 169 235
-------- -------- --------- --------
CASH FLOW......................................... 11,188 9,560 17,670 15,984
Net change in non-cash working capital (note 5)... (10,999) (3,265) (27,132) (8,302)
-------- -------- --------- --------
Net cash provided by (used in) operating
activities...................................... 189 6,295 (9,462) 7,682
-------- -------- --------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Increase in deferred revenue, net............... 19,112 2,267 25,097 6,692
Issue of common shares (note 11)................ 359 69 114,359 14,575
Other........................................... 994 (74) 2,424 (146)
-------- -------- --------- --------
Net cash provided by financing activities......... 20,465 2,262 141,880 21,121
-------- -------- --------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Investment in Kemess capital assets through
purchase of companies (note 8)............... -- -- (201,976) --
Decrease in long-term investments (note 8)...... -- -- 26,882 --
Investment in capital assets through purchase of
Consolidated Professor Mines Limited (note
9)........................................... (2,592) -- (15,844) --
Investment in other capital assets, net......... (12,788) (9,591) (32,216) (17,288)
Investment in exploration and non-producing
properties, net.............................. (3,626) (3,432) (5,692) (5,655)
Change in other assets.......................... (3,027) (1,364) (6,270) (1,684)
-------- -------- --------- --------
Net cash used in investing activities............. (22,033) (14,387) (235,116) (24,627)
-------- -------- --------- --------
INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS DURING PERIOD....................... (1,379) (5,830) (102,698) 4,176
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF
PERIOD.......................................... 41,062 188,943 142,381 178,937
-------- -------- --------- --------
CASH AND SHORT-TERM INVESTMENTS AT END OF
PERIOD.......................................... $ 39,683 $183,113 $ 39,683 $183,113
======== ======== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................... $47 $44 $86 $96
Income taxes................................. $175 $110 $530 $426
</TABLE>
Cash consists of cash and short-term investments.
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-24
<PAGE> 139
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
1. INTERIM FINANCIAL STATEMENTS ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP") which, in the case of Royal Oak Mines Inc. (the
"Company"), differ in certain material respects from United States generally
accepted accounting principles ("U.S. GAAP"), as described in Note 7. Also, such
statements do not include all of the disclosures required by generally accepted
accounting principles for annual statements. In the opinion of management all
adjustments considered necessary for fair presentation have been included in
these statements. Operating results for the three and six months ended June 30,
1996, are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1996. For further information, see the Company's
Consolidated Financial Statements, including the accounting policies and notes
thereto, included in the Annual Report to Shareholders and Annual Report on Form
10-K for the year ended December 31, 1995.
The calculations of net earnings per share are based upon the weighted
average number of common shares of the Company outstanding during each period
(except as set forth in Note 11(b)). When outstanding convertible instruments
materially dilute earnings per share, fully diluted earnings per share are
disclosed.
2. PRESENTATION
Certain amounts for 1995 have been reclassified to conform with the current
year's presentation.
3. INTEREST AND OTHER INCOME, NET
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30 JUNE 30
---------------- -----------------
1996 1995 1996 1995
------ ------ ------ -------
<S> <C> <C> <C> <C>
Interest income.......................................... $ 336 $2,470 $1,360 $ 4,988
Gain on sale of securities and other..................... 783 3,887 1,102 7,147
------ ------ ------ -------
Interest and other income, net........................... $1,119 $6,357 $2,462 $12,135
====== ====== ====== =======
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------- -----------
<S> <C> <C>
Bullion in process.................................................... $20,879 $ 18,574
Stores and operating supplies......................................... 51,950 27,562
-------
Inventories........................................................... $72,829 $ 46,136
======= ===========
</TABLE>
The increase in stores and operating supplies resulted from the need to
bring in up to one year's supply of operating and maintenance materials over a
winter road to the Colomac mine site during the first quarter. Due to the remote
nature of the Colomac mine, the most effective way to manage the stores and
operating supplies inventory is to transport them over a winter ice road from
January to March. The freight costs associated with this inventory have been
included in the cost of the inventory and will be charged to operations
throughout the year as the inventory is utilized.
F-25
<PAGE> 140
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
5. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Receivables..................................... $ (96) $ 1,763 $ (366) $ 1,727
Inventories..................................... 1,733 10,368 (26,693) (14,670)
Prepaid expenses................................ (2,059) (1,198) (2,904) (1,819)
Accounts payable, accrued payroll and other
current liabilities.......................... (10,815) (15,461) 2,431 5,410
Income taxes payable............................ 238 1,263 400 1,050
-------- -------- -------- --------
Net change in non-cash working capital............ $(10,999) $ (3,265) $(27,132) $ (8,302)
======== ======== ======== ========
</TABLE>
6. RECLAMATION AND ENVIRONMENTAL REMEDIATION
The Company's current and proposed mining and exploration activities are
subject to various laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect its employees, the general public and the environment and believes
its operations are in compliance with all applicable laws and regulations, in
all material respects. The Company has, and expects to in the future, comply
with such laws and regulations, including making all required expenditures.
Where estimated reclamation and closure costs are reasonably determinable,
the Company has recorded a provision for environmental liabilities, using the
unit-of-production method, based on management's estimate of these costs. Such
estimates are subject to adjustment based on changes in laws and regulations and
as new information becomes available.
7. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of net income in accordance with Canadian GAAP to net income
in accordance with U.S. GAAP is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income in accordance with Canadian GAAP........... $ 3,749 $ 9,748 $ 5,105 $13,251
Adjustments:
Depreciation and amortization....................... (1,517) (2,547) (2,233) (3,489)
Income taxes........................................ 531 -- 782 --
------- ------- ------- -------
Net income in accordance with U.S. GAAP............... $ 2,763 $ 7,201 $ 3,654 $ 9,762
======= ======= ======= =======
Earnings per share in accordance with U.S. GAAP....... $ 0.02 $ 0.06 $ 0.03 $ 0.08
======= ======= ======= =======
</TABLE>
F-26
<PAGE> 141
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The effects on the balance sheets of the Company at June 30, prepared in
accordance with U.S. GAAP, are:
<TABLE>
<CAPTION>
JUNE 30
--------------------
1996 1995
-------- -------
<S> <C> <C>
Increase (decrease):
Property, plant and equipment........................................ $ 66,877 $(9,650)
Prepaid expenses (pension asset)..................................... $ (359) --
Deferred income taxes................................................ $ 80,122 --
Retained earnings.................................................... $(13,604) $(9,650)
</TABLE>
Statement of Financial Accounting Standards No. 109 requires that a
deferred tax liability be recognized for differences between the assigned values
and the tax bases of the assets and liabilities recognized in a business
combination involving a purchase of stock. Canadian GAAP does not require
similar recognition. Accordingly, during the six months ended June 30, 1996, a
difference between U.S. GAAP and Canadian GAAP arose for the deferred tax
liabilities associated with the excess of the assigned values and the tax bases
of assets acquired in the acquisition of Geddes Resources Limited ("Geddes"), El
Condor Resources Ltd. ("El Condor"), St. Philips Resources Inc. ("St. Philips")
and Consolidated Professor Mines Limited ("Consolidated Professor"). The effect
of these differences is to increase property, plant and equipment and deferred
income taxes by $80.9 million as of June 30, 1996.
8. ACQUISITION OF GEDDES RESOURCES LIMITED, EL CONDOR RESOURCES LTD. AND ST.
PHILIPS RESOURCES INC.
On January 11, 1996, the Company acquired all of the outstanding shares of
Geddes, El Condor and St. Philips not already owned by the Company pursuant to
an agreement (the "Plan of Arrangement") on the following terms:
<TABLE>
<S> <C>
Geddes: 0.30 shares of the Company for each share of Geddes.
El Condor: 0.95 shares of the Company plus $2.00 cash for each share of El Condor.
St. Philips: $3.40 cash for each share of St. Philips.
</TABLE>
As a result of these transactions, the Company issued 19,011,883 common
shares of the Company and paid approximately $56 million in cash pursuant to the
Plan of Arrangement. The January 11, 1996 closing price on The Toronto Stock
Exchange for the Company's common shares was $6.00. This price was used to value
the common shares issued under the Plan of Arrangement. At the time of
acquisition, St. Philips, with its wholly owned subsidiary, and El Condor
jointly owned the Kemess South property. El Condor owned 100% of the Kemess
North property.
As at December 31, 1995, the Company's investment in Geddes, El Condor and
St. Philips amounted to approximately $26.9 million and was included in
long-term investments.
F-27
<PAGE> 142
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The following outlines the details of the purchase price and its allocation
to the assets and liabilities acquired:
<TABLE>
<CAPTION>
GEDDES EL CONDOR ST. PHILIPS TOTAL
------- --------- ----------- --------
<S> <C> <C> <C> <C>
Purchase price:
Cash paid, including open market purchases....... $ 3,220 $ 34,222 $38,562 $ 76,004
Issue of common shares........................... 37,650 76,421 -- 114,071
------- -------- ------- --------
40,870 110,643 38,562 190,075
Initial carrying value of Geddes................. 9,192 -- -- 9,192
Transaction and other costs...................... 2,290 680 679 3,649
------- -------- ------- --------
52,352 111,323 39,241 202,916
Cash and cash equivalents acquired from
companies..................................... (561) (1) (378) (940)
------- -------- ------- --------
Total.............................................. $51,791 $ 111,322 $38,863 $201,976
======= ======== ======= ========
Allocated to:
Property, plant and equipment.................... $52,101 $ 112,087 $39,015 $203,203
Other assets..................................... 31 151 9 191
Total liabilities................................ (341) (916) (161) (1,418)
------- -------- ------- --------
Total.............................................. $51,791 $ 111,322 $38,863 $201,976
======= ======== ======= ========
</TABLE>
These transactions were linked to the resolution of the claim by Geddes for
compensation from the Government of British Columbia (the "B.C. Government")
which, in 1993, declared the area, including the Windy Craggy property, a
provincial park. Under the terms of an agreement among the B.C. Government, the
Company and Geddes, the B.C. Government has agreed to an economic assistance and
investment package and to compensation valued, in the aggregate, at up to $166
million. The majority of these funds are payable to the Company over the next
three years.
The following shows pro forma what the results of operations would have
been if the acquisition had occurred at the beginning of the period:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue.............................................................. $105,846 $100,839
Net income........................................................... $ 5,105 $ 10,976
Earnings per share -- basic.......................................... $ 0.04 $ 0.08
Earnings per share -- fully diluted.................................. $ 0.04 $ 0.08
</TABLE>
On April 29, 1996, the Project Approval Certificate (formerly known as the
Mine Development Certificate) for the Kemess South project was received from the
B.C. Government following resolution of provincial environmental assessment
matters. Federal approval under the Environmental Assessment Act (Canada) and
the Fisheries Act (Canada) is expected shortly and will facilitate completion of
all infrastructure impacting on viable lakes and streams in the project area.
The Kemess South gold-copper project in north central British Columbia is
scheduled to commence production in the first half of 1998. The mineable ore
reserves at year-end 1995 at Kemess South contained approximately 4.1 million
ounces of gold and one billion pounds of copper.
F-28
<PAGE> 143
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
The Company is proceeding with the development and construction of the
Kemess South project. Engineering on the project is estimated to be 65%
complete. Certain of the construction contracts for the plant and infrastructure
facilities have been awarded and the remainder are expected to be awarded in the
next few months.
Construction on the project commenced in early July. As of July 31, 1996,
approximately $122.0 million has been committed on the project.
The capital cost of the Kemess South project has been estimated at $390
million, including contingency and start-up costs but excluding the cost of
acquisition of the property. Financing for the Kemess South project will include
up to $166 million by way of an economic assistance and investment package and
compensation from the B.C. Government. The Company's wholly owned subsidiary,
Kemess Mines Inc. (formerly Geddes Resources Limited) has already received the
first of two equal payments of compensation from the B.C. Government in the sum
of $14.5 million in April 1996, the final compensation payment being due in
April 1997. The Company will fund the balance of the capital cost from cash in
treasury, future operating cash flow and debt. At this time, the Company has no
plans to issue any new equity in connection with this project.
The Company will apply for and seek to obtain all necessary permits,
licences, approvals and other authorizations for the Kemess South project as
project development continues.
9. ACQUISITION OF CONSOLIDATED PROFESSOR MINES LIMITED
On February 5, 1996, the Company made a public offer to purchase all of the
outstanding common shares of Consolidated Professor consisting of approximately
20 million common shares, at a cash price of $0.80 per share. By June 30, 1996,
the Company had purchased all shares tendered and acquired all remaining shares
in accordance with compulsory acquisition procedures, for a total purchase price
of $16.2 million. The purchase price, net of cash acquired on the acquisition of
$0.3 million, has been assigned as follows:
<TABLE>
<CAPTION>
(MILLION)
<S> <C>
Capital assets............................................ $15.8
Miscellaneous net assets.................................. 0.1
-----
Purchase price, net of cash acquired...................... $15.9
=====
</TABLE>
The acquisition is part of the Company's strategic plan to increase ore
reserves and production at its Ontario Division. Consolidated Professor has a
100% interest in the Duport Gold project in the Kenora mining district in
northwestern Ontario. The Company intends to review production plans and
continue the mine permitting process initiated by the former owners of
Consolidated Professor.
10. CREDIT LINE
The Company entered into a $28 million unsecured, revolving line of credit
with a major Canadian bank in the first quarter of 1996. This line will be used
as necessary to finance working capital for current operations. At June 30,
1996, no amounts were outstanding under this facility.
F-29
<PAGE> 144
ROYAL OAK MINES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
11. CAPITAL STOCK
(a) Changes in capital
<TABLE>
<CAPTION>
NUMBER OF
SHARES AMOUNT
---------- --------
<S> <C> <C>
Balance, December 31, 1994............................................ 114,494,747 $247,362
Exercise of warrants Series 2......................................... 4,475,300 14,545
Issued for share purchase options..................................... 50,667 78
Share issue and other related costs................................... -- (48)
----------- --------
Balance, June 30, 1995 issued and outstanding......................... 119,020,714 $261,937
=========== ========
Balance, December 31, 1995............................................ 121,043,530 $270,811
Issued to acquire Geddes and El Condor (See note 8)................... 19,011,883 114,071
Issued for share purchase options..................................... 87,833 288
----------- --------
Balance, June 30, 1996 issued and outstanding......................... 140,143,246 385,170
Company shares held by Witteck Development Inc. (see note 11(b))...... (1,924,816) (8,854)
----------- --------
Balance, June 30, 1996 for financial reporting purposes............... 138,218,430 $376,316
=========== ========
</TABLE>
(B) COMPANY SHARES HELD BY WITTECK DEVELOPMENT INC.
During 1995, the Board of Directors and the shareholders approved the
acquisition of all of the shares of Witteck Development Inc. ("Witteck") whose
sole asset is an investment in the Company of 1,924,816 common shares of the
Company. This investment has been recorded as a reduction of capital stock on
the balance sheet. Consequently, the common shares of the Company that are held
by Witteck may not be voted and have been excluded from the determination of
earnings per share information.
F-30
<PAGE> 145
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AS
AMENDED OR SUPPLEMENTED AT THE TIME OF DELIVERY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ROYAL OAK MINES INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION NOR TO ANY PERSON WHO HAS NOT RECEIVED A COPY OF EACH CURRENT
AMENDMENT OR SUPPLEMENT HERETO. NEITHER THE DELIVERY OF THIS PROSPECTUS OR OF
ANY AMENDMENT OR SUPPLEMENT HERETO, NOR ANY SALE MADE HEREUNDER AND THEREUNDER,
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ROYAL OAK MINES INC.
SINCE SUCH RESPECTIVE DATES.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................. 2
Information Incorporated by
Reference............................ 3
Exchange Rate Data..................... 3
Prospectus Summary..................... 4
Risk Factors........................... 16
The Exchange Offer..................... 23
Certain Federal Income Tax Consequences
of the Exchange Offer................ 30
Capitalization......................... 31
Selected Historical Consolidated
Financial and Operating Data......... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 34
Business............................... 42
Management............................. 63
Description of Share Capital........... 69
Certain Relationships and Related
Transactions......................... 71
Security Ownership..................... 72
Description of Credit Facility......... 72
Description of Exchange Notes.......... 73
Description of Notes................... 98
Exchange Offer and Registration
Rights............................... 98
Certain Income Tax Considerations...... 100
Book-Entry; Delivery and Form.......... 103
Plan of Distribution................... 104
Validity of Exchange Notes............. 105
Independent Chartered Accountants...... 105
Glossary of Certain Mining Terms....... 106
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
ROYAL OAK MINES INC.
OFFER TO EXCHANGE
US$175,000,000
11% SENIOR SUBORDINATED
NOTES DUE 2006
FOR
SERIES B 11% SENIOR SUBORDINATED
NOTES DUE 2006
LOGO
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Ontario Business Corporations Act, each of the Company and the
Guarantor may indemnify a present or former director or officer or a person who
acts or acted at such corporation's request as a director or officer of another
corporation of which the Company or the Guarantor, as the case may be, is or was
a shareholder 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
his position with the Company or the Guarantor, as the case may be, and provided
that the director or officer acted honestly and in good faith with a view to the
best interests of the Company or the Guarantor, as the case may be, and, in the
case of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, had reasonable grounds for believing that his conduct was
lawful. Such indemnification may be made in connection with a derivative action
only with court approval. A director or officer is entitled to indemnification
from the Company or the Guarantor as a matter of right if he was substantially
successful on the merits and fulfilled the conditions set forth above.
In accordance with the Ontario Business Corporations Act, the By-laws of
each of the Company and the Guarantor provide for indemnification of a director
or officer, a former director or officer, or a person who acts or acted at such
corporation's request as a director or officer of a corporation of which Company
or the Guarantor, as the case may be, is or was a shareholder 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 proceeding
to which he is made a party by reason of being or having been a director or
officer of the Company or the Guarantor or such other corporation if he acted
honestly and in good faith with a view to the best interests of the Company or
the Guarantor, as the case may be, or, in the case of a criminal or
administrative action or proceeding that is enforced by monetary penalty, he had
reasonable grounds in believing that his conduct was lawful.
A policy of directors' and officers' liability insurance is maintained by
the Company which insures the directors and officers of the Company and its
subsidiaries, including the Guarantor, for losses as a result of claims based
upon the acts or omissions of such individuals as directors and officers of the
Company or its subsidiaries (including the Guarantor), including liabilities
arising under the Securities Act, and also reimburses the Company for payments
made pursuant to the indemnity provisions under the Ontario Business
Corporations Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company or
the Guarantor pursuant to the foregoing provision, the Company and the Guarantor
have been informed that in the opinion of the U.S. Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
3.1 Certificate of Amalgamation of the Company dated January 1, 1992 (incorporated by
reference to the Company's Form 20-F for the year ended December 31, 1991).
3.2 General By-Law No. 3 of the Company dated July 23, 1991 (incorporated by reference
to the Company's Form 20-F for the year ended December 31, 1991).
4.1 Indenture, dated as of August 12, 1996, by and among the Company, the Guarantor
and Mellon Bank, F.S.B.
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit B thereto).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*
</TABLE>
II-1
<PAGE> 147
<TABLE>
<C> <S>
5.2 Opinion of Lang Michener*
10.1 Registration Rights Agreement, dated as of August 12, 1996, by and among the
Company, the Guarantor, BT Securities Corporation and Scotia Capital Markets (USA)
Inc.
10.2 Credit Agreement, dated as of February 15, 1996 by and between the Company and The
Bank of Nova Scotia.
10.3 Amending Agreement, dated as of August 5, 1996, by and between the Company and The
Bank of Nova Scotia.
10.4 Employment Agreement, dated as of July 21, 1995, between Margaret K. Witte, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1995).
10.5 Employment Agreement, dated as of July 21, 1995, between Ross F. Burns, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by reference to the
Annual Report on Form 10-K of the Company for the fiscal year ended December 31,
1995).
10.6 Employment Agreement, dated as of July 21, 1995, between J. Graham Eacott, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1996 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995)
10.7 Employment Agreement, dated as of July 21, 1995, between Sadek E. El-Alfy, Artic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1995 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995).
10.8 Employment Agreement, dated as of July 21, 1995, between John R. Smrke, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1995 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995).
10.9 Employment Agreement, dated as of July 21, 1995, between Edmund Szol, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1995 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995).
10.10 Employment Agreement, dated as of July 21, 1995, between James H. Wood, Arctic
Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated February 16,
1995 (incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995).
12.1 Statements re computation of ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).*
23.3 Consent of Lang Michener (contained in Exhibit 5.2).*
24.1 Powers of Attorney of Directors and Officers of Royal Oak Mines Inc. (included in
the signature pages in Part II of the Registration Statement).
24.2 Powers of Attorney of Directors and Officers of Kemess Mines Inc. (included in the
signature pages in Part II of the Registration Statement).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of Mellon Bank,
F.S.B. under the Trust Indenture Act of 1939.
99.1 Form of Letter of Transmittal for the 11% Senior Subordinated Notes due 2006.
99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form
W-9.
</TABLE>
- ---------------
*To be filed by amendment.
II-2
<PAGE> 148
22. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
2. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of an action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kirkland, State of
Washington, on August 30, 1996.
ROYAL OAK MINES INC.
By: /s/ MARGARET K. WITTE
Margaret K. Witte,
President and Chief Executive
Officer
Each person whose signature appears below constitutes and appoints Margaret
K. Witte and William J.V. Sheridan, his or her true and lawful attorney-in-fact
and agent, each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all Amendments (including post-effective
Amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities on August 30, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ ROSS F. Director and Vice President, Exploration
BURNS
- ---------------------------------------------
Ross F. Burns
/s/ MATTHEW GAASENBEEK Director
- ---------------------------------------------
Matthew Gaasenbeek
/s/ J. CONRAD Director
LAVIGNE
- ---------------------------------------------
J. Conrad Lavigne
/s/ JOHN L. Director
MAY
- ---------------------------------------------
John L. May
/s/ GEORGE W. OUGHTRED Director
- ---------------------------------------------
George W. Oughtred
/s/ WILLIAM J.V. Director and Secretary
SHERIDAN
- ---------------------------------------------
William J.V. Sheridan
</TABLE>
II-4
<PAGE> 150
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ MARGARET K. WITTE Director, Chairman of the Board, President and
- --------------------------------------------- Chief Executive Officer
Margaret K. Witte
/s/ JAMES H. Chief Financial Officer (principal financial
WOOD and accounting officer)
- ---------------------------------------------
James H. Wood
</TABLE>
II-5
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kirkland, State of
Washington, on August 30, 1996.
KEMESS MINES INC.
By: /s/ MARGARET K. WITTE
Margaret K. Witte,
Chairman and Chief Executive
Officer
Each person whose signature appears below constitutes and appoints Margaret
K. Witte and William J.V. Sheridan, his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all Amendments (including post-effective Amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities on August 30, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ ROSS F. Vice President, Exploration
BURNS
- ---------------------------------------------
Ross F. Burns
/s/ NANCY Director
DESHAW
- ---------------------------------------------
Nancy Deshaw
/s/ WILLIAM J.V. Director and Secretary
SHERIDAN
- ---------------------------------------------
William J.V. Sheridan
/s/ JOHN R. President
SMRKE
- ---------------------------------------------
John R. Smrke
/s/ MARGARET K. WITTE Director, Chairman of the Board and Chief
- --------------------------------------------- Executive Officer
Margaret K. Witte
/s/ JAMES H. Chief Financial Officer (principal financial
WOOD and accounting officer)
- ---------------------------------------------
James H. Wood
</TABLE>
II-6
<PAGE> 152
Pursuant to the requirements of the Securities Act of 1933, the undersigned
has signed this registration statement solely in the capacity of the duly
authorized representative of each of Royal Oak Mines Inc. and Kemess Mines Inc.
in the United States, in the City of Toronto, Country of Canada on August 30,
1996.
ARCTIC PRECIOUS METALS INC.
By: /s/ WILLIAM J.V. SHERIDAN
William J.V. Sheridan
Director
II-7
<PAGE> 153
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- ---------------------------------------------------------------------------
<C> <S> <C>
3.1 Certificate of Amalgamation of the Company dated January 1, 1992
(incorporated by reference to the Company's Form 20-F for the year ended
December 31, 1991).
3.2 General By-Law No. 3 of the Company dated July 23, 1991 (incorporated by
reference to the Company's Form 20-F for the year ended December 31, 1991).
4.1 Indenture, dated as of August 12, 1996, by and among the Company, the
Guarantor and Mellon Bank, F.S.B.
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit B thereto).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*
5.2 Opinion of Lang Michener.*
10.1 Registration Rights Agreement, dated as of August 12, 1996, by and among
the Company, the Guarantor, BT Securities Corporation and Scotia Capital
Markets (USA) Inc.
10.2 Credit Agreement, dated as of February 15, 1996, by and between the Company
and The Bank of Nova Scotia.
10.3 Amending Agreement, dated as of August 5, 1996, by and between the Company
and The Bank of Nova Scotia.
10.4 Employment Agreement, dated as of July 21, 1995, between Margaret K. Witte,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by
reference to the Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1995).
10.5 Employment Agreement, dated as of July 21, 1995, between Ross F. Burns,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. (incorporated by
reference to the Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1995).
10.6 Employment Agreement, dated as of July 21, 1995, between J. Graham Eacott,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1996 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
10.7 Employment Agreement, dated as of July 21, 1995, between Sadek E. El-Alfy,
Artic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
10.8 Employment Agreement, dated as of July 21, 1995, between John R. Smrke,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
10.9 Employment Agreement, dated as of July 21, 1995, between Edmund Szol,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
10.10 Employment Agreement, dated as of July 21, 1995, between James H. Wood,
Arctic Precious Metals, Inc. and Royal Oak Mines Inc. and amendment dated
February 16, 1995 (incorporated by reference to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 1995).
12.1 Statements re computation of ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).*
23.3 Consent of Lang Michener (contained in Exhibit 5.2).*
</TABLE>
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- ---------------------------------------------------------------------------
<C> <S> <C>
24.1 Powers of Attorney of Directors and Officers of Royal Oak Mines Inc.
(included in the signature pages in Part II of the Registration Statement).
24.2 Powers of Attorney of Directors and Officers of Kemess Mines Inc. (included
in the signature pages in Part II of the Registration Statement).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of Mellon
Bank, F.S.B. under the Trust Indenture Act of 1939.
99.1 Form of Letter of Transmittal for the 11% Senior Subordinated Notes due
2006.
99.2 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
- ---------------
*To be filed by amendment.
<PAGE> 1
Exhibit 4.1
ROYAL OAK MINES INC.,
as Issuer
and
KEMESS MINES INC.,
as Guarantor
and
MELLON BANK, F.S.B.,
as Trustee
INDENTURE
Dated as of August 12, 1996
$175,000,000
11% Senior Subordinated Notes due 2006
and
Series B 11% Senior Subordinated Notes due 2006
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
------- ---------
<S> <C>
310 (a)(1) ............................ 7.10
(a)(2) ............................ 7.10
(a)(3) ............................ N.A.
(a)(4) ............................ N.A.
(a)(5) ............................ 7.08; 7.10
(b) ............................ 7.08; 7.10;
13.02
(c) ............................ N.A.
311 (a) ............................ 7.11
(b) ............................ 7.11
(c) ............................ N.A.
312 (a) ............................ 2.05
(b) ............................ 13.03
(c) ............................ 13.03
313 (a) ............................ 7.06
(b)(1) ............................ N.A.
(b)(2) ............................ 7.06
(c) ............................ 7.06; 13.02
(d) ............................ 7.06
314 (a) ............................ 4.07; 4.08;
13.02
(b) ............................ N.A.
(c)(1) ............................ 13.04
(c)(2) ............................ 13.04
(c)(3) ............................ N.A.
(d) ............................ N.A.
(e) ............................ 13.05
(f) ............................ N.A.
315 (a) ............................ 7.01(b)
(b) ............................ 7.05; 13.02
(c) ............................ 7.01(a)
(d) ............................ 7.01(c)
(e) ............................ 6.11
316 (a)(last sentence) ............... 2.09
(a)(1)(A) ........................ 6.05
(a)(1)(B) ........................ 6.04
(a)(2) ........................ N.A.
(b) ............................ 6.07
(c) ............................ 9.05
317 (a)(1) ............................ 6.08
(a)(2) ............................ 6.09
(b) ............................ 2.04
318 (a) ............................ 13.01
(c) ............................ 13.01
</TABLE>
______________________
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions ...................................... 1
Section 1.02 Incorporation by Reference of
TIA ............................................ 27
Section 1.03 Rules of Construction ............................ 27
ARTICLE TWO
THE NOTES
Section 2.01 Form and Dating .................................. 28
Section 2.02 Execution and Authentication; Aggregate
Principal Amount ............................... 29
Section 2.03 Registrar and Paying Agent ....................... 30
Section 2.04 Paying Agent To Hold Assets in
Trust .......................................... 31
Section 2.05 Noteholder Lists ................................. 31
Section 2.06 Transfer and Exchange ............................ 32
Section 2.07 Replacement Notes ................................ 33
Section 2.08 Outstanding Notes ................................ 33
Section 2.09 Treasury Notes ................................... 34
Section 2.10 Temporary Notes .................................. 34
Section 2.11 Cancellation ..................................... 34
Section 2.12 Defaulted Interest ............................... 35
Section 2.13 CUSIP Number ..................................... 35
Section 2.14 Deposit of Moneys ................................ 35
Section 2.15 Restrictive Legends .............................. 36
Section 2.16 Book-Entry Provisions for Global
Security ....................................... 38
Section 2.17 Special Transfer Provisions ...................... 39
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee ............................... 42
Section 3.02 Selection of Notes To Be Redeemed ................ 42
Section 3.03 Notice of Redemption ............................. 43
Section 3.04 Effect of Notice of Redemption ................... 44
Section 3.05 Deposit of Redemption Price ...................... 45
Section 3.06 Notes Redeemed in Part ........................... 45
</TABLE>
-i-
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE FOUR
COVENANTS
Section 4.01 Payment of Notes ................................. 45
Section 4.02 Maintenance of Office or Agency .................. 47
Section 4.03 Corporate Existence .............................. 47
Section 4.04 Payment of Taxes and Other Claims ................ 47
Section 4.05 Maintenance of Properties and
Insurance ...................................... 48
Section 4.06 Compliance Certificate; Notice of
Default ........................................ 48
Section 4.07 Compliance with Laws ............................. 49
Section 4.08 SEC Reports ...................................... 50
Section 4.09 Waiver of Stay, Extension or Usury
Laws ........................................... 51
Section 4.10 Limitation on Restricted Payments ................ 51
Section 4.11 Limitation on Transactions with
Affiliates ..................................... 53
Section 4.12 Limitation on Indebtedness ....................... 54
Section 4.13 Limitation on Dividend and Other
Payment Restrictions Affecting
Subsidiaries ................................... 56
Section 4.14 Prohibition on Incurrence of Senior
Subordinated Indebtedness ...................... 57
Section 4.15 Change of Control ................................ 57
Section 4.16 Limitation on Sale of Assets ..................... 60
Section 4.17 Limitation on Preferred Stock of
Restricted Subsidiaries ........................ 63
Section 4.18 Limitation on Liens .............................. 63
Section 4.19 Conduct of Business .............................. 64
Section 4.20 Additional Subsidiary Guarantees ................. 64
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01 Merger, Consolidation and Sale of
Assets ......................................... 65
Section 5.02 Successor Corporation Substituted ................ 67
ARTICLE SIX
DEFAULT AND REMEDIES
Section 6.01 Events of Default ................................ 68
Section 6.02 Acceleration ..................................... 70
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.03 Other Remedies ................................... 71
Section 6.04 Waiver of Past Defaults .......................... 71
Section 6.05 Control by Majority .............................. 71
Section 6.06 Limitation on Suits .............................. 72
Section 6.07 Rights of Holders To Receive Payment ............. 72
Section 6.08 Collection Suit by Trustee ....................... 73
Section 6.09 Trustee May File Proofs of Claim ................. 73
Section 6.10 Priorities ....................................... 74
Section 6.11 Undertaking for Costs ............................ 74
ARTICLE SEVEN
TRUSTEE
Section 7.01 Duties of Trustee ................................ 75
Section 7.02 Rights of Trustee ................................ 76
Section 7.03 Individual Rights of Trustee ..................... 78
Section 7.04 Trustee's Disclaimer ............................. 78
Section 7.05 Notice of Default ................................ 78
Section 7.06 Reports by Trustee to Holders .................... 78
Section 7.07 Compensation and Indemnity ....................... 79
Section 7.08 Replacement of Trustee ........................... 80
Section 7.09 Successor Trustee by Merger, Etc. ................ 81
Section 7.10 Eligibility; Disqualification .................... 81
Section 7.11 Preferential Collection of Claims
Against Company ................................ 82
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.01 Termination of the
Company's Obligations .......................... 82
Section 8.02 Legal Defeasance and Covenant
Defeasance ..................................... 84
Section 8.03 Conditions to Legal Defeasance or
Covenant Defeasance ............................ 85
Section 8.04 Application of Trust Money ....................... 87
Section 8.05 Repayment to the Company
or the Guarantors .............................. 88
Section 8.06 Reinstatement .................................... 89
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders ...................... 89
-iii-
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 9.02 With Consent of Holders ......................... 90
Section 9.03 Effect on Senior Indebtedness and
Guarantor Senior Indebtedness .................. 92
Section 9.04 Compliance with TIA .............................. 92
Section 9.05 Revocation and Effect of Consents ................ 92
Section 9.06 Notation on or Exchange of Notes ................. 93
Section 9.07 Trustee To Sign Amendments, Etc. ................. 94
ARTICLE TEN
SUBORDINATION
Section 10.01 Notes Subordinated to
Senior Indebtedness ............................ 94
Section 10.02 No Payment on Notes in
Certain Circumstances .......................... 95
Section 10.03 Payment Over of Proceeds upon
Dissolution, Etc. .............................. 96
Section 10.04 Payments May Be Paid Prior to
Dissolution .................................... 98
Section 10.05 Subrogation ...................................... 99
Section 10.06 Obligations of the Company
Unconditional .................................. 99
Section 10.07 Notice to Trustee ................................ 100
Section 10.08 Reliance on Judicial Order or
Certificate of Liquidating Agent ............... 100
Section 10.09 Trustee's Relation to Senior
Indebtedness ................................... 101
Section 10.10 Subordination Rights Not Impaired by
Acts or Omissions of the Company
or Holders of Senior Indebtedness .............. 101
Section 10.11 Noteholders Authorize Trustee To
Effectuate Subordination of Notes .............. 102
Section 10.12 This Article Ten Not To Prevent
Events of Default .............................. 103
Section 10.13 Trustee's Compensation Not
Prejudiced ..................................... 103
ARTICLE ELEVEN
GUARANTEE
Section 11.01 Unconditional Guarantee .......................... 103
Section 11.02 Subordination of
Guarantee ...................................... 104
Section 11.03 Severability ..................................... 104
Section 11.04 Release of a Guarantor ........................... 105
</TABLE>
-iv-
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 11.05 Limitation of Subsidiary Guarantor's
Liability ...................................... 105
Section 11.06 Guarantors May Consolidate, Etc., on
Certain Terms .................................. 106
Section 11.07 Contribution ..................................... 107
Section 11.08 Waiver of Subrogation ............................ 107
Section 11.09 Execution of Guarantee ........................... 108
Section 11.10 Waiver of Stay, Extension or Usury
Laws ........................................... 109
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE OBLIGATIONS
Section 12.01 Guarantee Obligations
Subordinated to Guarantor Senior
Indebtedness ................................... 109
Section 12.02 No Payment on Notes in Certain
Circumstances .................................. 110
Section 12.03 Payment Over of Proceeds upon
Dissolution, Etc. .............................. 112
Section 12.04 Payments May Be Paid Prior to
Dissolution .................................... 113
Section 12.05 Subrogation ...................................... 114
Section 12.06 Obligations of the Subsidiary
Guarantors Unconditional ....................... 114
Section 12.07 Notice to Trustee ................................ 115
Section 12.08 Reliance on Judicial Order or
Certificate of Liquidating Agent ............... 116
Section 12.09 Trustee's Relation to Guarantor
Senior Indebtedness ............................ 116
Section 12.10 Subordination Rights Not Impaired by
Acts or Omissions of the Subsidiary
Guarantors or Holders of Guarantor
Senior Indebtedness ............................ 117
Section 12.11 Noteholders Authorize Trustee To
Effectuate Subordination of
Guarantee Obligations .......................... 117
Section 12.12 This Article Twelve Not To Prevent
Events of Default .............................. 118
Section 12.13 Trustee's Compensation Not
Prejudiced ..................................... 118
</TABLE>
-v-
<PAGE> 8
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE THIRTEEN
MISCELLANEOUS
Section 13.01 TIA Controls ..................................... 118
Section 13.02 Notices .......................................... 119
Section 13.03 Communications by Holders with Other
Holders ........................................ 120
Section 13.04 Certificate and Opinion as to
Conditions Precedent ........................... 120
Section 13.05 Statements Required in Certificate
or Opinion ..................................... 121
Section 13.06 Rules by Trustee, Paying Agent,
Registrar ...................................... 121
Section 13.07 Legal Holidays ................................... 121
Section 13.08 Governing Law .................................... 122
Section 13.09 No Adverse Interpretation of Other
Agreements ..................................... 122
Section 13.10 No Recourse Against Others ....................... 122
Section 13.11 Successors ....................................... 122
Section 13.12 Duplicate Originals .............................. 122
Section 13.13 Severability ..................................... 122
Signatures ..................................................... 124
Exhibit A - Form of Initial Note with Guarantee
Exhibit B - Form of Exchange Note with Guarantee
Exhibit C - Form of Certificate To Be Delivered in Connection
with Transfers to Non-QIB Accredited Investors
Exhibit D - Form of Certificate To Be Delivered in Connection
with Transfers Pursuant to Regulation S
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
-vi-
<PAGE> 9
INDENTURE, dated as of August 12, 1996, by and among Royal Oak Mines Inc.,
an Ontario, Canada corporation (the "Company"), Kemess Mines Inc., an Ontario,
Canada corporation (the "Guarantor"), and Mellon Bank, F.S.B., a federal savings
bank with trust powers, as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 11% Senior
Subordinated Notes due 2006 (the "Initial Notes") and Series B 11% Senior
Subordinated Notes due 2006 (the "Exchange Notes," and together with the Initial
Notes, the "Notes") and, to provide therefor, the Company and the Guarantor have
duly authorized the execution and delivery of this Indenture. All things
necessary to make the Notes, when duly issued and executed by the Company, and
authenticated and delivered hereunder, the valid obligations of the Company and
the Guarantor, and to make this Indenture a valid and binding agreement of the
Company and the Guarantor, have been done.
Each party hereto agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of its Subsidiaries existing at the time such other Person becomes a
Restricted Subsidiary of such Person or at the time it merges or consolidates
with such Person or any of such Person's Restricted Subsidiaries or is assumed
by such Person or any Restricted Subsidiary of such Person in connection with
the acquisition of assets from such other Person and in each case not Incurred
by such Person or any Restricted Subsidiary of such Person or such other Person
in connection with, or in anticipation or contemplation of, such other Person
becoming a Restricted Subsidiary of such Person or such acquisition, merger or
consolidation, and which Indebtedness is without recourse to the Company or any
of its Restricted Subsidiaries or to any of their respective properties or
assets other than the Person or the assets to which such Indebtedness related
prior to the time such Person becomes a Restricted Subsidiary of the Company or
the time of such acquisition, merger or consolidation.
<PAGE> 10
-2-
"Additional Amounts" has the meaning set forth in Section 6(c) of Exhibit A
hereto. Whenever in this Indenture there is mentioned, in any context, (a) the
payment of principal (and premium, if any), (b) purchase prices in connection
with a repurchase of Notes, (c) interest, or (d) any other amount payable on or
with respect to any of the Notes, such mention shall be deemed to include
mention of the payment of Additional Amounts provided for in Section 4.01 to the
extent that, in such context, Additional Amounts are, were or would be payable
in respect thereof.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
consolidated assets of the Company and its Restricted Subsidiaries (net of
applicable depletion, depreciation, amortization and other valuation reserves),
except to the extent resulting from write-ups of capital assets (excluding
write-ups in connection with accounting for acquisitions in conformity with
GAAP), after deducting therefrom (i) all current liabilities of the Company and
its Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recently
available quarterly or annual consolidated balance sheet of the Company and its
Restricted Subsidiaries, prepared in conformity with GAAP.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct or cause the direction of management or policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth in Section 4.11.
"Agent" means any Registrar, Paying Agent, co-Registrar or Authenticating
Agent.
"Agent Members" has the meaning provided in Section 2.16.
"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act of 1984, as amended.
<PAGE> 11
-3-
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
with or into the Company or any Restricted Subsidiary of the Company or (ii) the
acquisition by the Company or any Restricted Subsidiary of the Company of assets
of any Person comprising a division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value by the Company or by any
of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than to the Company or to a direct or indirect wholly owned
Restricted Subsidiary of the Company of (i) any Capital Stock of any Restricted
Subsidiary of the Company or (ii) any other property or assets of the Company or
of any Restricted Subsidiary of the Company, other than with respect to this
clause (ii) any disposition of mineral products for value in the ordinary course
of business.
"Asset Sale Offer" has the meaning set forth in Section 4.16.
"Authenticating Agent" has the meaning provided in Section 2.02.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the board of directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the City of New York are required or authorized
by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of
<PAGE> 12
-4-
corporate stock, including each class of Common Stock and Preferred Stock of
such Person and (ii) with respect to any Person that is not a corporation, any
and all partnership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease that are required to be
classified and accounted for as capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall
be the capitalized amount of such obligations at such date, determined in
accordance with GAAP. The stated maturity of such obligations shall be the
date of the last payment of rent or any other amount due under such lease prior
to the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or Canadian
Government or issued by any agency thereof and backed by the full faith and
credit of the United States or Canada, in each case maturing within one year
from the date of acquisition thereof; (ii) marketable direct obligations issued
by any state of the United States of America or any political subdivision of
any such state or any public instrumentality thereof or any province of Canada
or any political subdivision of any such province or any public instrumentality
thereof maturing within one year from the date of acquisition thereof and, at
the time of acquisition, having one of the two highest ratings obtainable from
either S&P or Moody's; (iii) commercial paper maturing no more than one year
from the date of creation thereof and, at the time of acquisition, having a
rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates
of deposit or bankers' acceptances maturing within one year from the date of
acquisition thereof issued by any commercial bank organized under the laws of
the United States of America or any state thereof or the District of Columbia
or Canada or any province thereof or any U.S. branch of a foreign bank having
at the date of acquisition thereof combined capital and surplus of not less
than US$250 million; and (v) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(iv) above.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the board of directors of the Company): (i)
the Company or any of its Restricted Subsidiaries, directly or indirectly,
sells, assigns, conveys, transfers, leases or otherwise disposes of, in one
<PAGE> 13
-5-
transaction or a series of related transactions, all or substantially all of
the property or assets of the Company and its Restricted Subsidiaries
(determined on a consolidated basis) to any Person or group of related Persons
for purposes of Section 13(d) of the Exchange Act other than the Company or a
Person which is a Restricted Subsidiary (a "Group of Persons"); or (ii) the
adoption of any plan of liquidation or dissolution of the Company; or (iii) any
Person or Group of Persons is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of
the Voting Stock of the Company; or (iv) the first day on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section 4.15.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Event.
"Commodity Agreement" of any Person means any option or futures contract
or similar agreement or arrangement.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income plus (ii) to the
extent that any of the following shall have been taken into account in
determining Consolidated Net Income, (A) all income taxes of such Person and
its Restricted Subsidiaries paid or accrued in accordance with GAAP for such
period (other than income taxes attributable to extraordinary, unusual or
non-recurring gains or losses or taxes attributable to sales or dispositions of
assets outside the ordinary course of business), Consolidated Interest Expense,
amortization expense and depreciation expense, and (B) other non-cash items
(other than non-cash interest) reducing Consolidated Net Income, other than any
<PAGE> 14
-6-
non-cash item which requires the accrual of or a reserve for cash charges for
any future period and other than any non-cash charge constituting an
extraordinary item of loss, less other non-cash items increasing Consolidated
Net Income, all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction or event giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed
Charges of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (i) the
Incurrence or repayment of any Indebtedness of such Person or any of its
Restricted Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any Incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than
the Incurrence or repayment of Indebtedness in the ordinary course of business
for working capital purposes pursuant to working capital facilities, at any
time subsequent to the first day of the Four Quarter Period and on or prior to
the Transaction Date, as if such Incurrence or repayment, as the case may be
(and the application of the proceeds thereof), occurred on the first day of
the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need
to make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of any such Asset Acquisition) Incurring, assuming or otherwise being
liable for Acquired Indebtedness at any time subsequent to the first day of the
Four Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the Incurrence, assumption or liability
for any such Indebtedness or Acquired Indebtedness) and also including any
Consolidated EBITDA associated with such Asset Acquisition) occurred on the
first day of the Four Quarter Period; provided that the Consolidated EBITDA of
any Person acquired shall be included only to the extent includable pursuant to
the definition of "Consolidated Net Income." If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the Incurrence of
such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of
such Person had directly Incurred or
<PAGE> 15
-7-
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date (including Indebtedness actually Incurred on the Transaction
Date) and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(including amortization or write-off of deferred financing costs of such Person
and its consolidated Restricted Subsidiaries during such period and any premium
or penalty paid in connection with redeeming or retiring Indebtedness of such
Person and its consolidated Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness) and
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Common Stock)
paid, accrued or scheduled to be paid or accrued during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state and local tax rate
of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Restricted Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, and including (a)
all amortization of original issue discount; (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries during such period; (c)
net cash costs under all Interest Swap Obligations (including amortization of
fees); (d) all capitalized interest; and (e) the interest portion of any
deferred payment obligations for such period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a
<PAGE> 16
-8-
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom (a) after-tax gains from Asset Sales or
abandonments or reserves relating thereto, (b) after-tax items classified as
extraordinary or non-recurring gains, (c) the net income of any Person acquired
in a "pooling of interests" transaction accrued prior to the date it becomes a
Restricted Subsidiary of the referent Person or is merged or consolidated with
the referent Person or any Restricted Subsidiary of the referent Person, (d)
the net income (but not loss) of any Restricted Subsidiary of the referent
Person to the extent that the declaration of dividends or similar distributions
by that Restricted Subsidiary of that income is restricted by a contract,
operation of law or otherwise, (e) the net income of any Person, other than a
Restricted Subsidiary of the referent Person, except to the extent of cash
dividends or distributions paid to the referent Person or to a wholly owned
Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, less
(without duplication) amounts attributable to Disqualified Capital Stock of
such Person.
"Continuing Director" means, as of the date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
election or nomination; provided, however, that in the event of a business
combination involving the Company, by merger or consolidation or otherwise,
from the time of effectiveness of such business combination until the next
annual general meeting of the shareholders of the surviving entity, Continuing
Directors shall only be directors of the Company not elected in anticipation
of, or in connection with, any such transaction who are also directors of the
surviving entity.
<PAGE> 17
-9-
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Default Notice" has the meaning provided in Section 10.02.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Designated Senior Debt" means Indebtedness constituting Senior
Indebtedness which, at the time of designation, has an aggregate principal
amount of at least US$25 million and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the sole option of the holder thereof, in whole or in part, on or
prior to the final maturity date of the Notes.
"Events of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended or
any successor statute or statutes thereto.
"Exchange Notes" has the meaning provided in the preamble to this
Indenture.
"Exchange Offer" means the registration by the Company and the Guarantors
under the Securities Act pursuant to a registration statement of the offer by
the Company and the Guarantors to each Holder of the Initial Notes to exchange
all the Initial Notes held by such Holder for the Exchange Notes in an
aggregate principal amount equal to the aggregate principal amount
<PAGE> 18
-10-
of the Initial Notes held by such Holder, all in accordance with the terms and
conditions of the Registration Rights Agreement.
"fair market value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair market value shall be determined
by the board of directors of the Company acting reasonably and in good faith
and shall be evidenced by a Board Resolution delivered to the Trustee;
provided, however, that if the aggregate non-cash consideration to be received
by the Company or any of its Restricted Subsidiaries from any Asset Sale could
be reasonably likely to exceed US$15 million the fair market value shall be
determined by an Independent Financial Advisor.
"Financial Advisor" means an accounting, appraisal or investment banking
firm of nationally recognized standing that is, in the reasonable and good
faith judgment of the board of directors of the Company, qualified to perform
the task for which such firm has been engaged.
"Fiscal Year" has the meaning set forth in Section 4.06(a).
"Foreign Exchange Obligations" means the obligations of any Person under
any foreign currency future, option, swap or cap or other foreign currency
hedge or arrangement.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"Funding Guarantor" has the meaning provided in Section 11.07.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Note" has the meaning provided in Section 2.01.
<PAGE> 19
-11-
"Gradation" means a gradation within a Rating Category, which shall be "+"
and "-", in the case of S&P's current Rating Categories (e.g., a decline from
BB+ to BB would constitute a decrease of one gradation); "1", "2" and "3", in
the case of Moody's current Rating Categories (e.g., a decline from B1 to B2
would constitute a decrease of one gradation); or the equivalent in respect of
successor Rating Categories of S&P or Moody's or Rating Categories used by
Rating Agencies other than S&P and Moody's.
"Guarantee" means the guarantee of each Guarantor set forth in Article
Eleven and any additional guarantee of the Notes executed by any Subsidiary of
the Company.
"Guarantor" or "Guarantors" means (i) Kemess Mines Inc. and (ii) each of
the Company's Subsidiaries that in the future executes a supplemental indenture
in which such Subsidiary agrees to be bound by the terms of this Indenture as a
Guarantor; provided that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of this Indenture.
"Guarantor Senior Indebtedness" means any Indebtedness of any Guarantor
(including any interest accruing subsequent to the filing of a petition in
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law), whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Notwithstanding the foregoing, Guarantor Senior
Indebtedness shall not include (i) any Indebtedness of such Guarantor to a
Subsidiary of such Guarantor or to a Subsidiary of the Company, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of such Guarantor or any Subsidiary of such Guarantor (including,
without limitation, amounts owed for compensation), (iii) Indebtedness and
other amounts incurred in connection with obtaining goods, materials or
services owing to trade creditors, (iv) Disqualified Capital Stock, (v) any
liability for federal, state, local or other taxes owed or owing by such
Guarantor, (vi) Indebtedness incurred in violation of the covenant described in
Section 4.12 and (vii) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of such Guarantor.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered in the Registrar's books.
<PAGE> 20
-12-
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the initial recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such
Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have
meanings correlative to the foregoing); provided, however, that (A) any
Indebtedness assumed in connection with an acquisition of assets and any
Indebtedness of a Person existing at the time such Person becomes a Restricted
Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the
Company or at the time such Person is merged or consolidated with the Company
or any Restricted Subsidiary of the Company shall be deemed to be Incurred at
the time of the acquisition of such assets or by such Restricted Subsidiary at
the time it becomes, or is merged or consolidated with, a Restricted Subsidiary
of the Company or by the Company at the time of such merger or consolidation,
as the case may be, and (B) any amendment, modification or waiver of any
document pursuant to which Indebtedness was previously Incurred shall be deemed
to be an Incurrence of Indebtedness unless such amendment, modification or
waiver does not (i) increase the principal or premium thereof or interest rate
thereon (including by way of original issue discount) or (ii) change to an
earlier date the stated maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances under which
such Indebtedness shall be redeemed.
"Indebtedness" means with respect to any Person, any liability of such
Person or such Person's Restricted Subsidiaries, without duplication, (i) for
borrowed money, (ii) evidenced by bonds, debentures, notes or other similar
instruments, (iii) for Capitalized Lease Obligations, (iv) issued or assumed as
the deferred purchase price of property, all conditional sale obligations and
under any title retention agreement (but excluding trade accounts payable and
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) for all Indebtedness of others (including all
dividends of other Persons for the payment of which is) guaranteed, directly or
indirectly, by such Person or its Restricted Subsidiaries or that is otherwise
its legal liability or which such Person or its Restricted Subsidiaries has
agreed to purchase or repurchase or in respect of which such Person or its
Restricted Subsidiaries has agreed contingently to supply or advance funds,
(vii) comprising net liabilities under Interest
<PAGE> 21
-13-
Swap Obligations and Commodity Agreements, (viii) for all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on any asset or
property (including, without limitation, leasehold interests and any other
tangible or intangible property) of such Person or its Restricted Subsidiaries,
whether or not such Indebtedness is assumed by such Person or its Restricted
Subsidiaries or is not otherwise such Person's or its Restricted Subsidiaries'
legal liability; provided that if the Obligations so secured have not been
assumed by such Person or its Restricted Subsidiaries or are otherwise not such
Person's or its Restricted Subsidiaries' legal liability, the amount of such
Indebtedness for the purposes of this definition shall be limited to the lesser
of the amount of such Indebtedness secured by such Lien or the fair market
value of the assets or property securing such Lien, and (ix) all Disqualified
Capital Stock issued by such Person with the amount of Indebtedness represented
by such Disqualified Capital Stock being equal to the greater of its voluntary
or involuntary liquidation preference and its maximum fixed repurchase price,
but excluding accrued dividends if any. The amount of Indebtedness of any
Person or its Restricted Subsidiaries at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date; provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the full amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof.
"Independent," when used with respect to any specified Person, means such
a Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its Subsidiaries, or in any Affiliate of the Company or any of its
Subsidiaries, and (c) is not an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions for the
Company or any of its Subsidiaries. Whenever it is provided in this Indenture
that any Independent Person's opinion or certificate shall be furnished to the
Trustee, such Person shall be appointed by the Company and approved by the
Trustee in the exercise of reasonable care, and such opinion or certificate
shall state that the signer has read this definition and that the signer is
Independent within the meaning thereof.
<PAGE> 22
-14-
"Initial Notes" has the meaning provided in the preamble to this
Indenture.
"Initial Purchasers" means BT Securities Corporation and Scotia Capital
Markets
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate option,
interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment" by any Person means any direct or indirect (i) loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property (valued at the fair market value thereof as of the date
of transfer) to others or payments for property or services for the account or
use of others, or otherwise); (ii) purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by any other Person; (iii) guarantee or assumption of any Indebtedness
or any other obligation of any other Person (except for an assumption of
Indebtedness for which the assuming Person receives consideration at the time
of such assumption in the form of property or assets with a fair market value
at least equal to the principal amount of the Indebtedness assumed); and (iv)
all other items that would be classified as investments (including, without
limitation, purchases of assets outside the ordinary course of business) on a
balance sheet of such Person prepared in accordance with GAAP. The amount of
any Investment shall not be adjusted for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. If the
Company or any Restricted Subsidiary of the Company sells or otherwise disposes
of any Common Stock of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such
<PAGE> 23
-15-
sale or disposition equal to the fair market value of the Common Stock of such
Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Kemess South" means that portion of the Kemess gold-copper ore body
(located in British Columbia and the acquisition of which was completed by the
Company in January 1996) upon which construction of an open-pit mine and
processing facility began in July, 1996.
"Legal Holiday" has the meaning provided in Section 13.07.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or
equivalent statute or statutes) of any jurisdiction other than to reflect
ownership by a third party of property leased to the referent Person or any of
its Subsidiaries under a lease that is not in the nature of a conditional sale
or title retention agreement).
"Maturity Date" means August 15, 2006.
"Mining Business" means (i) the acquisition, exploration, development,
operation and disposition of mineral interests, (ii) the gathering, marketing,
treating, processing, storage, selling and transporting of any production from
such interests and (iii) ancillary activities that are directly related to,
and necessary in connection with, the activities described in clauses (i) and
(ii) above.
"Mining Related Assets Investment" means any Investment or capital
expenditure (but not including additions to working capital or repayments of
any revolving credit or working capital borrowings) by the Company or any
Restricted Subsidiary of the Company which is related to the business of the
Company and its Restricted Subsidiaries as it is conducted on the date of the
Asset Sale giving rise to the Net Cash Proceeds to be reinvested.
<PAGE> 24
-16-
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, brokerage, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable ((1)
including, without limitation, income taxes reasonably estimated to be actually
payable as a result of any disposition of property within two years of the date
of disposition and (2) after taking into account any reduction in tax liability
due to available tax credits or deductions and any tax sharing arrangements)
and (c) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds
received by the Company, after payment of expenses, commissions and the like
(including, without limitation, brokerage, legal, accounting and investment
banking fees and commissions) incurred in connection therewith, and (b) in the
case of any exchange, exercise, conversion or surrender of any outstanding
Indebtedness of the Company or any Restricted Subsidiary issued after the Issue
Date for or into shares of Qualified Capital Stock of the Company, the amount
of such Indebtedness (or, if such Indebtedness was issued at an amount less
than the stated principal amount thereof, the accrued amount thereof as
determined in accordance with GAAP) as reflected in the consolidated financial
statements of the Company prepared in accordance with GAAP as of the most
recent date next preceding the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder of such
Indebtedness to the Company or to any wholly owned Restricted Subsidiary of the
Company upon such exchange, exercise, conversion or surrender and less any and
all payments made to the holders of such Indebtedness, and all other expenses
incurred by the Company
<PAGE> 25
-17-
in connection therewith), in each case (a) and (b) to the extent consummated
after the Issue Date.
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
Regulation S.
"Notes" means the Initial Notes and the Exchange Notes treated as a single
class of securities, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to this Indenture.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated August 5, 1996,
pursuant to which the Initial Notes were offered, and any supplement thereto.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Treasurer, the Controller, or the Secretary of such
Person, or any other officer designated by the Board of Directors serving in a
similar capacity.
"Officers' Certificate" means a certificate signed by two Officers of the
Company.
"Opinion of Counsel" means a written opinion from legal counsel which and
who are acceptable to the Trustee.
"Paying Agent" shall initially be Mellon Securities Trust Co., a New York
chartered trust company, until a successor paying agent for the Notes is
selected in accordance with this Indenture.
"Payment Blockage Period" has the meaning provided in Section 10.02.
"payment default" has the meaning set forth in Section 6.01.
"Permitted Indebtedness" has the meaning set forth in Section 4.12.
"Permitted Investments" means (a) investments in cash and Cash
Equivalents; (b) Investments by the Company or by any Restricted Subsidiary of
the Company in any Person (i) that is or
<PAGE> 26
-18-
will become immediately after such Investment a direct or indirect Restricted
Subsidiary of the Company, or (ii) such that such Investment, when combined
with all other outstanding Investments of the Company permitted pursuant to
this clause (ii), would not exceed, in the aggregate, 5% of the Company's
Adjusted Consolidated Net Tangible Assets; (c) any Investments in the Company
by any Restricted Subsidiary of the Company; provided that any Indebtedness
evidencing such Investment is unsecured and subordinated, pursuant to a written
agreement, to the Company's obligations in respect of the Notes and this
Indenture; and (d) Investments made by the Company or by its Restricted
Subsidiaries as a result of an Asset Sale made in compliance with Section 4.16.
"Permitted Liens" means:
(i) Liens on assets or property of the Company that secure Senior
Indebtedness of the Company and Liens on assets or property of a Restricted
Subsidiary that secure Senior Indebtedness of such Restricted Subsidiary,
in each case to the extent such Senior Indebtedness is permitted under
paragraph (b) of the covenant described under Section 4.12 or clause (vi)
of the definition of Permitted Indebtedness;
(ii) Liens securing Indebtedness permitted under clause (iv) of the
definition of Permitted Indebtedness;
(iii) Liens securing Indebtedness of a Person existing at the time
that such Person is merged into or consolidated with the Company or a
Restricted Subsidiary, provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of such Person;
(iv) Liens on property acquired by the Company or a Restricted
Subsidiary, provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any other property;
(v) Liens relating to royalty payments to be made by the Company to
the British Columbia provincial government in respect of copper extracted
and processed from the Kemess South property;
(vi) Liens in respect of Interest Swap Obligations, Commodity
Agreements, Capitalized Lease Obligations or Purchase Money Obligations, in
each case permitted under this Indenture;
<PAGE> 27
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(vii) Liens in favor of the Company or any Restricted Wholly Owned
Subsidiary;
(viii) Liens incurred, or pledges and deposits in connection with,
workers' compensation, unemployment insurance and other social security
benefits, and leases, appeal bonds and other obligations of like nature
incurred by the Company or any Restricted Subsidiary in the ordinary course
of business;
(ix) Liens imposed by law, including, without limitation, mechanics',
carriers', warehousemen's, materialmen's, suppliers' and vendors' Liens,
incurred by the Company or any Restricted Subsidiary in the ordinary course
of business; and
(x) Liens for ad valorem, income or property taxes or assessments and
similar charges which either are not delinquent or are being contested in
good faith by appropriate proceedings for which the Company has set aside
on its books reserves to the extent required by GAAP.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Notes) means the principal
amount of such Indebtedness plus the premium, if any, on such Indebtedness.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.15.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of this Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act, as determined by the
Board of Directors of the Company in consultation with its independent public
accountants.
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"Public Equity Offering" means a public offering of Common Stock of the
Company resulting in net proceeds to the Company in excess of US$20 million.
"Purchase Money Obligations" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in connection with the purchase of property or
assets of the business of the Company; provided that any Lien so created in
connection with such incurrence is limited solely to the property or assets so
purchased.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified
in Rule 144A under the Securities Act.
"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both of them are not making publicly available ratings of the Notes,
a nationally recognized U.S. rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories:
Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories);
and (iii) the equivalent of any such categories of S&P or Moody's used by
another Rating Agency, if applicable.
"Rating Event" means that at any time within 90 days (which period shall
be extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade or for review without indication of
direction by any Rating Agency) after the earlier of the date of public notice
of a Change of Control or of the intention of the Company or of any Person to
effect a Change of Control, the rating of the Notes is decreased by any Rating
Agency by one or more Gradations.
"Record Date" means the Record Dates specified in the Notes, whether or
not a Legal Holiday.
"Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption pursuant to this Indenture and the
Notes.
<PAGE> 29
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"Redemption Price," when used with respect to any Note to be redeemed,
means the price fixed for such redemption pursuant to this Indenture and the
Notes.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company of
Indebtedness Incurred in accordance with Section 4.12 (other than pursuant to
clause (iv), (v), (vi), (vii) or (viii) of the definition of Permitted
Indebtedness), in each case that does not (1) result in an increase in the
aggregate principal amount of Indebtedness of such Person as of the date of
such proposed Refinancing (plus the amount of any premium required to be paid
under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company, and (y)
if such Indebtedness being Refinanced is subordinate or junior to the Notes,
then such Refinancing Indebtedness shall be subordinate to the Notes at least
to the same extent and in the same manner as the Indebtedness being Refinanced.
"Registrar" shall initially mean the Trustee, as the registration agent
for the Notes, until a successor registrar for the Notes is appointed in
accordance with Section 2.03.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of August 12, 1996 among the Company, the Guarantors and the Initial
Purchasers for the benefit of themselves and the Holders, as the same may be
amended or modified from time to time in accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided that
if, and for so long as, any
<PAGE> 30
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Designated Senior Indebtedness lacks such a representative, then the
Representative for such Designated Senior Indebtedness shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Indebtedness in respect of any Designated Senior
Indebtedness.
"Restricted Payment" has the meaning provided in Section 4.10.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided that the Trustee shall be entitled
to request and conclusively rely on an Opinion of Counsel with respect to
whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Corporation and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Senior Indebtedness" means any Indebtedness of the Company (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law), whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, Senior Indebtedness shall not include (i) any
Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness
to, or guaranteed on behalf of, any shareholder, director, officer or employee
of the Company or any Subsidiary (including, without limitation, amounts owed
for compensation), (iii) Indebtedness and other amounts incurred in connection
with obtaining goods, materials or services owing to trade creditors, (iv)
Disqualified Capital Stock, (v) any liability for federal, state, local or
other taxes owed or owing by the Company, (vi) Indebtedness incurred in
<PAGE> 31
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violation of the covenant described in Section 4.12 and (vii) any Indebtedness
which is, by its express terms, subordinated in right of payment to any other
Indebtedness of the Company.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section Section
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except
as otherwise provided in Section 9.04.
"Trust Officer" means any officer of the Trustee assigned by the Trustee
to administer this Indenture, or in the case of a successor trustee, an officer
assigned to the department, division or group performing the corporation trust
work of such successor and assigned to administer this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated
as an Unrestricted Subsidiary by the Board of Directors of the Company;
provided, however, that (i) the Subsidiary to be so designated (x)(I) has total
assets with a fair market value at the time of such designation of US$1,000 or
less or (II) is being so designated prior to the acquisition by the Company of
such Subsidiary by merger or consolidation with an Unrestricted Subsidiary, and
(y) does not own any Capital Stock of the Company or any Restricted Subsidiary,
(ii) if such Subsidiary is acquired by the Company, such Subsidiary is
designated as an Unrestricted Subsidiary prior to the consummation of such
acquisition, (iii) no Default or Event of Default shall have occurred and be
continuing, (iv) no portion of any Indebtedness or any other obligation
(contingent or otherwise) of such Subsidiary (a) is guaranteed by or is
otherwise the subject of credit support provided by the Company or any of its
Restricted Subsidiaries, (b) is recourse to or obligates the Company or any of
its Restricted Subsidiaries in any way, or (c) subjects any property or asset
of the Company or any of its Restricted Subsidiaries directly or indirectly,
contingently or otherwise, to the satisfaction of such Indebtedness or other
obligation, (v) neither the Company nor any of its
<PAGE> 32
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Restricted Subsidiaries has any contract, agreement, arrangement or
understanding with such Subsidiary other than on terms as favorable to the
Company or such Restricted Subsidiary as those that might be obtained at the
time from Persons that are not Affiliates of the Company, and (vi) neither the
Company nor any of its Restricted Subsidiaries has any obligations (a) to
subscribe for additional shares of Capital Stock of such Subsidiary, or (b) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such
designation by the Company's Board of Directors shall be evidenced to the
Trustee by filing with the trustee a certified certificate stating that such
designation complies with the foregoing conditions. The Company's Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing, including, without limitation, under Sections 4.12 and 4.18,
assuming the incurrence by the Company and its Restricted Subsidiaries at the
time of such designation of all existing Indebtedness and Liens of the
Unrestricted Subsidiary to be so designated as a Restricted Subsidiary. In the
event of any Disposition involving the Company in which the Company is not the
Surviving Person, the Board of Directors of the Surviving Person may (x) prior
to such Disposition, designate any of its Subsidiaries, and any of the
Company's Subsidiaries being acquired pursuant to such Disposition that are not
Restricted Subsidiaries, as Unrestricted Subsidiaries, and (y) after such
Disposition, designate any of its direct or indirect Subsidiaries as an
Unrestricted Subsidiary under the same conditions and in the same manner as the
Company under the terms of this Indenture.
"U.S. Government Obligations" means direct obligations of, and obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any
<PAGE> 33
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contingency) to vote in the election of members of the Board of Directors of
such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"wholly owned Subsidiary" of any Person means any Subsidiary of such
Person of which all the outstanding voting securities (other than directors'
qualifying shares or similar legally required de minimis holdings) which
normally have the right to vote in the election of directors are owned by such
Person or any wholly owned Subsidiary of such Person.
"Working Capital Facility" means the existing working capital facility
provided to the Company pursuant to a credit agreement between The Bank of Nova
Scotia and the Company dated February 15, 1996, as the same may be amended from
time to time, and any agreement evidencing the refinancing, modification,
replacement, renewal, restatement, refunding, deferral, extension,
substitution, supplement, reissuance or resale thereof.
SECTION 1.02 Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such provision
is incorporated by reference in, and made a part of, this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, the Guarantors or
any other obligor on the Notes or the Guarantees.
<PAGE> 34
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All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03 Rules of Construction.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP as in effect on the date hereof;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the plural
include the singular;
(v) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision;
(vi) all references to "$" and "US$" shall refer to the lawful
currency of the United States of America; and
(vii) all references to "Cdn.$" shall refer to the lawful currency of
Canada.
ARTICLE TWO
THE NOTES
SECTION 2.01 Form and Dating.
The Initial Notes, the notation thereon relating to the Guarantees and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A hereto. The Exchange Notes, the notation relating to the Guarantees
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit B hereto. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or depository rule or usage.
The Company, the Guarantors and the Trustee shall approve the form of the Notes
and any notation, legend or
<PAGE> 35
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endorsement on them. Each Note shall be dated the date of its issuance and
shall show the date of its authentication.
The terms and provisions contained in the Notes and the Guarantees,
annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly
made, a part of this Indenture and, to the extent applicable, the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Notes offered and sold (i) to Qualified Institutional Buyers ("QIBs") in
reliance on Rule 144A or (ii) Institutional Accredited Investors (who are not
QIBs) shall be issued initially in the form of one or more permanent global
Notes in registered form, substantially in the form set forth in Exhibit A (the
"Global Note"), deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Note may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on Regulation
S shall be issued in the form of permanent certificated Notes in registered
form in substantially the form set forth in Exhibit A (the "Offshore Physical
Notes"). Notes offered and sold in reliance on any exemption from registration
under the Securities Act other than as described in the preceding paragraph
shall be issued, and Notes offered and sold in reliance on Rule 144A or to
Institutional Accredited Investors, as described in the preceding paragraph,
may be issued, in the form of permanent certificated Notes in registered form,
in substantially the form set forth in Exhibit A (the "U.S. Physical Notes").
The Offshore Physical Notes and the U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes."
SECTION 2.02 Execution and Authentication;
Aggregate Principal Amount.
One Officer shall sign, or one Officer and a Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature. The Company's seal shall also be reproduced on the Notes. Each
Guarantor shall execute the Guarantees in the manner set forth in Section
11.09.
If an Officer or Secretary whose signature is on a Note was an Officer or
Secretary at the time of such execution but no
<PAGE> 36
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longer holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue in the
aggregate principal amount not to exceed $175,000,000, and (ii) Exchange Notes
from time to time for issue only in exchange for a like principal amount of
Initial Notes, in each case upon written orders of the Company in the form of
an Officers' Certificate. The Officers' Certificate shall specify the amount
of Notes to be authenticated, the date on which the Notes are to be
authenticated and the aggregate principal amount of Notes outstanding on the
date of authentication, whether the Notes are to be Initial Notes or Exchange
Notes, and shall further specify the amount of such Notes to be issued as the
Global Note, Offshore Physical Notes or U.S. Physical Notes. The aggregate
principal amount of Notes outstanding at any time may not exceed $175,000,000,
except as provided in Section 2.07.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with
the Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof.
SECTION 2.03 Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented or surrendered for registration of transfer or for exchange
("Registrar"). The Company shall also maintain an office or offices or agency
(which shall be located in the Borough of Manhattan in the City of New York,
State of New York) where Notes may be presented or surrendered for payment
("Paying Agent") and notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may appoint one
<PAGE> 37
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or more co-Registrars and one or more additional paying agents reasonably
acceptable to the Trustee. The term "Paying Agent" includes any additional
Paying Agent. Neither the Company nor any Affiliate of the Company may act as
Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee, in advance, of the
name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such.
The Company initially appoints the Trustee as Registrar, Paying Agent and
agent for service of demands and notices in connection with the Notes, until
such time as the Trustee has resigned or a successor has been appointed. The
Paying Agent or Registrar may resign upon 30 days' notice to the Company.
SECTION 2.04 Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, premium, if any, or interest on the Notes (whether such assets
have been distributed to it by the Company or any other obligor on the Notes),
and the Paying Agent shall notify the Trustee of any Default by the Company (or
any other obligor on the Notes) in making any such payment. The Company at any
time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05 Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish or cause the Registrar
to furnish to the Trustee before each Record Date and at such other times as
the Trustee may
<PAGE> 38
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request in writing a list as of such date and in such form as the Trustee may
reasonably require of the names and addresses of the Holders and the Company
and the Guarantor shall otherwise comply with TIA Section 312(a).
SECTION 2.06 Transfer and Exchange.
Subject to the provisions of Sections 2.16 and 2.17, when Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer of such Notes or to exchange such Notes for an equal principal amount
of Notes of other authorized denominations, the Registrar or co-Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transaction are met; provided, however, that the Notes presented or
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar or co-Registrar, duly executed by the Holder thereof
or his attorney, duly authorized in writing. To permit registrations of
transfer and exchanges, the Company shall execute and the Trustee shall
authenticate Notes at the Registrar's or co-Registrar's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon exchanges or
transfers pursuant to Section 2.10, 3.06, 4.15, 4.16 or 9.06); provided, that
in no event shall the Trustee, Registrar or co-Registrar be responsible for the
payment of any such taxes or governmental charges.
The Company shall not be required to issue, and the Company and the
Registrar or co-Registrar shall not be required to register the transfer of or
exchange of any Note (i) during a period beginning at the opening of business
15 days before the mailing of a notice of redemption of Notes and ending at the
close of business on the day of such mailing and (ii) selected for redemption
in whole or in part pursuant to Article Three, except the unredeemed portion of
any Note being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such Global Note,
agree that transfers of beneficial interests in such Global Notes may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry.
<PAGE> 39
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SECTION 2.07 Replacement Notes.
If a mutilated Note is surrendered to the Trustee or the Company and the
Trustee receive evidence to their satisfaction that a Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note if the conditions for replacement set forth
herein have been met. If required by the Trustee or the Company, such Holder
must provide an affidavit of lost certificate and an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Note is replaced. The Company may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Note, including reasonable
fees and expenses of counsel. Every replacement Note shall constitute an
additional obligation of the Company.
SECTION 2.08 Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to
it for cancellation, those reductions in the interest in a Global Note effected
by the Trustee in accordance with the provisions hereof and those described in
this Section as not outstanding. Subject to the provisions of Section 2.09, a
Note does not cease to be outstanding because the Company, the Guarantors or
any of their respective Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Trustee receives an Opinion of Counsel that the replaced Note is held by a bona
fide purchaser. A mutilated Note ceases to be outstanding upon surrender of
such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date, the Paying Agent holds U.S.
Legal Tender or U.S. Government Obligations sufficient to pay all of the
principal and interest due on the Notes payable on that date and is not
prohibited from paying such money to the Holders thereof pursuant to the terms
of this Indenture, then on and after that date such Notes cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, consent or notice, Notes owned
by the Company, the Guarantors or
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any of their respective Affiliates shall be considered as though they are not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes which a Trust Officer of the Trustee actually knows are so owned shall be
so considered.
SECTION 2.10 Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon receipt of a written order
of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of temporary Notes to be authenticated and
the date on which the temporary Notes are to be authenticated. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company considers appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate upon receipt of a written order of the Company pursuant to Section
2.02 definitive Notes in exchange for temporary Notes.
SECTION 2.11 Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for transfer, exchange or payment. The Trustee, or at the
direction of the Trustee, the Registrar or the Paying Agent, and no one else,
shall cancel all Notes surrendered for transfer, exchange, payment, replacement
or cancellation and shall retain or destroy, in accordance with its normal
practice, cancelled Notes (subject to the record retention requirement of the
Exchange Act). If such Notes are destroyed, certification of the destruction
of all cancelled Notes shall be delivered to the Company. Subject to Section
2.07, the Company may not issue new Notes to replace Notes that it has paid or
that have been delivered to the Trustee for cancellation. If the Company or
the Guarantors shall acquire any of the Notes, such acquisition shall not
operate as a redemption or satisfaction of the Indebtedness represented by such
Notes unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest to the
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Persons who are Holders on a subsequent special record date, which date shall
be the fifteenth day next preceding the date fixed by the Company for the
payment of defaulted interest or the next succeeding Business Day if such date
is not a Business Day, in each case at the rate provided in Section 4.01
hereof. At least 15 days before the subsequent special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or caused to be mailed to each
Holder, as of a recent date selected by the Company, with a copy to the
Trustee, a notice that states the subsequent special record date, the payment
date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
SECTION 2.13 CUSIP Number.
The Company in issuing the Notes may use one or more "CUSIP" numbers, and
if so, the Trustee shall use the CUSIP numbers in notices of redemption or
exchange as a convenience to Holders; provided that no representation is
hereby deemed to be made by the Trustee as to the correctness or accuracy of
the CUSIP numbers printed in the notice or on the Notes, and that reliance may
be placed only on the other identification numbers printed on the Notes. The
Company shall promptly notify the Trustee of any change in the CUSIP numbers.
SECTION 2.14 Deposit of Moneys.
Prior to 11:00 a.m. New York City time on each Interest Payment Date and
Maturity Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date or Maturity Date, as the case may be.
SECTION 2.15 Restrictive Legends.
Each Global Note and Physical Note that constitutes a Restricted Security
shall bear the following legend (the "Private Placement Legend") on the face
thereof until August 12, 1999, unless otherwise agreed by the Company and the
Holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
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PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE OR TRANSFER
AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR TRANSFER AGENT FOR THIS
SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THE SECURITY, IF THE PROPOSED TRANSFEREE IS AN
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE OR TRANSFER AGENT AND THE ISSUER SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS ANY OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE ACT.
Each Global Note shall also bear the following legend on the face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A
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NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY
THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE
TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.17 OF THE INDENTURE.
SECTION 2.16 Book-Entry Provisions
for Global Security.
(a) The Global Note initially shall (i) be registered in the name of the
Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee
as custodian for such Depositary and (iii) bear legends as set forth in Section
2.15.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of the Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers in whole,
but not in part, to the Depositary, its
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successors or their respective nominees. Interests of beneficial owners in the
Global Note may be transferred or exchanged for Physical Notes in accordance
with the rules and procedures of the Depositary and the provisions of Section
2.17. In addition, Physical Notes shall be transferred to all beneficial
owners in exchange for their beneficial interests in the Global Note if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the Global Note and a successor depositary is not appointed by
the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request
from the Depositary to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver,
one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note to beneficial
owners pursuant to paragraph (b), the Global Note shall be deemed to be
surrendered to the Trustee for cancellation, and the Company shall execute, and
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depositary in exchange for its beneficial interest in the Global Note, an
equal aggregate principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security delivered in
exchange for an interest in the Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section
2.17, bear the legend regarding transfer restrictions applicable to the Physical
Notes set forth in Section 2.15.
(f) The Holder of the Global Note may grant proxies and otherwise authorize
any person, including Agent Members and persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.
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SECTION 2.17 Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S.
Persons. The following provisions shall apply with respect to the registration
of any proposed transfer of a Note constituting a Restricted Security to any
Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note constituting
a Restricted Security, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after August 12, 1999 or (y) (1)
in the case of a transfer to an Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons), the proposed transferee has
delivered to the Registrar a certificate substantially in the form of
Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person, the
proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with respect
to the registration of any proposed transfer of a Note constituting a Restricted
Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an
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account with respect to which it exercises sole investment discretion and
that it and any such account is a QIB within the meaning of Rule 144A, and
is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Notes to
be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Global Note, upon receipt by the Registrar
of instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the Global Note
in an amount equal to the principal amount of the Physical Notes to be
transferred, and the Trustee shall cancel the Physical Notes so
transferred.
(c) Private Placement Legend. Upon the transfer, exchange or replacement
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of Notes bearing the Private Placement Legend, the
Registrar shall deliver only Notes that bear the Private Placement Legend unless
(i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17
exist or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
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ARTICLE THREE
REDEMPTION
SECTION 3.01 Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 6 of the
Notes, it shall notify the Trustee and the Paying Agent in writing of the
Redemption Date and the principal amount of the Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.01 at
least 30 days before the Redemption Date (or at least 45 days if the Company
requests the Trustee to give notice to the Holders pursuant to Section 3.03
hereof) (unless a shorter notice period shall be satisfactory to the Trustee,
as evidenced in a writing signed on behalf of the Trustee), together with an
Officers' Certificate stating that such redemption shall comply with the
conditions contained herein and in the Notes.
SECTION 3.02 Selection of Notes To Be Redeemed
If fewer than all of the Notes are to be redeemed, the Trustee shall select
the Notes to be redeemed in compliance with the requirements of the principal
national securities exchange, if any, on which such Notes are listed or, if such
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or in such other fair and reasonable manner chosen at the
discretion of the Trustee; provided, however, that if a partial redemption is
made with the proceeds of a Public Equity Offering, selection of the Notes or
portion thereof for redemption shall be made by the Trustee only on a pro rata
basis, unless such method is otherwise prohibited. Not less than 30 days nor
more than 60 days prior to the Redemption Date, the Trustee shall make the
selection from the Notes outstanding and not previously called for redemption
and shall promptly notify the Company in writing of the Notes selected for
redemption and, in the case of any Note selected for partial redemption, the
principal amount thereof to be redeemed. Notes in denominations of $1,000 or
less may be redeemed only in whole; except that if all of the Notes of the
Holder are to be redeemed, the entire outstanding amount of Notes held by such
Holder, even if not a multiple of $1,000 shall be redeemed. Unless the Company
defaults in making the redemption payment, interest on Notes or portions thereof
called for redemption ceases to accrue on and after the Redemption Date, and the
only remaining right of the Holders of such Notes is to receive payment of the
Redemption Price plus accrued interest, if any, upon surrender to the Paying
Agent
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of the Notes redeemed. The Trustee may select for redemption portions (equal to
$1,000 or any integral multiple thereof) of the principal of Notes that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
SECTION 3.03 Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date, the
Company shall mail or cause to be mailed a notice of redemption by first class
mail, postage prepaid, to each Holder whose Notes are to be redeemed to such
Holder's registered address, with a copy to the Trustee and any Paying Agent.
At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
Each notice for redemption shall identify the Notes to be redeemed and
shall state:
(i) the Redemption Date;
(ii) the Redemption Price and the amount of accrued interest, if any,
to be paid;
(iii) the name and address of the Paying Agent or the place or places
where such Notes are to be surrendered for payment;
(iv) the subparagraph of the Notes pursuant to which such redemption
is being made;
(v) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price plus accrued interest, if any;
(vi) that, unless the Company defaults in making the redemption
payment, interest on Notes or portions thereof called for redemption ceases
to accrue on and after the Redemption Date, and the only remaining right of
the Holders of such Notes is to receive payment of the Redemption Price
plus accrued interest, if any, upon surrender to the Paying Agent of the
Notes redeemed;
(vii) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date, and upon surrender and cancellation of such Note, a new Note or Notes
in the aggregate principal
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amount equal to the unredeemed portion thereof will be issued in the name
of the Holder thereof; and
(viii) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be redeemed,
as well as the aggregate principal amount of Notes to be redeemed and the
aggregate principal amount of Notes to be outstanding after such partial
redemption; and
(ix) the CUSIP number, if any, listed on such Note or printed on the
Notes, provided, that such notice shall specify that no representation is
made as to the correctness or accuracy of such CUSIP number.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the Redemption
Date, an Officer's Certificate, requesting that the Trustee give such notice
and setting forth the information to be stated in such notice.
SECTION 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03, Notes
called for redemption become due and payable on the Redemption Date and at the
Redemption Price plus accrued interest, if any. Upon surrender to the Trustee
or Paying Agent, such Notes called for redemption shall be paid at the
Redemption Price (which shall include accrued interest thereon to the
Redemption Date), but installments of interest, the maturity of which is on or
prior to the Redemption Date, shall be payable to Holders of record at the
close of business on the relevant record dates referred to in the Notes.
SECTION 3.05 Deposit of Redemption Price.
On or before the Redemption Date, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus
accrued interest, if any, of all Notes to be redeemed on that date. The Paying
Agent shall promptly return to the Company any U.S. Legal Tender so deposited
which is not required for that purpose.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price plus accrued interest,
if any, interest on the Notes to be redeemed will cease to accrue on and after
the applicable
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Redemption Date, whether or not such Notes are presented for payment.
SECTION 3.06 Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the Trustee shall
authenticate for the Holder a new Note or Notes equal in principal amount to
the unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01 Payment of Notes.
The Company shall pay the principal of and interest on the Notes on the
dates and in the manner provided in the Notes and in this Indenture. An
installment of principal of or interest on the Notes shall be considered paid
on the date it is due if the Trustee or Paying Agent (other than the Company or
an Affiliate of the Company) holds on that date U.S. Legal Tender designated
for and sufficient to pay the installment in full and is not prohibited from
paying such money to the Holders pursuant to the terms of this Indenture.
The Company shall pay, to the extent such payments are lawful, interest on
overdue principal and on overdue installments of interest (without regard to
any applicable grace periods) from time to time on demand at the rate borne by
the Notes plus 2% per annum. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Notwithstanding anything to the contrary contained in this Indenture, the
Company may, to the extent it is required to do so by law, deduct or withhold
income or other similar taxes imposed by the United States of America from
principal or interest payments hereunder.
If the Company is required to make any withholding or deduction for or on
account of any Canadian taxes from any payment made under or with respect to the
Notes, the Company will pay such Additional Amounts as may be necessary so that
the net amount received by each Holder (including Additional Amounts) will not
be less than the amount the Holder would have received had such Canadian taxes
not been withheld or deducted; provided that no
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Additional Amounts will be payable with respect to a payment made to a Holder
(an "Excluded Holder") (i) with which the Company does not deal at arm's length
(within the meaning of the Income Tax Act (Canada)) at the time of making such
payment, or (ii) which is subject to such Canadian taxes by reason of its being
connected with Canada otherwise than by the mere holding of the Notes or the
receipt of payments thereunder.
The Company will also (i) make such withholding or deduction and (ii)
remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. The Company will furnish, within 30 days after
the date the payment of any Canadian taxes is due pursuant to applicable law,
to the Holders of Notes that are outstanding on the date of the withholding or
deduction copies of tax receipts evidencing that such payment has been made by
the Company. The Company will indemnify and hold harmless each Holder of Notes
that are outstanding on the date of the withholding or deduction (other than an
Excluded Holder) and upon written request reimburse each such Holder for the
amount of (i) any Canadian taxes so levied or imposed and paid by such Holder
as a result of payments made under or with respect to the Notes, (ii) any
liability (including penalties, interest and expense) arising therefrom or with
respect thereto, and (iii) any Canadian taxes imposed with respect to any
reimbursement under clause (i) or (ii) above.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if the Company becomes obligated to
pay Additional Amounts with respect to such payment, the Company will deliver
to the Trustee an Officers' Certificate stating the fact that such Additional
Amounts will be payable, and the amounts so payable and will set forth such
other information as is necessary to enable the Trustee to pay such Additional
Amounts to the Holders on the payment date.
SECTION 4.02 Maintenance of Office or Agency.
The Company shall maintain the office or agency located in the Borough of
Manhattan, State of New York as required under Section 2.03. The Company shall
give prior written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.02.
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SECTION 4.03 Corporate Existence.
Except as otherwise permitted by Article Five and Section 4.16, the Company
shall do or cause to be done, at its own cost and expense, all things necessary
to preserve and keep in full force and effect its corporate existence and the
corporate existence of each of its Restricted Subsidiaries in accordance with
the respective organizational documents of each such Restricted Subsidiary and
the material rights (charter and statutory) and franchises of the Company and
each such Restricted Subsidiary; provided, however, that the Company shall not
be required to preserve, with respect to itself, any material right or franchise
and, with respect to any of its Restricted Subsidiaries, any such existence,
material right or franchise, if the Board of Directors of the Company shall
determine in good faith that the preservation thereof is no longer desirable in
the conduct of the business of the Company and the Restricted Subsidiaries,
taken as a whole.
SECTION 4.04 Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Subsidiaries or
properties of it or any of its Subsidiaries; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings or where the failure to
effect such payment is not adverse in any material respect to the Holders of the
Notes.
SECTION 4.05 Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of its Restricted Subsidiaries
to, maintain its material operating properties in appropriate condition (subject
to ordinary wear and tear and taking into account the historical and intended
use of any such properties) and make appropriate repairs, renewals and
replacements thereto, all as in the sole judgment of the Company and its
Management may be necessary so that business carried on in connection therewith
may be properly conducted at all times unless the failure to so maintain such
properties would not have a material adverse effect on the financial condition
of the Company and its Restricted Subsidiaries taken as a whole; provided,
however, that nothing in this Section 4.05 shall prevent the Company or any of
its Restricted Subsidiaries from discontinuing or
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abandoning the operation and maintenance of any of such properties, if such
discontinuance or abandonment is, in the sole judgment of Management of the
Company or the Restricted Subsidiary, as the case may be, desirable in the
conduct of their respective businesses and does not materially affect the
ability of the Company to repay principal on the Securities.
(b) The Company shall provide or cause to be provided, for itself and each
of its Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the good faith judgment of the
Board of Directors of the Company, are adequate and appropriate for the conduct
of the business of the Company and such Restricted Subsidiaries in a prudent
manner, with reputable insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the good faith
judgment of the Board of Directors of the Company, for companies similarly
situated in the industry.
SECTION 4.06 Compliance Certificate;
Notice of Default.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of the Company's fiscal year, an Officers' Certificate stating that a review of
its activities and the activities of its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether each of the Company and its Subsidiaries has kept,
observed, performed and fulfilled its obligations under this Indenture and
further stating, as to each such Officer signing such certificate, that to the
best of such Officer's knowledge each of the Company and its Subsidiaries during
such preceding fiscal year has kept, observed, performed and fulfilled each and
every such covenant and no Default or Event of Default occurred during such year
and at the date of such certificate there is no Default or Event of Default that
has occurred and is continuing or, if such signers do know of such Default or
Event of Default, the certificate shall describe such Default or Event of
Default and its status. The Officers' Certificate shall also notify the Trustee
should the Company elect to change the manner in which it fixes its fiscal year
end.
(b) The annual financial statements delivered pursuant to Section 4.08
shall be accompanied by a written report of the Company's independent
accountants (who shall be a firm of established national reputation) that in
conducting their audit of such financial statements nothing has come to their
attention that
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would lead them to believe that the Company has violated any provisions of
Article Four, Five or Six of this Indenture insofar as they relate to accounting
matters or, if any such violation has occurred, specifying the nature and period
of existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) (i) If any Default or Event of Default has occurred and is continuing
or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a
claimed Default under this Indenture or the Notes, the Company shall deliver to
the Trustee, at its address set forth in Section 13.02 hereof, by registered or
certified mail or by telegram, telex or facsimile transmission followed by hard
copy by registered or certified mail an Officers' Certificate specifying such
event, notice or other action within five Business Days of its becoming aware
of such occurrence.
SECTION 4.07 Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America and Canada, all states, provinces
and municipalities thereof, and of any governmental department, commission,
board, regulatory authority, bureau, agency and instrumentality of the
foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except for such noncompliances as are
not in the aggregate reasonably likely to have a material adverse effect on the
financial condition or results of operations of the Company and its Restricted
Subsidiaries, taken as a whole.
SECTION 4.08 SEC Reports.
(a) Upon consummation of the Exchange Offer and the issuance of the
Exchange Notes, the Company (at its own expense) shall file with the SEC when
due as required by the Exchange Act and shall file with the Trustee within 15
days after it files them with the SEC copies of the quarterly and annual reports
and of the information, documents, and other reports (or copies of such portions
of any of the foregoing as the SEC may by rules and regulations prescribe) to be
filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to
whether the Company is subject to the requirements of such Section 13 or 15(d)
of the Exchange Act); provided that prior to the consummation of the Exchange
Offer and the issuance of the Exchange Notes, the Company (at its own expense)
will mail to the Trustee and Holders in
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accordance with paragraph (b) of this Section 4.08 substantially the same
information that would have been required by the foregoing documents within 15
days of when any such document would otherwise have been required to be filed
with the SEC. Upon qualification of this Indenture under the TIA, the Company
shall also comply with the provisions of TIA Section 314(a).
(b) At the Company's expense, the Company shall cause an annual report if
furnished by it to stockholders generally and each quarterly or other financial
report if furnished by it to stockholders generally to be filed with the Trustee
and mailed to the Holders at their addresses appearing in the register of Notes
maintained by the Registrar at the time of such mailing or furnishing to
stockholders.
(c) The Company shall provide to any Holder any information reasonably
requested by such Holder concerning the Company and the Guarantors (including
financial statements) necessary in order to permit such Holder to sell or
transfer Notes in compliance with Rule 144A under the Securities Act.
SECTION 4.09 Waiver of Stay, Extension
or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.10 Limitation on Restricted Payments.
Neither the Company nor any of its Restricted Subsidiaries shall, directly
or indirectly, (a) declare or pay any dividend or make any distribution (other
than dividends or distributions payable solely in Qualified Capital Stock of the
Company) on or in respect of shares of the Company's Capital Stock to holders of
such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company, or
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any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock, other than through the exchange therefor solely of Qualified
Capital Stock of the Company or warrants, rights or options to acquire Qualified
Capital Stock of the Company, (c) make any principal payment on, purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes, or (d) make any Investment (other than Permitted
Investments) in any Person (each of the foregoing prohibited actions set forth
in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"),
if at the time of such proposed Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default has occurred and is
continuing or would result therefrom, or (ii) the Company is not able to Incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with Section 4.12(b) (as if such Restricted Payment had been made as
of the last day of the Four Quarter Period), or (iii) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the board of directors of the Company) exceeds or would exceed the
sum of: (x) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company
during the period (treating such period as a single accounting period)
subsequent to the Issue Date and prior to the date of the making of such
Restricted Payment; and (y) 100% of the aggregate Net Equity Proceeds received
by the Company from any Person (other than from a Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date of Qualified Capital
Stock of the Company (excluding (A) any Qualified Capital Stock of the Company
paid as a dividend on any Capital Stock of the Company and (B) any Qualified
Capital Stock of the Company with respect to which the purchase price thereof
has been financed directly or indirectly using funds (i) borrowed from the
Company or from any of its Subsidiaries, unless and until and to the extent such
borrowing is repaid, or (ii) contributed, extended, guaranteed or advanced by
the Company or by any of its Subsidiaries (including, without limitation, in
respect of any employee stock ownership or benefit plan)).
Notwithstanding the foregoing, these provisions do not prohibit: (1) the
payment of any dividend or making of any distribution within 60 days after the
date of its declaration if the dividend or distribution would have been
permitted on the date
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of declaration; (2) the acquisition of Capital Stock of the Company or warrants,
rights or options to acquire Capital Stock of the Company either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or warrants,
rights or options to acquire Qualified Capital Stock of the Company, or (ii)
through the application of net proceeds of a substantially concurrent sale for
cash (other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company or warrants, rights or options to acquire Qualified Capital
Stock of the Company; and (3) the acquisition of any Indebtedness of the Company
that is subordinate or junior in right of payment to the Notes either (i) solely
in exchange for shares of Qualified Capital Stock of the Company, or (ii)
through the application of net proceeds of a substantially concurrent sale for
cash (other than to a Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company or warrants, rights or options to acquire Qualified
Capital Stock of the Company or (B) Refinancing Indebtedness; provided, however,
that in the case of clauses (2) and (3) of this paragraph, no Default or Event
of Default shall have occurred and be continuing at the time of such payment or
as a result thereof. In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date, amounts expended pursuant to clauses (1) and
(2) shall, in each case, be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment complies with this Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
SECTION 4.11 Limitation on Transactions
with Affiliates.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction or series of transactions
with or for the benefit of any of their Affiliates (each an "Affiliate
Transaction"), except in good faith and on terms that are no less favorable to
the Company or such Subsidiary, as the case may be, than those that could have
been obtained in a comparable transaction on an arm's-length basis from a Person
not an Affiliate of the Company or such Subsidiary. All Affiliate Transactions
(and each series of related Affiliate Transactions which are similar or part of
a common plan) involving aggregate payments or other property with a fair market
value in excess of $5 million shall be approved by the board of directors of the
Company, such approval to be evidenced by a Board Resolution
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stating that such board of directors has determined that such transaction
complies with the foregoing provisions. If the Company or any Subsidiary of
the Company enters into an Affiliate Transaction (or a series of related
Affiliate Transactions related to a common plan) that involves an aggregate fair
market value of more than $15 million, the Company or such Subsidiary shall,
prior to the consummation thereof, obtain a favorable opinion as to the fairness
of such transaction or series of related transactions to the Company or the
relevant Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to customary directors' fees, indemnification and similar
arrangements.
SECTION 4.12 Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness, including,
without limitation, any Acquired Indebtedness (other than Permitted
Indebtedness).
(b) Notwithstanding the foregoing limitations, in addition to Permitted
Indebtedness, the Company may Incur Indebtedness (including, without limitation,
Acquired Indebtedness) and Restricted Subsidiaries of the Company may Incur
Acquired Indebtedness, in each case, if (i) no Default or Event of Default shall
have occurred and be continuing on the date of the proposed Incurrence thereof
or would result as a consequence of such proposed Incurrence and (ii)
immediately after giving effect to such proposed Incurrence, (x) the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.0
to 1.0 if such proposed Incurrence is on or prior to December 31, 1998 at least
equal to 2.5 to 1.0 if such proposed Incurrence is after December 31, 1998 and
on or prior to December 31, 1999, and at least equal to 2.75 to 1.0 if such
proposed Incurrence occurs after December 31, 1999 and (y) the Adjusted
Consolidated Net Tangible Assets of the Company are at least equal to 150% of
the aggregate consolidated Indebtedness of the Company.
(c) The Company will not, directly or indirectly, in any event Incur any
Indebtedness which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated to any other Indebtedness of the Company ranking
pari passu with the Notes unless such Indebtedness is also by its terms (or by
the terms of any agreement governing such Indebtedness) made expressly
subordinate to the Notes to the same extent and in the same manner as such
Indebtedness is subordinated to such pari passu
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Indebtedness pursuant to any subordination provisions that are most favorable to
the holders of any such pari passu Indebtedness of the Company.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes, this Indenture and the Guarantee;
(ii) Commodity Agreements of the Company; provided, however, that such
Commodity Agreements are entered into to reduce the exposure of the Company
and its Restricted Subsidiaries to fluctuations in the prices of
commodities, in each case consistent with past practice of the Company;
(iii) Interest Swap Obligations and Foreign Exchange Obligations of
the Company; provided, however, that such Interest Swap Obligations and
Foreign Exchange Obligations are entered into to protect the Company and
its Restricted Subsidiaries from fluctuations in interest or exchange rates
on Indebtedness Incurred in accordance with this Indenture to the extent
the notional principal amount of such Interest Swap Obligation or Foreign
Exchange Obligation does not exceed the principal amount of the
Indebtedness to which such Obligation relates; and provided, further, that
the Company may enter into Foreign Exchange Obligations to protect the
Company and its Restricted Subsidiaries from fluctuations in exchange rates
related to the operating costs of the Company and its Restricted
Subsidiaries, in each case consistent with past practice of the Company;
(iv) Indebtedness under the Working Capital Facility not to exceed
Cdn.$28 million, less any amounts repaid from Net Cash Proceeds pursuant to
Section 4.16;
(v) Capitalized Lease Obligations and Purchase Money Obligations of
the Company or any Restricted Subsidiary not to exceed $20 million
outstanding at any one time;
(vi) additional Indebtedness Incurred by the Company not to exceed $25
million outstanding at any time;
(vii) Indebtedness of a direct or indirect Restricted Subsidiary of
the Company to the Company or to a direct or indirect wholly owned
Restricted Subsidiary of the Company for so long as such Indebtedness is
held by the Company or a direct or indirect wholly owned Restricted
Subsidiary of the
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Company in each case subject to no Lien held by a Person other than the
Company or a direct or indirect wholly owned Restricted Subsidiary of the
Company; provided that if as of any date any Person other than the Company
or a direct or indirect wholly owned Restricted Subsidiary of the Company
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the Incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(viii) Indebtedness of the Company to a direct or indirect wholly
owned Restricted Subsidiary of the Company for so long as such Indebtedness
is held by a direct or indirect wholly owned Restricted Subsidiary of the
Company in each case subject to no Lien; provided that (a) any Indebtedness
of the Company to any direct or indirect Restricted Subsidiary of the
Company is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under this Indenture and the Notes, and (b) if as
of any date any Person other than a direct or indirect wholly owned
Restricted Subsidiary of the Company owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the Incurrence of Indebtedness not constituting Permitted
Indebtedness under this clause (viii) by the issuer of such Indebtedness;
(ix) guarantees by Restricted Subsidiaries of the Company of
Indebtedness of the Company (other than Permitted Indebtedness) Incurred on
or after the Issue Date; provided that such Indebtedness was Incurred in
compliance with this Section 4.12; and
(x) Refinancing Indebtedness.
SECTION 4.13 Limitation on Dividend and
Other Payment Restrictions
Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
its Capital Stock; (b) make loans or advances or pay any Indebtedness or other
obligation owed to the Company or to any Restricted Subsidiary of the Company;
or (c) transfer any of its property or assets to the Company or to any
Restricted Subsidiary of the Company (each such encumbrance or restriction in
clause (a),
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(b), or (c) a "Payment Restriction"), except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) this
Indenture; (3) customary non-assignment provisions of any lease governing a
leasehold interest of any Restricted Subsidiary of the Company; (4) any
instrument governing Acquired Indebtedness Incurred in accordance with paragraph
(b) of Section 4.12; provided that such encumbrance or restriction is not, and
will not be, applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or asset of the Person, becoming
a Restricted Subsidiary of the Company; (5) agreements existing on the Issue
Date to the extent and in the manner such agreements are in effect on the Issue
Date; (6) restrictions imposed by Liens granted pursuant to clauses (v) and
(vii)-(ix) of the definition of Permitted Liens solely to the extent such Liens
encumber the transfer or other disposition of the assets subject to such Liens;
(7) any restriction or encumbrance contained in contracts for the sale of assets
to be consummated in accordance with this Indenture solely in respect of the
assets to be sold pursuant to such contract; or (8) any encumbrance or
restriction contained in Refinancing Indebtedness Incurred to Refinance the
Indebtedness issued, assumed or Incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above; provided that the provisions relating to such
encumbrance or restriction contained in any such Refinancing Indebtedness are no
less favorable to the Company or to the Holders in any material respect in the
reasonable and good faith judgment of the board of directors of the Company than
the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4) or (5).
SECTION 4.14 Prohibition on Incurrence of
Senior Subordinated Indebtedness.
The Company shall not incur or suffer to exist Indebtedness that is senior
in right of payment to the Notes and subordinate in right of payment to any
other Indebtedness of the Company.
SECTION 4.15 Change of Control.
(a) Upon the occurrence of a Change of Control Triggering Event, the
Company will be required to offer to repurchase (the "Change of Control Offer")
all of the outstanding Notes pursuant to the offer described below, at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase.
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(b) Within 30 days following the date upon which the Change of Control
Triggering Event occurred, the Company must send, by first class mail, a notice
to each Holder, with a copy to the Trustee, which notice shall govern the terms
of the Change of Control Offer. Such notice will state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Notes tendered and not withdrawn will be accepted
for payment;
(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed, other than as may be required by
law) (the "Change of Control Payment Date"); provided that the Change of
Control Payment Date for the Notes shall be a date subsequent to any
payment dates for the purchase or other repayment of Senior Indebtedness
having similar provisions;
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Note accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Notes the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(7) that Holders whose Notes are purchased only in part will be issued
new Notes in a principal amount equal to the unpurchased portion of the
Notes surrendered; provided that each Note purchased and each new Note
issued shall be in an
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original principal amount of $1,000 or integral multiples thereof; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Notes or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender in
immediately available funds sufficient to pay the purchase price plus accrued
interest, if any, of all Notes so tendered and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price plus accrued interest, if any, and the Trustee shall promptly
authenticate and mail to such Holders new Notes equal in principal amount to any
unpurchased portion of the Notes surrendered. Any Notes not so accepted shall
be promptly mailed by the Company to the Holder thereof. For purposes of this
Section 4.15, the Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Notes pursuant to a Change of
Control Offer shall be returned by the Trustee to the Company.
The Change of Control Offer is required to remain open for at least 20
Business Days and until the close of business on the Change of Control Payment
Date.
(c) A Change of Control Triggering Event requires both the occurrence of a
Change of Control and a Rating Event. A Rating Event will occur if the rating
on the Notes is downgraded by one or more Gradations at any time within a
specified 90-day period (subject to extension under certain circumstances). See
"Change of Control," "Change of Control Triggering Event" and "Rating Event" of
Section 1.01.
(d) If an offer is made to repurchase the Notes pursuant to a Change of
Control Offer, the Company will comply with all tender offer rules under state
and Federal Securities laws, including, but not limited to, Section 14(e) under
the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such
offer.
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SECTION 4.16 Limitation on Sale of Assets.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate any Asset Sale unless (i) such Asset Sale is for at
least fair market value, (ii) at least 85% of the consideration therefrom
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents, and (iii) the Company or such Subsidiary shall apply the Net
Cash Proceeds of such Asset Sale within 180 days of receipt thereof as follows:
(a) to repay any Indebtedness secured by the assets involved in such
Asset Sale together with a concomitant permanent reduction in the amount of
such Indebtedness (including a permanent reduction in committed amounts
therefor in the case of any revolving credit facility so repaid); and
(b) with respect to any Net Cash Proceeds remaining after application
pursuant to the preceding paragraph (a) (the "Available Proceeds Amount"),
the Company shall make an offer to purchase (the "Asset Sale Offer") from
all Holders up to a maximum principal amount (expressed as an integral
multiple of $1,000) of Notes equal to the Available Proceeds Amount at a
purchase price equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon, if any, to the date of purchase; provided,
that the Company will not be required to apply pursuant to this paragraph
(b) Net Cash Proceeds received from any Asset Sale if, and only to the
extent that, such Net Cash Proceeds are (i) applied to or invested in
Mining Related Assets, within 180 days of such Asset Sale or (ii) applied
on or prior to the date of such Asset Sale, to the purchase, redemption,
payment or other permanent reduction of then outstanding Senior
Indebtedness. If at any time any non-cash consideration received by the
Company or any Restricted Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash, then such conversion or disposition shall be deemed
to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this Section 4.16. The Company may
defer the Asset Sale Offer until there is an aggregate unutilized Available
Proceeds Amount equal to or in excess of $10 million resulting from one or
more Asset Sales (at which time, the entire unutilized Available Proceeds
Amount, and not just the amount in excess of $10 million, shall be applied
as required pursuant to this paragraph).
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In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 4.16, and shall comply with the provisions of this Section 4.16
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.16.
Notwithstanding the foregoing, the Company shall not be obligated to
purchase Notes pursuant to an Asset Sale Offer on or prior to the fifth
anniversary of the Issue Date to the extent that such purchase would result in
the aggregate of the principal amount of Notes purchased pursuant thereto or
prior thereto being in excess of 25% of the principal amount of Notes originally
issued; provided, however, that to the extent that the Available Proceeds Amount
is not required to be applied to purchase Notes pursuant to an Asset Sale Offer,
the Company shall apply such proceeds to make an Asset Sale Offer immediately
after the fifth anniversary of the Issue Date.
Notice of an Asset Sale Offer will be mailed to the Holders as shown on the
register of Holders not less than 30 days nor more than 60 days before the
payment date for the Asset Sale Offer, with a copy to the Trustee. The notice
shall contain all instructions and materials necessary to enable such Holders
to tender Notes pursuant to the Asset Sale Offer and shall state the following
terms:
(1) that the Asset Sale Offer is being made pursuant to this Section
4.16, that all Notes tendered will be accepted for payment and that Holders
may elect to tender their Notes in whole or in part in integral multiples
of $1,000 principal amount at maturity in exchange for cash; provided,
however, that if the aggregate principal amount of Notes properly tendered
in an Asset Sale Offer plus accrued interest at the expiration of such
offer exceeds the Available Proceeds Amount, the Company shall select the
Notes to be purchased on a pro rata basis (based on amounts tendered);
(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be 20 Business Days from the date of
mailing of notice of such Asset Sale Offer, or such longer period as
required by law) (the
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"Proceeds Purchase Date"); provided that the Proceeds Purchase Date for the
Notes shall be a date subsequent to any payment dates for the purchase or
other repayment of Senior Indebtedness having similar provisions;
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the third Business Day prior to the Proceeds
Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the
Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Notes the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased; and
(7) that Holders whose Notes are purchased only in part will be issued
new Notes in a principal amount equal to the unpurchased portion of the
Notes surrendered; provided that each Note purchased and each new Note
issued shall be in an original principal amount of $1,000 or integral
multiples thereof;
On or before the Proceeds Purchase Date, the Company shall (i) accept for
payment Notes or portions thereof tendered pursuant to the Asset Sale Offer
which are to be purchased in accordance with item (b) above, (ii) deposit with
the Paying Agent U.S. Legal Tender in immediately available funds sufficient to
pay the purchase price plus accrued interest, if any, of all Notes to be
purchased and (iii) deliver to the Trustee Notes so accepted together with an
Officers' Certificate stating the Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the purchase price plus accrued interest,
if
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any. For purposes of this Section 4.16, the Trustee shall act as the Paying
Agent.
Any amounts remaining after the purchase of Notes pursuant to an Asset Sale
Offer shall be returned by the Trustee to the Company.
If an Offer is made to repurchase the Notes pursuant to an Asset Sale
Offer, the Company will and will cause its Subsidiaries to comply with all
tender offer rules under state and Federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
SECTION 4.17 Limitation on Preferred Stock
of Restricted Subsidiaries.
The Company shall not cause or permit any of its Restricted Subsidiaries to
issue any Preferred Stock (other than to the Company or to a wholly owned
Restricted Subsidiary of the Company) or permit any Person (other than the
Company or a wholly owned Restricted Subsidiary of the Company) to own or hold
any Preferred Stock of any Restricted Subsidiary of the Company or any Lien or
security interest therein.
SECTION 4.18 Limitation on Liens.
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist or remain in effect any Liens (other than Permitted Liens) upon
any properties or assets of the Company or of any of its Restricted Subsidiaries
whether owned on the Issue Date or acquired after the Issue Date, or on any
income or profits therefrom, or assign or otherwise convey any right to receive
income or profits thereon; provided that in addition to creating Permitted Liens
on its properties or assets, (i) the Company may create any Lien upon any of its
properties or assets (including, but not limited to, any Capital Stock of its
Subsidiaries) if the Notes are equally and ratably secured thereby, and (ii) a
Subsidiary Guarantor may create any Lien upon any of its properties or assets
(including, but not limited to, any Capital Stock of its Subsidiaries) if its
Subsidiary Guarantee is equally and ratably secured thereby; and provided,
further, that if (a) the Company creates any Lien on its assets to secure any
Indebtedness of the Company subordinated to the Notes, the Lien securing such
Indebtedness shall be subordinated and junior to the Lien securing the Notes
with the same or lesser priorities as the subordinated Indebtedness shall have
with respect to the Notes, and (b) a
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Guarantor creates any Lien on its assets to secure any Indebtedness of such
Guarantor subordinated to the Notes, the Lien securing such subordinated
Indebtedness shall be subordinated and junior to the Lien securing the Guarantee
of such Guarantor with the same or lesser priorities as the subordinated
Indebtedness shall have with respect to the Guarantee.
SECTION 4.19 Conduct of Business.
The Company and its Restricted Subsidiaries shall not engage in the conduct
of any business other than the Mining Business on a basis congruent with the
conduct of such business as it is conducted on the Issue Date.
SECTION 4.20 Additional Subsidiary Guarantees.
In the event that any Subsidiary, directly or indirectly, guarantees any
Indebtedness of the Company other than the Notes (the "Other Indebtedness"), the
Company shall cause such Subsidiary (an "Additional Guarantor") to concurrently
guarantee (an "Additional Guarantee") the Company's Obligations under this
Indenture and the Notes to the same extent that such Subsidiary guaranteed the
Company's Obligations under the Other Indebtedness (including waiver of
subrogation, if any); provided that if such Other Indebtedness is (i) Senior
Indebtedness, the Additional Guarantee shall be subordinated in right of payment
to the guarantee of such Other Indebtedness on the same basis that the Notes are
subordinated to such Other Indebtedness, (ii) pari passu Indebtedness, the
Additional Guarantee shall be pari passu in right of payment to the guarantee of
such Other Indebtedness, or (iii) subordinated Indebtedness, the Additional
Guarantee shall be senior in right of payment with respect to the guarantee of
the Other Indebtedness; provided, however, that each Additional Guarantor will
be automatically and unconditionally released and discharged from its
obligations under such Additional Guarantee upon the release or discharge of the
guarantee of the Other Indebtedness that resulted in the creation of such
Additional Guarantee, except (i) a discharge or release by, or as a result of,
any payment under the guarantee of such Other Indebtedness by such Additional
Guarantor or (ii) a discharge or release of an initial Guarantee.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01 Mergers, Consolidation
and Sale of Assets.
The Company shall not, in a single transaction or a series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless; (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia or Canada or any province
thereof and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on all of the Notes and the performance of every covenant of the Notes,
this Indenture and the Registration Rights Agreement on the part of the Company
to be performed or observed; (ii) immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness Incurred or
anticipated to be Incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) shall be
able to Incur at least $1.00 of additional Indebtedness pursuant to Section
4.12(b); provided that in determining the Consolidated Fixed Charge Coverage
Ratio of the resulting, transferee or surviving Person, such ratio shall be
calculated as if the transaction (including the Incurrence of Any Indebtedness
or Acquired Indebtedness) took place on the first day of the Four Quarter
Period; (iii) immediately before and immediately after giving effect to such
transaction and the
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assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness Incurred
or anticipated to be Incurred and any Lien granted in connection with or in
respect of the transaction), no Default and no Event of Default shall have
occurred or be continuing; and (iv) the Company or the Surviving Entity shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of this Indenture and that all
conditions precedent in this Indenture relating to such transaction have been
satisfied, which Opinion of Counsel may rely, as to factual matters, upon an
Officers' Certificate.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, lease or
transfer is made will succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor had been named as the Company therein, and thereafter (except in
the case of a sale, assignment, transfer, lease, conveyance or other
disposition) the predecessor corporation will be relieved of all further
obligations and covenants under this Indenture and the Notes.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and this Indenture in connection
with any transaction complying with the provisions of Section 4.16) will not,
and the Company will not cause or permit any Guarantor to, consolidate with or
merge with or into any Person other than the Company or any other Guarantors
unless: (i) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor), or to which sale, lease, conveyance or other
disposition shall have been made, is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia,
or
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under the laws of Canada or any provinces thereof; (ii) such entity assumes
by supplemental indenture all of the obligations of the Guarantor on the
Guarantee; (iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a pro forma basis, the Company could satisfy the provisions of
clause (ii) of the first paragraph of this covenant. Any merger or
consolidation of a Guarantor with and into the Company (with the Company being
the surviving entity) or another Guarantor that is a wholly owned Restricted
Subsidiary of the Company need only comply with clause (iv) of the first
paragraph of this covenant.
SECTION 5.02 Successor Corporation Substituted.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
the surviving entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture and the Notes with
the same effect as if such surviving entity had been named as such; provided
that solely for purposes of computing amounts described in clause (iii) of the
first paragraph of Section 4.10, any such surviving entity to the Company shall
only be deemed to have succeeded to and be substituted for the Company with
respect to periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01 Events of Default.
An "Event of Default" occurs if:
(1) the Company fails to pay interest on any Note for a period of 30
days or more after such interest becomes due and payable; or
(2) the Company fails to pay the principal on any Note, when such
principal becomes due and payable, at maturity, upon redemption, pursuant
to an Asset Sale Offer or a Change of Control Offer or otherwise; or
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(3) (x) the failure of the Company or any Guarantor to comply with any
of the terms or provisions of Section 5.01 or (y) a default in the
observance or performance of any other covenant or agreement contained in
this Indenture which default continues for a period of 30 days after the
Company receives written notice specifying the default from the Trustee or
from Holders of at least 25% in principal amount of outstanding Notes; or
(4) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary of the Company
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary of the Company) which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness after any
applicable grace period provided in such Indebtedness on the date of such
default (a "payment default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates $10 million; or
(5) one or more judgments in an aggregate amount in excess of $10
million (which are not covered by third-party insurance as to which a
financially sound insurer has not disclaimed coverage) being rendered
against the Company or any of its Subsidiaries and such judgments remain
undischarged, or unstayed or unsatisfied for a period of 60 days after such
judgment or judgments become final and non-appealable; or
(6) the Company or any of its Restricted Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law: (a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case, (c) consents to the appointment of a Custodian of it or
for all or substantially all of its property, (d) makes a general
assignment for the benefit of its creditors, or (e) admits in writing its
inability to pay its debts as they become due;
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any Restricted
Subsidiary in an involuntary case,
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(b) appoints a Custodian of the Company or any Restricted
Subsidiary or for all or substantially all of the property of the
Company or any Restricted Subsidiary, or
(c) orders the liquidation of the Company or any Restricted
Subsidiary.
and the order or decree remains unstayed and in effect for 60
consecutive days;
(8) any of the Guarantees cease to be in full force and effect or any
of the Guarantees are declared to be null and void and unenforceable or any
of the Guarantees are found to be invalid or any of the Guarantors denies
its liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of this Indenture).
Any Event of Default shall not be deemed to have occurred under clause (4) or
(5) until the Trustee shall have received written notice from the Company or any
of the Holders or unless a Trust Officer shall have actual knowledge of such
Event of Default.
SECTION 6.02 Acceleration.
(a) If an Event of Default (other than an Event of Default specified in
Sections 6.01(6) or 6.01(7) above with respect to the Company) occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in aggregate principal amount of the then outstanding Notes may declare
the unpaid principal of, premium, if any, and accrued and unpaid interest on,
all the Notes then outstanding to be due and payable, by a notice in writing to
the Company (and to the Trustee, if given by Holders) and upon such declaration
such principal amount, premium, if any, and accrued and unpaid interest will
become immediately due and payable.
(b) If an Event of Default with respect to the Company specified in
Sections 6.01(6) or 6.01(7) above occurs, all unpaid principal of, and premium,
if any, and accrued and unpaid interest on, the Notes then outstanding will ipso
facto become due and payable without any declaration or other act on the part of
the Trustee or any Holder.
(c) The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and premium,
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if any, and interest on the Notes which has become due solely by virtue of such
acceleration) have been cured or waived and if the rescission would not conflict
with any judgment or decree. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under this Indenture, and its consequences,
except a Default in the payment of the principal of or interest on any Notes or
a Default in respect of any term or provision of the Notes or this Indenture
that cannot be modified or amended without the consent of all Holders.
Holders of the Notes may not enforce this Indenture or the Notes except as
provided in this Indenture and under the TIA. Subject to the provisions of this
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under this Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity against any and all expense and
liability to which the Trustee, in its discretion, may be exposed. Subject to
all provisions of this Indenture and applicable law, the Holders of a majority
in aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
SECTION 6.03 Other Remedies.
If an Event of Default occurs and is continuing, and subject to the
Trustee's right to indemnification, the Trustee may pursue any available remedy
by proceeding at law or in equity to collect the payment of principal of or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
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SECTION 6.04 Waiver of Past Defaults.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of a majority in
principal amount of the outstanding Notes by written notice to the Trustee may
on behalf of all Holders waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or interest on any
Note as specified in clauses (1) and (2) of Section 6.01. When a Default or
Event of Default is waived, it is cured and ceases to exist.
SECTION 6.05 Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it, including, without limitation, any remedies provided for
in Section 6.03. Subject to Section 7.01, however, the Trustee may refuse to
follow any direction that the Trustee reasonably believes conflicts with any law
or this Indenture, that the Trustee determines may be unduly prejudicial to the
rights of another Noteholder, or that may involve the Trustee in personal
liability; provided that the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 6.06 Limitation on Suits.
A Noteholder may not pursue any remedy with respect to this Indenture or
the Notes unless:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) Holders of at least 25% in principal amount of the outstanding
Notes make a written request to the Trustee to pursue the remedy;
(3) such Holders offer to the Trustee indemnity reasonably
satisfactory to the Trustee against any loss, liability or expense to be
incurred in compliance with such request;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of satisfactory indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the outstanding Notes do not give the
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Trustee a direction which, in the opinion of the Trustee, is inconsistent
with the request.
A Noteholder may not use this Indenture to prejudice the rights of another
Noteholder or to obtain a preference or priority over such other Noteholder.
SECTION 6.07 Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on a Note, on or after
the respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.08 Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified in
clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Notes for the whole amount of principal and
accrued interest remaining unpaid, together with interest on overdue principal
and, to the extent that payment of such interest is lawful, interest on overdue
installments of interest at the rate set forth in Section 4.01 and such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
SECTION 6.09 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Noteholders allowed in any judicial proceedings relating to the Company or any
other obligor upon the Notes, any of their respective creditors or any of their
respective property and shall be entitled and empowered to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Noteholder to make such payments to the Trustee and,
in the event that the Trustee shall consent to the making of such payments
directly to the Noteholders, to pay to the Trustee any amount due to it for the
reasonable
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compensation, expenses, taxes, disbursements and advances of the Trustee, its
agent and counsel, and any other amounts due the Trustee under Section 7.07. The
Company's payment obligations under this Section 6.09 shall be secured in
accordance with the provisions of Section 7.07 hereunder. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Noteholder any plan of reorganization,
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect of the claim of
any Noteholder in any such proceeding.
SECTION 6.10 Priorities.
If the Trustee collects any money or property pursuant to this Article Six,
it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs;
Third: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively; and
Fourth: to the Company, the Guarantors or any other obligor on the
Notes, as their interests may appear, or as a court of competent
jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date and
payment date for any payment to Noteholders pursuant to this Section 6.10.
SECTION 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in
its discretion may assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in the suit, having due
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regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by
a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than
10% in principal amount of the outstanding Notes.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01 Duties of Trustee.
(a) If a Default or an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of a Default or an Event of Default:
(1) The Trustee need perform only those duties as are specifically set
forth in this Indenture and no covenants or obligations shall be implied in
this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the Trustee
may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is
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proved that the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or powers
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 7.02 Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate and/or an Opinion of
Counsel, which shall conform to Sections 13.04 and 13.05. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with
due care.
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(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it reasonably believes to be authorized
or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled, upon reasonable notice to
the Company, to examine the books, records, and premises of the Company,
personally or by agent or attorney and to consult with the officers and
representatives of the Company, including the Company's accountants and
attorneys.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee security
or indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities which may be incurred by it in compliance with
such request, order or direction.
(g) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(h) The Trustee may exercise any powers hereunder and perform any
duties of it through attorneys (which may but shall not be required to be
employees of the Trustee), accountants, receivers, or other agents employed
by the Trustee, and shall be entitled to pay the reasonable compensation
and expenses of such attorneys, accountants, receivers and agents. Before
being required to take any action, the Trustee may require an Opinion of
Counsel reasonably acceptable to it, which Opinion shall be made available
to the other parties hereto upon request, or a verified certificate of any
party hereto, or both, concerning the proposed action. If it does so in
good faith, the Trustee shall be absolutely protected in relying thereon.
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SECTION 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company, any Subsidiary of the
Company, or their respective Affiliates with the same rights it would have if it
were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Notes, and it shall not be accountable for the Company's use of
the proceeds from the Notes, and it shall not be responsible for any statement
of the Company in this Indenture or the Notes other than the Trustee's
certificate of authentication on the Notes.
SECTION 7.05 Notice of Default.
If a Default or an Event of Default occurs and is continuing of which the
Trustee has actual knowledge, the Trustee shall mail to each Noteholder notice
of the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal of, or interest on, any Note, including an accelerated
payment and the failure to make payment on the Change of Control Payment Date
pursuant to a Change of Control Offer or on the Proceeds Purchase Date pursuant
to a Net Proceeds Offer and, except in the case of a failure to comply with
Article V hereof, the Trustee may withhold the notice if and so long as its
Board of Directors, the executive committee of its Board of Directors or a
committee of its directors and/or Trust Officers in good faith determines that
withholding the notice is in the interest of the Noteholders.
SECTION 7.06 Reports by Trustee to Holders.
Within 60 days after each May 15, the Trustee shall, to the extent that any
of the events described in TIA Section 313(a) occurred within the previous
twelve months, but not otherwise, mail to each Noteholder a brief report dated
as of such date that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Section Section 313(b), (c) and (d).
A copy of each report at the time of its mailing to Noteholders shall be
mailed to the Company and filed with the SEC and each stock exchange, if any, on
which the Notes are listed.
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The Company shall promptly notify the Trustee if the Notes become listed on
any stock exchange and the Trustee shall comply with TIA Section 313(d).
SECTION 7.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all advances and reasonable
out-of-pocket expenses incurred or made by it in connection with the performance
of its duties under this Indenture. Such expenses shall include but not be
limited to the reasonable fees and expenses of the Trustee's agents and counsel
(including either in-house counsel or outside counsel).
The Company shall indemnify the Trustee and its agents and employees,
stockholders, directors and officers for, and hold them harmless against, any
loss, liability or expense incurred by them except for such actions to the
extent caused by any negligence, bad faith or willful misconduct on their part,
arising out of or in connection with the administration of the Trustee's duties
under this Indenture including but not limited to the reasonable costs and
expenses (including without limitation reasonable attorneys' fees and expenses)
of defending themselves against any claim or liability in connection with the
exercise or performance of any of their rights, powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. At the Trustee's sole discretion, the
Company shall defend the claim and the Trustee shall cooperate and may
participate in the defense; provided that any settlement of a claim shall be
consented to in writing by the Trustee which consent shall not unreasonably be
withheld. Alternatively, the Trustee may at its option have separate counsel of
its own choosing and the Company shall pay the reasonable fees and expenses of
such counsel; provided that the Company will not be required to pay such fees
and expenses if it assumes the Trustee's defense and there is no conflict of
interest between the Company and the Trustee in connection with such defense as
reasonably determined by the Trustee. The Company need not pay for any
settlement made without its written consent, which consent shall not
unreasonably be withheld. The Company need not reimburse any expense or
indemnify against any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
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To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all assets or money held or
collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or interest on particular Notes. The
Trustee's right to receive payment of any amounts due under this Section 7.07
shall not be subordinate to any other liability or indebtedness of the Company
(even though the Notes may be subordinate to such other liability or
indebtedness).
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08 Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee by
so notifying the Company and the Trustee and may appoint a successor Trustee.
The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall notify each Holder of such event
and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after that, the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee
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under this Indenture. A successor Trustee shall mail notice of its succession
to each Noteholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Company's obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
SECTION 7.09 Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the resulting, surviving or transferee corporation without any further act
shall, if such resulting, surviving or transferee corporation is otherwise
eligible hereunder, be the successor Trustee; provided that such corporation
shall be otherwise qualified and eligible under this Article Seven.
SECTION 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirement of
TIA Section Section 310(a)(1), (2) and (5). The Trustee (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company) shall have a combined capital and surplus of at least $50 million as
set forth in its most recent published annual report of condition. In addition,
if the Trustee is a corporation included in a bank holding company system, the
Trustee, independently of such bank holding company, shall meet the capital
requirements of TIA Section 310(a)(2). The Trustee shall comply with TIA
Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Company are outstanding, if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to
the Company, as obligor of the Notes.
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SECTION 7.11 Preferential Collection of
Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
The provisions of TIA Section 311 shall apply to the Company, as obligor on the
Notes.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01 Termination of the
Company's Obligations.
The Company may terminate the Guarantors' and its obligations under the
Notes and this Indenture, except those obligations referred to in the
penultimate paragraph of this Section 8.01, if all Notes previously
authenticated and delivered (other than destroyed, lost or stolen Notes which
have been replaced or paid or Notes for whose payment U.S. Legal Tender has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or if:
(a) either (i) pursuant to Article Three, the Company shall have given
notice to the Trustee and mailed a notice of redemption to each Holder of
the redemption of all of the Notes under arrangements satisfactory to the
Trustee for the giving of such notice or (ii) all Notes have otherwise
become due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the benefit
of the Holders for that purpose, U.S. Legal Tender in such amount as is
sufficient without consideration of reinvestment of such interest, to pay
principal of, premium, if any, and interest on the outstanding Notes to
maturity or redemption; provided that the Trustee shall have been
irrevocably instructed to apply such U.S. Legal Tender to the payment of
said principal,
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premium, if any, and interest with respect to the Notes and, provided,
further, that from and after the time of deposit, the money deposited shall
not be subject to the rights of holders of Senior Indebtedness pursuant to
the provisions of Article Ten;
(c) no Default or Event of Default with respect to this Indenture or
the Notes shall have occurred and be continuing on the date of such deposit
or shall occur as a result of such deposit and such deposit will not result
in a breach or violation of, or constitute a default under, any other
instrument to which the Company is a party or by which it is bound;
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's obligations under
the Notes and this Indenture have been complied with. Such Opinion of
Counsel shall also state that such satisfaction and discharge does not
result in a default under the Working Capital Facility (if then in effect)
or any other agreement or instrument then known to such counsel that binds
or affects the Company.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 8.05 and 8.06 shall survive
until the Notes are no longer outstanding pursuant to the last paragraph of
Section 2.08. After the Notes are no longer outstanding, the Company's
obligations in Sections 7.07, 8.05 and 8.06 shall survive.
After such delivery or irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's and the Guarantors'
obligations under the Notes, the Guarantees and this Indenture except for those
surviving obligations specified above.
SECTION 8.02 Legal Defeasance and
Covenant Defeasance.
(a) The Company may, at its option by Board Resolution of the Board of
Directors of the Company, at any time, elect to have either paragraph (b) or (c)
below be applied to all outstanding Notes (determined in accordance with Section
2.08) upon compliance with the conditions set forth in Section 8.03.
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(b) Upon the Company's exercise under paragraph (a) hereof of the option
applicable to this paragraph (b), the Company and the Guarantors shall, subject
to the satisfaction of the conditions set forth in Section 8.03, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.04 hereof and the other Sections of this Indenture
referred to in (i) and (ii) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), and Holders of the Notes and any amounts deposited
under Section 8.03 hereof shall cease to be subject to any obligations to, or
the rights of, any holder of Senior Indebtedness under Article Ten or otherwise,
except for the following provisions, which shall survive until otherwise
terminated or discharged hereunder: (i) the rights of Holders of outstanding
Notes to receive solely from the trust fund described in Section 8.04 hereof,
and as more fully set forth in such Section, payments in respect of the
principal of and interest on such Notes when such payments are due, (ii) the
Company's obligations with respect to such Notes under Article Two and Section
4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's obligations in connection therewith and (iv)
this Article Eight. Subject to compliance with this Article Eight, the Company
may exercise its option under this paragraph (b) notwithstanding the prior
exercise of its option under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the option
applicable to this paragraph (c), the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.03 hereof, be released from its
obligations under the covenants contained in Sections 4.10 through 4.20 and
Article Five hereof with respect to the outstanding Notes on and after the date
the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes) and Holders of the Notes and any amounts deposited under Section 8.03
hereof shall cease to be subject to
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any obligations to, or the rights of, any holder of Senior Indebtedness or
Guarantor Senior Indebtedness under Article Ten or Article Twelve or otherwise.
For this purpose, such Covenant Defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event or Default under Section
6.01(3) hereof, but, except as specified above, the remainder of this Indenture
and such Notes shall be unaffected thereby. In addition, upon the Company's
exercise under paragraph (a) hereof of the option applicable to this paragraph
(c), subject to the satisfaction of the conditions set forth in Section 8.03
hereof, Sections 6.01(3), 6.01(4) and 6.01(5) shall not constitute Events of
Default.
SECTION 8.03 Conditions to Legal Defeasance
or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02(b) or 8.02(c) hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, U.S. Legal Tender or U.S. Government
Obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of and interest on the Notes on
the stated date for payment thereof or on the applicable redemption date,
as the case may be, of such principal or installment of principal of or
interest on the Notes; provided that the Trustee shall have received an
irrevocable written order from the Company instructing the Trustee to apply
such U.S. Legal Tender or the proceeds of such U.S. Government Obligations
to said payments with respect to the Notes;
(b) in the case of an election under Section 8.02(b) hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture,
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there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.02(c) hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(d) no Default or Event of Default or event which with notice or lapse
of time or both would become a Default or an Event of Default with respect
to the Notes shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the
incurrence of Indebtedness all or a portion of the proceeds of which will
be used to defease the Notes pursuant to this Article Eight concurrently
with such incurrence) or insofar as Sections 6.01(6) and 6.01(7) hereof are
concerned, at any time in the period ending on the 91st day after the date
of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of or constitute a default under this Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the
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Legal Defeasance or the Covenant Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (i) the trust funds will not be subject to any
rights of any holders of Indebtedness of the Company other than the Notes,
and (ii) assuming no intervening bankruptcy or insolvency of the Company
between the date of deposit and the 91st day following the deposit and that
no Holder is an insider of the Company, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable Bankruptcy Law.
SECTION 8.04 Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S.
Government Obligations deposited with it pursuant to Article Eight, and shall
apply the deposited U.S. Legal Tender and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of principal of and
interest on the Notes. The Trustee shall be under no obligation to invest said
U.S. Legal Tender or U.S. Government Obligations except as it may agree with the
Company.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.03 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the Company's request
any U.S. Legal Tender or U. S. Government Obligations held by it as provided in
Section 8.03 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.05 Repayment to the Company or the
Guarantors.
Subject to Article Eight, the Trustee and the Paying Agent shall promptly
pay to the Company, or if deposited with the Trustee by any Guarantor, to such
Guarantor, upon request any
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excess U.S. Legal Tender or U.S. Government Obligations held by them at any time
and thereupon shall be relieved from all liability with respect to such money.
The Trustee and the Paying Agent shall pay to the Company, or if deposited with
the Trustee by any Guarantor, to such Guarantor, upon request any money held by
them for the payment of principal or interest that remains unclaimed for two
years; provided that the Trustee or such Paying Agent, before being required to
make any payment, may at the expense of the Company cause to be published once
in a newspaper of general circulation in the City of New York notice that such
money remains unclaimed and that after a date specified therein which shall be
at least 30 days from the date of such publication or mailing any unclaimed
balance of such money then remaining will be repaid to the Company or a
Guarantor. After payment to the Company or a Guarantor, as the case may be,
Noteholders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person.
SECTION 8.06 Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or
U.S. Government Obligations in accordance with Article Eight by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and each Guarantor's obligations under this Indenture
and the Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Article Eight until such time as the Trustee or Paying Agent is
permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in
accordance with Article Eight; provided that if the Company or any Guarantor, as
the case may be, has made any payment of interest on or principal of any Notes
because of the reinstatement of its obligations, the Company or any Guarantor,
as the case may be, shall be subrogated to the rights of the Holders of such
Notes to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or Paying Agent.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01 Without Consent of Holders.
The Company and the Guarantors, when authorized by a Board Resolution, and
the Trustee, together, may amend or supplement this Indenture or the Notes or
Guarantees without notice to or consent of any Noteholder:
(1) to cure any ambiguity, defect or inconsistency; provided that such
amendment or supplement does not, in the opinion of the Trustee, adversely
affect the rights of any Holder in any material respect;
(2) to comply with Article Five;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(4) to comply with any requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(5) to make any change that would provide any additional benefit or
rights to the Noteholders or that does not adversely affect the rights of
any Noteholder;
(6) to provide for issuance of the Exchange Notes, which will have
terms substantially identical in all material respects to the Initial Notes
(except that the transfer restrictions contained in the Initial Notes will
be modified or eliminated, as appropriate), and which will be treated
together with any outstanding Initial Notes, as a single issue of
securities; or
(7) to make any other change that does not, in the opinion of the
Trustee, adversely affect in any material respect the rights of any
Noteholders hereunder;
provided that the Company has delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 9.01.
Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company and each of the
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Guarantors, as the case may be, authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.02 With Consent of Holders.
Subject to Section 6.07 and Section 9.07, the Company and the Guarantors,
when authorized by a Board Resolution, and the Trustee, together, with the
written consent of the Holder or Holders of at least a majority in aggregate
principal amount of the outstanding Notes, may amend or supplement this
Indenture, the Notes or the Guarantees, without notice to any other Noteholders.
Subject to Section 6.07, the Holder or Holders of a majority in aggregate
principal amount of the outstanding Notes may waive compliance by the Company
with any provision of this Indenture or the Notes without notice to any other
Noteholder. No amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, shall, without the consent of each Holder of each Note affected
thereby:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing
the fixed maturity of any Notes, or change the date on which any Notes may
be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor;
(4) make any Notes payable in money other than that stated in the
Notes;
(5) make any change in provisions of this Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, permitting holders of a majority in principal amount of Notes
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to waive Defaults or Events of Default, other than ones with respect to the
payment of principal of or interest on the Notes, or relating to certain
amendments of this Indenture;
(6) amend, modify or change in any material respect the obligation of
the Company to make or consummate a Change of Control Offer in the event of
a Change of Control or make and consummate a Net Proceeds Offer in respect
of any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto;
(7) modify Article Ten or Article Twelve or the definitions used in
Article Ten or Article Twelve to adversely affect the Holders of the Notes
in any material respect; or
(8) release any Guarantor that is a Significant Subsidiary of the
Company from any of its obligations under its Guarantee or this Indenture
otherwise than in accordance with the terms of this Indenture.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, supplement or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company and each of the Guarantors, as the case may be,
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.02 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of such amended or supplemental
Indenture unless such amended or supplemental Indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such amended or supplemental Indenture.
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SECTION 9.03 Effect on Senior Indebtedness and
Guarantor Senior Indebtedness.
No amendment of this Indenture shall adversely affect the rights of any
holder of Senior Indebtedness or Guarantor Senior Indebtedness under Article
Ten or Article Twelve of this Indenture, without the consent of such holder.
SECTION 9.04 Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
SECTION 9.05 Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent to it
by a Holder is a continuing consent by the Holder and every subsequent Holder of
a Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. Subject
to the following paragraph, any such Holder or subsequent Holder may revoke the
consent as to such Holder's Note or portion of such Note by notice to the
Trustee or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Notes have consented (and not theretofore revoked such consent) to the
amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Noteholder, unless it makes a change described in any of clauses (1)
through (7) of Section 9.02, in which case, the amendment, supplement or waiver
shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; provided that any such waiver shall not impair or
affect the right of any Holder to receive
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payment of principal of and interest on a Note, on or after the respective due
dates expressed in such Note, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
SECTION 9.06 Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of the Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Any such
notation or exchange shall be made at the sole cost and expense of the Company.
Failure to make the appropriate notation or issue a new Note shall not affect
the validity and effect of such amendment, supplement or waiver.
SECTION 9.07 Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver authorized
pursuant to this Article Nine; provided that the Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver which affects the
Trustee's own rights, duties or immunities under this Indenture. The Trustee
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel and an Officers' Certificate each stating that the execution
of any amendment, supplement or waiver authorized pursuant to this Article Nine
is authorized or permitted by this Indenture. Such Opinion of Counsel shall not
be an expense of the Trustee.
ARTICLE TEN
SUBORDINATION
SECTION 10.01 Notes Subordinated to
Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder of the
Notes, by its acceptance thereof, likewise covenants and agrees, that all Notes
shall be issued subject to the provisions of this Article Ten; and the Trustee
and each Person holding any Note, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that the payment
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of all Obligations on the Notes by the Company shall, to the extent and in the
manner herein set forth, be subordinated and junior in right of payment to the
prior payment in full in cash or Cash Equivalents of all Obligations on the
Senior Indebtedness, and that the subordination is for the benefit of, and shall
be enforceable directly by, the holders of Senior Indebtedness, and that each
holder of Senior Indebtedness whether now outstanding or hereafter created,
incurred, assumed or guaranteed shall be deemed to have acquired Senior
Indebtedness in reliance upon the covenants and provisions contained in this
Indenture and the Notes.
SECTION 10.02 No Payment on Notes in
Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the Company of
principal of, premium, if any, or interest on, the Notes whether pursuant to the
terms of the Notes or upon acceleration or otherwise shall be made if, at the
time of such payment, there exists a default in the payment of all or any
portion of principal of, premium, if any, or interest on, any Senior
Indebtedness with a principal amount in excess of $5.0 million (and the Trustee
has received written notice thereof), and such default shall not have been cured
or waived or the benefits of this sentence waived by or on behalf of the holders
of Senior Indebtedness. In addition, during the continuance of any other event
of default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated, upon the occurrence of (x) receipt by
the Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their Representatives,
or (y) if such event of default results from the acceleration of the Notes, no
such payment may be made by the Company upon or in respect of the Notes for a
period ("Payment Blockage Period") commencing on the earlier of the date of
receipt of such notice or the date of such acceleration and ending 179 days
thereafter (unless such Payment Blockage Period shall be terminated by written
notice to the Trustee from the holders of a majority of the outstanding
principal amount of such Designated Senior Indebtedness or their Representatives
who delivered such notice). Notwithstanding anything herein to the contrary, in
no event will a Payment Blockage Period extend beyond 179 days from the date on
which such Payment Blockage Period was commenced. Not more than one Payment
Blockage Period may be commenced with respect to the Notes during any period of
360 consecutive days. For all purposes of this paragraph, no event of default
which existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis for the
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commencement of a second Payment Blockage Period by the holders of such
Designated Senior Indebtedness or their Representatives whether or not within a
period of 360 consecutive days unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such Payment
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or the
Holders or any Paying Agent (or, if the Company is acting as its own Paying
Agent, money for any such payment or distribution shall be segregated or held in
trust) on account of principal of, premium, if any, or interest on, the Notes
before all Senior Indebtedness is paid in full, such payment or distribution
shall be received and held in trust by the Trustee or such Holder or Paying
Agent for the benefit of the holders of the Senior Indebtedness, or their
respective Representatives, ratably according to the respective amounts of
Senior Indebtedness held or represented by each, and shall be paid over or
delivered to the holders of the Senior Indebtedness remaining unpaid to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid after giving effect to all concurrent payments and distributions to or
for the holders of such Senior Indebtedness. The Trustee shall be entitled to
rely on information regarding amounts then due and owing on the Senior
Indebtedness, if any, received from the holders of Senior Indebtedness (or their
Representatives) or, if such information is not received from such holders or
their Representatives, from the Company and only amounts included in the
information provided to the Trustee shall be paid to the holders of Senior
Indebtedness.
Nothing contained in this Article Ten shall limit the right of the Trustee
or the Holders of Notes to take any action to accelerate the maturity of the
Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder;
provided that all Senior Indebtedness thereafter due or declared to be due shall
first be paid in full in cash or Cash Equivalents before the Holders are
entitled to receive any payment of any kind or character with respect to
Obligations on the Notes.
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SECTION 10.03 Payment Over of Proceeds
upon Dissolution, Etc.
(a) Upon any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to creditors upon any
total or partial liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Indebtedness
shall first be paid in full in cash or Cash Equivalents, or such payment duly
provided for to the satisfaction of the holders of Senior Indebtedness, before
any payment or distribution of any kind or character is made on account of any
Obligations on the Notes, or for the acquisition of any of the Notes for cash or
property or otherwise. Upon any such dissolution, winding-up, liquidation,
reorganization, receivership or similar proceeding, any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders of the Notes or the Trustee under this
Indenture would be entitled, except for the provisions hereof, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, or by the Holders or
by the Trustee under this Indenture if received by them, directly to the holders
of Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of Senior Indebtedness
remaining unpaid until all such Senior Indebtedness has been paid in full in
cash or Cash Equivalents after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of Senior Indebtedness.
(b) To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Indebtedness or part thereof originally
intended to be
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satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by any Holder when such payment or
distribution is prohibited by Section 10.03(a), such payment or distribution
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Senior Indebtedness (pro rata to such holders on the basis of
the respective amount of Senior Indebtedness held by such holders) or their
respective Representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of Senior
Indebtedness remaining unpaid until all such Senior Indebtedness has been paid
in full in cash or Cash Equivalents, after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(d) The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of all or substantially all of its
assets, to another corporation upon the terms and conditions provided in Article
Five hereof and as long as permitted under the terms of the Senior Indebtedness
shall not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, assume the Company's obligations
hereunder in accordance with Article Five hereof.
SECTION 10.04 Payments May Be Paid Prior
to Dissolution.
Nothing contained in this Article Ten or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Sections 10.02
and 10.03, from making payments at any time for the purpose of making payments
of principal of and interest on the Notes, or from depositing with the Trustee
any moneys for such payments, or (ii) in the absence of actual knowledge by the
Trustee that a given payment would be prohibited by Section 10.02 or 10.03, the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of, and interest on, the Notes to the Holders
entitled thereto unless at least two Business Days prior to the date upon which
such payment would otherwise become due and
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payable a Trust Officer shall have actually received the written notice provided
for in the second sentence of Section 10.02(a) or in Section 10.07 (provided
that, notwithstanding the foregoing, such application shall otherwise be subject
to the provisions of the first sentence of Section 10.02(a) and Section 10.03).
The Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.
SECTION 10.05 Subrogation.
Subject to the payment in full in cash or Cash Equivalents of all Senior
Indebtedness, the Holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Indebtedness
until the Notes shall be paid in full; and, for the purposes of such
subrogation, no such payments or distributions to the holders of the Senior
Indebtedness by or on behalf of the Company or by or on behalf of the Holders by
virtue of this Article Ten which otherwise would have been made to the Holders
shall, as between the Company and the Holders of the Notes, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness, it being
understood that the provisions of this Article Ten are and are intended solely
for the purpose of defining the relative rights of the Holders of the Notes, on
the one hand, and the holders of the Senior Indebtedness, on the other hand.
SECTION 10.06 Obligations of the Company
Unconditional.
Nothing contained in this Article Ten or elsewhere in this Indenture or in
the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the Holders, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders the
principal of and any interest on the Notes as and when the same shall become due
and payable in accordance with their terms, or is intended to or shall affect
the relative rights of the Holders and creditors of the Company other than the
holders of the Senior Indebtedness, nor shall anything herein or therein prevent
the Holder of any Note or the Trustee on its behalf from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
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SECTION 10.07 Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Notes pursuant to the provisions of this Article Ten.
Regardless of anything to the contrary contained in this Article Ten or
elsewhere in this Indenture, the Trustee shall not be charged with knowledge of
the existence of any default or event of default with respect to any Senior
Indebtedness or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing from the Company, or from a holder of Senior Indebtedness or a
Representative therefor, and, prior to the receipt of any such written notice,
the Trustee shall be entitled to assume (in the absence of actual knowledge to
the contrary) that no such facts exist.
In the event that the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Ten, and if such evidence is not furnished the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such person to receive such payment.
SECTION 10.08 Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article Ten, the Trustee, subject to the provisions of Article Seven
hereof, and the Holders of the Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, delivered to
the Trustee or the Holders of the Notes, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Ten.
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SECTION 10.09 Trustee's Relation to
Senior Indebtedness.
The Trustee and any agent of the Company or the Trustee shall be entitled
to all the rights set forth in this Article Ten with respect to any Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Indebtedness and
nothing in this Indenture shall deprive the Trustee or any such agent of any of
its rights as such holder.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness.
Whenever a distribution is to be made or a notice given to holders or
owners of Senior Indebtedness, the distribution may be made and the notice may
be given to their Representative, if any.
SECTION 10.10 Subordination Rights Not Impaired
by Acts or Omissions of the Company
or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee, without incurring responsibility to the
Trustee or the Holders of the Notes and without impairing or releasing the
subordination provided in this Article Ten or the obligations hereunder of the
Holders of the Notes to the holders of the Senior Indebtedness, do any one or
more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend or supplement in any manner Senior Indebtedness, or any
instrument
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evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the payment or collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
SECTION 10.11 Noteholders Authorize Trustee To
Effectuate Subordination of Notes.
Each Holder of Notes, by its acceptance of them, authorizes and expressly
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate, as between the holders of Senior Indebtedness and the
Holders of Notes, the subordination provided in this Article Ten, and appoints
the Trustee its attorney-in-fact for such purposes, including, in the event of
any dissolution, winding-up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency, receivership, reorganization or similar
proceedings or upon an assignment for the benefit of creditors or otherwise)
tending towards liquidation of the business and assets of the Company, the
filing of a claim for the unpaid balance of its Notes and accrued interest in
the form required in those proceedings.
If the Trustee does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then the holders of the Senior Indebtedness or
their Representative are or is hereby authorized to have the right to file and
are or is hereby authorized to file an appropriate claim for and on behalf of
the Holders of said Notes. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Indebtedness or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee or the holders of Senior Indebtedness or their Representative to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 10.12 This Article Ten Not To
Prevent Events of Default.
The failure to make a payment on account of principal of or interest on the
Notes by reason of any provision of this Article Ten will not be construed as
preventing the occurrence of an Event of Default.
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SECTION 10.13 Trustee's Compensation
Not Prejudiced.
Nothing in this Article Ten will apply to amounts due to the Trustee
pursuant to other sections in this Indenture.
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01 Unconditional Guarantee.
Each Guarantor hereby unconditionally, jointly and severally, guarantees,
subject to Article Twelve, to each Holder of a Note authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, that: (i) the
principal of and interest on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration or
otherwise and interest on the overdue principal, if any, and interest on any
interest, to the extent lawful, of the Notes and all other obligations of the
Company to the Holders or the Trustee hereunder or thereunder will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof;
and (ii) in case of any extension of time of payment or renewal of any Notes or
of any such other obligations, the same will be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, subject
to any applicable grace period, whether at stated maturity, by acceleration or
otherwise, subject, however, in the case of clauses (i) and (ii) above, to the
limitations set forth in Section 11.05. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that this Guarantee
will not be discharged except by complete performance of the obligations
contained in the Notes, this Indenture and in this Guarantee. If any Holder or
the Trustee is required by any court or otherwise to return to the Company, any
Guarantor, or any
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custodian, trustee, liquidator or other similar official acting in
relation to the Company or any Guarantor, any amount paid by the Company or any
Guarantor to the Trustee or such Holder, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor further agrees that, as between each Guarantor, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six for
the purposes of this Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Six, such obligations (whether or not due and payable)
shall forthwith become due and payable by each Guarantor for the purpose of
this Guarantee.
SECTION 11.02 Subordination of Guarantee.
The obligations of each Guarantor to the Holders of Notes and to the
Trustee pursuant to the Guarantee and this Indenture are expressly subordinate
and subject in right of payment to the prior payment in full of all Guarantor
Senior Indebtedness of such Guarantor, to the extent and in the manner provided
in Article Twelve.
SECTION 11.03 Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.04 Release of a Guarantor.
Upon (i) the release by the lenders under the Working Capital Facility,
related documents and future refinancings thereof of all guarantees of a
Guarantor and all Liens on the property or assets of said Guarantor relating to
such Indebtedness or (ii) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Guarantor (or all or substantially all
its assets) to an entity which is not a Subsidiary of the Company and which sale
or disposition is otherwise in compliance with the terms of this Indenture, such
Guarantor shall be deemed released from all obligations under this Article
Eleven without any further action required on the part of the Trustee or any
Holder; provided, however, that any such termination shall occur only to the
extent that all obligations of such Guarantor under the Working Capital Facility
and all of its guarantees of, and under all of its pledges
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of assets or other security interests which secure, such Indebtedness of the
Company or the Guarantor shall also terminate upon such release, sale or
transfer.
The Trustee shall execute an appropriate instrument delivered by the
Company evidencing such release upon receipt of a request by the Company
accompanied by an Officers' Certificate and Opinion of Counsel certifying as to
the compliance with this Section 11.04. Any Guarantor not so released remains
liable for the full amount of principal of and interest on the Notes as provided
in this Article Eleven.
SECTION 11.05 Limitation of Subsidiary
Guarantor's Liability.
Each Guarantor and, by its acceptance hereof, each Holder hereby confirms
that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law.
To effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor (including, but not limited
to, the Guarantor Senior Indebtedness of such Guarantor) and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 11.07, result in the obligations of such Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 11.06 Guarantors May Consolidate,
Etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the Notes shall
prevent any consolidation or merger of a Guarantor with or into the Company or
another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company or
shall prevent any sale of assets or conveyance of the property of a Guarantor as
an entirety or substantially as an entirety, to the Company or another Guarantor
that is a Wholly Owned Restricted Subsidiary of the Company. Upon any such
consolidation, merger, sale or conveyance, the Guarantee given by such Guarantor
shall no longer have any force or effect.
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(b) Except as set forth in Article Four and Article Five hereof, nothing
contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into a corporation or
corporations other than the Company or another Guarantor (whether or not
affiliated with the Guarantor) or shall prevent any sale of assets or conveyance
of the property of a Guarantor as an entirety or substantially as an entirety,
to a corporation or corporations other than the Company or another Guarantor
(whether or not affiliated with the Guarantor); provided, however, that, subject
to Sections 11.04 and 11.06(a), (i) immediately after such transaction and
giving effect thereto, such transaction does not (a) violate any covenants set
forth herein or (b) result in a Default or Event of Default under this Indenture
that is continuing, (ii) upon any such consolidation, merger, sale or
conveyance, the Guarantee of such Guarantor set forth in this Article Eleven,
and the due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed by such Guarantor, shall be
expressly assumed (in the event that the Guarantor is not the surviving
corporation in the merger), by supplemental indenture satisfactory in form to
the Trustee and in compliance with Section 9.07, executed and delivered to the
Trustee, by the corporation formed by such consolidation, or into which the
Guarantor shall have merged, or by the corporation that shall have acquired such
property, and (iii) in the event that such Guarantor is not the surviving
corporation in the merger, such surviving corporation shall be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia. In the case of any such consolidation, merger,
sale or conveyance and upon the assumption by the successor corporation, by
supplemental indenture executed and delivered to the Trustee and satisfactory in
form to the Trustee of the due and punctual performance of all of the covenants
and conditions of this Indenture to be performed by the Guarantor, such
successor corporation shall succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as a Guarantor.
SECTION 11.07 Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other
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Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" of
such Guarantor at any date shall mean the lesser of the amount by which (x) the
fair value of the property of such Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date), but excluding liabilities under the Guarantee, of such Guarantor at such
date and (y) the present fair saleable value of the assets of such Guarantor at
such date exceeds the amount that will be required to pay the probable liability
of such Guarantor on its debts including, without limitation, Guarantor Senior
Indebtedness (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary of such Guarantor in respect of the obligations of such
Subsidiary under the Guarantee), excluding debt in respect of the Guarantee of
such Guarantor, as they become absolute and matured.
SECTION 11.08 Waiver of Subrogation.
Until all Obligations are paid in full each Guarantor hereby irrevocably
waives any claim or other rights which it may now or hereafter acquire against
the Company that arise from the existence, payment, performance or enforcement
of such Guarantor's obligations under the Guarantees and this Indenture,
including, without limitation, any right of subrogation, reimbursement,
exoneration, indemnification, and any right to participate in any claim or
remedy of any Holder of Notes against the Company, whether or not such claim,
remedy or right arises in equity, or under contract, statute or common law,
including, without limitation, the right to take or receive from the Company,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim or other rights. If any
amount shall be paid to any Guarantor in violation of the preceding sentence and
the Notes shall not have been paid in full, such amount shall have been deemed
to have been paid to such Guarantor for the benefit of, and held in trust for
the benefit of, the Holders of the Notes, and shall, subject to the provisions
of Section 11.02, Article Ten and Article Twelve, forthwith be paid to the
Trustee for the benefit of such Holders to be credited and applied upon the
Notes, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
the waiver set forth in this Section 11.08 is knowingly made in contemplation of
such benefits.
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SECTION 11.09 Execution of Guarantee.
To evidence their guarantee to the Holders set forth in this Article
Eleven, the Guarantors hereby agree to execute the Guarantees in substantially
the form included in Exhibit A and Exhibit B, which shall be endorsed on each
Note ordered to be authenticated and delivered by the Trustee. Each Guarantor
hereby agrees that its Guarantee set forth in this Article Eleven shall remain
in full force and effect notwithstanding any failure to endorse on each Note a
notation of such Guarantee. Each such Guarantee shall be signed on behalf of
each Guarantor by two Officers, or an Officer and an Assistant Secretary or one
Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to such Guarantee prior to the authentication of the Note
on which it is endorsed, and the delivery of such Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
Guarantee on behalf of such Guarantor. Such signatures upon the Guarantees may
be by manual or facsimile signature of such officers and may be imprinted or
otherwise reproduced on the Guarantees, and in case any such officer who shall
have signed the Guarantees shall cease to be such officer before the Note on
which such Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Note nevertheless may be
authenticated and delivered or disposed of as though the person who signed the
Guarantees had not ceased to be such officer of the Guarantor.
SECTION 11.10 Waiver of Stay, Extension
or Usury Laws.
Each Guarantor covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive each such Guarantor from performing its
Guarantee as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) each such Guarantor
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
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ARTICLE TWELVE
SUBORDINATION OF GUARANTEE OBLIGATIONS
SECTION 12.01 Guarantee Obligations Subordinated
to Guarantor Senior Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each Holder of the
Notes, by its acceptance thereof, likewise covenants and agrees, that all
Guarantees shall be issued subject to the provisions of this Article Twelve; and
the Trustee and each Person holding any Note, whether upon original issue or
upon transfer, assignment or exchange thereof, accepts and agrees that the
payment of all Obligations on the Notes pursuant to the Guarantees by any
Guarantor shall, to the extent and in the manner herein set forth, be
subordinated and junior in right of payment to the prior payment in full in cash
or Cash Equivalents of all Obligations on the Guarantor Senior Indebtedness of
such Guarantor; that the subordination is for the benefit of, and shall be
enforceable directly by, the holders of Guarantor Senior Indebtedness, and that
each holder of Guarantor Senior Indebtedness whether now outstanding or
hereafter created, incurred, assumed or guaranteed shall be deemed to have
acquired Guarantor Senior Indebtedness in reliance upon the covenants and
provisions contained in this Indenture, the Notes and the Guarantees.
SECTION 12.02 No Payment on Notes in
Certain Circumstances.
(a) No direct or indirect payment by or on behalf of any Guarantor with
respect to any obligations on the Guarantee whether pursuant to the terms of the
Guarantee or upon acceleration or otherwise shall be made if, at the time of
such payment, there exists a default in the payment of all or any portion of
principal of, premium, if any, or interest on, any Guarantor Senior Indebtedness
with a principal amount in excess of $5.0 million (and the Trustee has received
written notice thereof), and such default shall not have been cured or waived or
the benefits of this sentence waived by or on behalf of the holders of such
Guarantor Senior Indebtedness. In addition, during the continuance of any other
event of default with respect to any Designated Senior Indebtedness (which
Designated Senior Indebtedness is also Guarantor Senior Indebtedness of such
Guarantor) pursuant to which the maturity thereof may be accelerated, upon the
occurrence of (x) receipt by the Trustee of written notice from the holders of a
majority of the outstanding principal amount of the Designated Senior
Indebtedness or their Representatives, or (y) if such event
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of default results from the acceleration of the Notes, no such payment may be
made by the Guarantor upon or in respect of the Guarantee of such Guarantor for
a period ("Payment Blockage Period") commencing on the earlier of the date of
receipt of such notice or the date of such acceleration and ending 179 days
thereafter (unless such Payment Blockage Period shall be terminated by written
notice to the Trustee from the holders of a majority of the outstanding
principal amount of such Designated Senior Indebtedness or their Representatives
who delivered such notice). Notwithstanding anything herein to the contrary, in
no event will a Payment Blockage Period extend beyond 179 days from the date on
which such Payment Blockage Period was commenced. Not more than one Payment
Blockage Period may be commenced with respect to the Notes during any period of
360 consecutive days. For all purposes of this paragraph, no event of default
which existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by the holders of such
Designated Senior Indebtedness or their Representatives whether or not within a
period of 360 consecutive days unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such Payment
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets or securities of the Guarantor of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or the
Holders or any Paying Agent (or, if the Company is acting as its own Paying
Agent, money for any such payment or distribution shall be segregated or held in
trust) on account of principal of, premium, if any, or interest on, the
Guarantee of such Guarantor before all Guarantor Senior Indebtedness is paid in
full, such payment or distribution shall be received and held in trust by the
Trustee or such Holder or Paying Agent for the benefit of the holders of the
Senior Indebtedness, or their respective Representatives, ratably according to
the respective amounts of Guarantor Senior Indebtedness held or represented by
each, and shall be paid over or delivered to the holders of the Guarantor Senior
Indebtedness remaining unpaid to the extent necessary to make payment in full of
all Guarantor Senior Indebtedness remaining unpaid after giving
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effect to all concurrent payments and distributions to or for the holders of
such Guarantor Senior Indebtedness. The Trustee shall be entitled to rely on
information regarding amounts then due and owing on the Guarantor Senior
Indebtedness, if any, received from the holders of Guarantor Senior Indebtedness
(or their Representatives) or, if such information is not received from such
holders or their Representatives, from the Guarantors and only amounts included
in the information provided to the Trustee shall be paid to the holders of
Guarantor Senior Indebtedness.
Nothing contained in this Article Twelve shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Section 6.02 or to pursue any rights or remedies
hereunder; provided that all Guarantor Senior Indebtedness thereafter due or
declared to be due shall first be paid in full in cash or Cash Equivalents
before the Holders are entitled to receive any payment of any kind or character
with respect to Obligations on the Guarantees.
SECTION 12.03 Payment Over of Proceeds
upon Dissolution, Etc.
(a) Upon any payment or distribution of assets of any Guarantor of any kind
or character, whether in cash, property or securities, to creditors upon any
total or partial liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of such
Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other
similar proceeding relating to such Guarantor or its property, whether voluntary
or involuntary, all Obligations due or to become due upon all Guarantor Senior
Indebtedness of such Guarantor shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of such Guarantor Senior Indebtedness, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Guarantee of such Guarantor. Upon any such dissolution, winding-up,
liquidation, reorganization, receivership or similar proceeding, any payment or
distribution of assets of any Guarantor of any kind or character, whether in
cash, property or securities, to which the Holders of the Notes or the Trustee
under this Indenture would be entitled, except for the provisions hereof, shall
be paid by such Guarantor or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
Holders or by the Trustee under this Indenture if received by them, directly to
the holders of Guarantor Senior Indebtedness of such Guarantor (pro rata to such
holders on the basis of the respective amounts of such Guarantor Senior
Indebtedness held by such holders) or their respective
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Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of such
Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior
Indebtedness has been paid in full in cash or Cash Equivalents after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Guarantor Senior Indebtedness.
(b) To the extent any payment of such Guarantor Senior Indebtedness
(whether by or on behalf of such Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, such
Guarantor Senior Indebtedness or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of such Guarantor of any kind or character, whether in
cash, property or securities, shall be received by any Holder when such payment
or distribution is prohibited by Section 12.03(a), such payment or distribution
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of such Guarantor Senior Indebtedness (pro rata to such holders
on the basis of the respective amount of such Guarantor Senior Indebtedness held
by such holders) or their respective Representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of such Guarantor Senior Indebtedness remaining
unpaid until all such Guarantor Senior Indebtedness has been paid in full in
cash or Cash Equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Guarantor
Senior Indebtedness.
(d) The consolidation of any Guarantor with, or the merger of any Guarantor
with or into, another corporation or the liquidation or dissolution of any
Guarantor following the conveyance or transfer of all or substantially all of
its assets, to another corporation upon the terms and conditions provided in
Section 11.06 hereof and as long as permitted under the terms of
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the Guarantor Senior Indebtedness of such Guarantor shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, assume such Guarantor's obligations hereunder in
accordance with Section 11.06 hereof.
SECTION 12.04 Payments May Be Paid Prior
to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this Indenture
shall prevent (i) a Guarantor, except under the conditions described in Sections
12.02 and 12.03, from making payments at any time for the purpose of making
payments in respect of its Guarantee, or from depositing with the Trustee any
moneys for such payments, or (ii) in the absence of actual knowledge by the
Trustee that a given payment would be prohibited by Section 12.02 or 12.03, the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments in respect of the Notes to the Holders entitled thereto
unless at least two Business Days prior to the date upon which such payment
would otherwise become due and payable a Trust Officer shall have actually
received the written notice provided for in the second sentence of Section
12.02(a) or in Section 12.07 (provided that, notwithstanding the foregoing, such
application shall otherwise be subject to the provisions of the first sentence
of Section 12.02(a) and Section 12.03). A Guarantor shall give prompt written
notice to the Trustee of any dissolution, winding-up, liquidation or
reorganization of such Guarantor.
SECTION 12.05 Subrogation.
Subject to the payment in full in cash or Cash Equivalents of all Guarantor
Senior Indebtedness of a Guarantor, the Holders of the Guarantee of such
Guarantor shall be subrogated to the rights of the holders of Guarantor Senior
Indebtedness of such Guarantor to receive payments or distributions of cash,
property or securities of such Guarantor applicable to such Guarantor Senior
Indebtedness until the Notes shall be paid in full; and, for the purposes of
such subrogation, no such payments or distributions to the holders of such
Guarantor Senior Indebtedness by or on behalf of such Guarantor or by or on
behalf of the Holders by virtue of this Article Twelve which otherwise would
have been made to the Holders shall, as between such Guarantor and the Holders
of the Notes, be deemed to be a payment by such Guarantor to or on account of
such Guarantor Senior Indebtedness, it being understood that the provisions of
this Article Twelve are and are intended solely for the purpose of
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defining the relative rights of the Holders of the Notes, on the one hand, and
the holders of the Guarantor Senior Indebtedness, on the other hand.
SECTION 12.06 Obligations of the Subsidiary
Guarantors Unconditional.
Nothing contained in this Article Twelve or elsewhere in this Indenture or
in the Notes or the Guarantees is intended to or shall impair, as among the
Guarantors, its creditors other than the holders of Guarantor Senior
Indebtedness, and the Holders, the obligation of the Guarantors, which is
absolute and unconditional, to pay to the Holders all amounts due and payable
under the Guarantees as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of the Guarantors other than the holders of
the Guarantor Senior Indebtedness, nor shall anything herein or therein prevent
the Holder of any Note or the Trustee on its behalf from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, in respect of cash, property or securities of the
Guarantors received upon the exercise of any such remedy.
SECTION 12.07 Notice to Trustee.
The Guarantors shall give prompt written notice to the Trustee of any fact
known to the Guarantors which would prohibit the making of any payment to or by
the Trustee in respect of the Notes and the Guarantees pursuant to the
provisions of this Article Twelve. Regardless of anything to the contrary
contained in this Article Twelve or elsewhere in this Indenture, the Trustee
shall not be charged with knowledge of the existence of any default or event of
default with respect to any Guarantor Senior Indebtedness or of any other facts
which would prohibit the making of any payment to or by the Trustee unless and
until the Trustee shall have received notice in writing from the Guarantors, or
from a holder of Guarantor Senior Indebtedness or a Representative therefor,
and, prior to the receipt of any such written notice, the Trustee shall be
entitled to assume (in the absence of actual knowledge to the contrary) that no
such facts exist.
In the event that the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of Guarantor Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article Twelve, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of
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Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Twelve, and if
such evidence is not furnished the Trustee may defer any payment to such Person
pending judicial determination as to the right of such person to receive such
payment.
SECTION 12.08 Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Guarantors referred to in
this Article Twelve, the Trustee, subject to the provisions of Article Seven
hereof, and the Holders of the Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, delivered to
the Trustee or the Holders of the Notes, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the
Guarantor Senior Indebtedness and other Indebtedness of the Guarantors, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Twelve.
SECTION 12.09 Trustee's Relation to Guarantor
Senior Indebtedness.
The Trustee and any agent of the Guarantors or the Trustee shall be
entitled to all the rights set forth in this Article Twelve with respect to any
Guarantor Senior Indebtedness which may at any time be held by it in its
individual or any other capacity to the same extent as any other holder of
Guarantor Senior Indebtedness and nothing in this Indenture shall deprive the
Trustee or any such agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Twelve, and no implied covenants
or obligations with respect to the holders of Guarantor Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness.
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Whenever a distribution is to be made or a notice given to holders or
owners of Guarantor Senior Indebtedness, the distribution may be made and the
notice may be given to their Representative, if any.
SECTION 12.10 Subordination Rights Not Impaired by
Acts or Omissions of the Subsidiary
Guarantors or Holders of Guarantor
Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Guarantors or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Guarantors with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Guarantor Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Notes and without impairing
or releasing the subordination provided in this Article Twelve or the
obligations hereunder of the Holders of the Notes to the holders of the
Guarantor Senior Indebtedness, do any one or more of the following: (i) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Guarantor Senior Indebtedness, or otherwise amend or supplement in any
manner Guarantor Senior Indebtedness, or any instrument evidencing the same or
any agreement under which Guarantor Senior Indebtedness is outstanding; (ii)
sell, exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Guarantor Senior Indebtedness; (iii) release any Person
liable in any manner for the payment or collection of Guarantor Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Guarantors and any other Person.
SECTION 12.11 Noteholders Authorize Trustee To
Effectuate Subordination of Guarantee
Obligations.
Each Holder of the Notes and the Guarantees by its acceptance of them
authorizes and expressly directs the Trustee on its behalf to take such action
as may be necessary or appropriate to effectuate, as between the holders of
Guarantor Senior Indebtedness and the Holders, the subordination provided in
this
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Article Twelve, and appoints the Trustee its attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of any Guarantor, the filing of a claim for the unpaid
balance of its Notes and accrued interest in the form required in those
proceedings.
If the Trustee does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of the time
to file such claim or claims, then the holders of the Guarantor Senior
Indebtedness or their Representative are or is hereby authorized to have the
right to file and are or is hereby authorized to file an appropriate claim for
and on behalf of the Holders of said Notes. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Guarantor Senior Indebtedness
or their Representative to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee or the holders of Guarantor Senior Indebtedness or their Representative
to vote in respect of the claim of any Holder in any such proceeding.
SECTION 12.12 This Article Twelve Not To
Prevent Events of Default.
The failure to make a payment in respect of the Guarantees by reason of any
provision of this Article Twelve will not be construed as preventing the
occurrence of an Event of Default.
SECTION 12.13 Trustee's Compensation
Not Prejudiced.
Nothing in this Article Twelve will apply to amounts due to the Trustee
pursuant to other sections in this Indenture.
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ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01 TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
SECTION 13.02 Notices.
Any notices or other communications required or permitted hereunder shall
be in writing, and shall be sufficiently given if made by hand delivery, by
telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
IF TO THE COMPANY OR THE GUARANTORS:
Royal Oak Mines Inc.
5501 Lakeview Drive
Kirkland, WA 98033
Attn: Chief Financial Officer
WITH COPIES TO:
Lang Michener
B.C.E. Place, P.O. Box 747,
Suite 2500
181 Bay Street
Toronto, Ontario, Canada M5J 2T7
Attn: David A. Knight, Esq.
IF TO THE TRUSTEE:
Mellon Bank, F.S.B.
1111 Third Avenue, Suite 2230
Seattle, WA 98101
Attention: Corporate Trust Department
IF TO THE PAYING AGENT (WITH A COPY TO THE TRUSTEE)
Mellon Securities Trust Company
120 Broadway, 13th Floor
New York, NY 10271
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Each of the Company, the Guarantors and the Trustee by written notice to
each other such Person may designate additional or different addresses for
notices to such Person. Any notice or communication to the Company, the
Guarantors or the Trustee shall be deemed to have been given or made as of the
date so delivered if personally delivered; when answered back, if telexed; when
receipt is acknowledged, if faxed; and five (5) calendar days after mailing if
sent by registered or certified mail, postage prepaid (except that a notice of
change of address shall not be deemed to have been given until actually received
by the addressee). Failure to deliver "copies" as noted above shall not affect
the sufficiency of a notice to the Company, Trustee or Paying Agent.
Any notice or communication mailed to a Noteholder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
the registration books of the Registrar and shall be sufficiently given to him
if so mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or any defect in
it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 13.03 Communications by Holders
with Other Holders.
Noteholders may communicate pursuant to TIA Section 312(b) with other
Noteholders with respect to their rights under this Indenture or the Notes. The
Company, the Guarantors, the Trustee, the Registrar and any other Person shall
have the protection of TIA Section 312(c).
SECTION 13.04 Certificate and Opinion as
to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed by the Company, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
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(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action have
been complied with.
SECTION 13.05 Statements Required in
Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture, other than the Officers' Certificate
required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is reasonably necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 13.06 Rules by Trustee, Paying
Agent, Registrar.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Noteholders. The Paying
Agent or Registrar may make reasonable rules for its functions.
SECTION 13.07 Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is a
Saturday, a Sunday or a day on which banking institutions in New York, New York
or at such place of payment are not required to be open. If a payment date is a
Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
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SECTION 13.08 GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE.
SECTION 13.09 No Adverse Interpretation
of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its Subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 13.10 No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such, of the
Company, the Guarantors or of the Trustee shall not have any liability for any
obligations of the Company under the Notes or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creations.
Each Noteholder by accepting a Note waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Notes.
SECTION 13.11 Successors.
All agreements of the Company and the Guarantors in this Indenture, the
Notes and the Guarantees shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 13.12 Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together shall represent the same
agreement.
SECTION 13.13 Severability.
In case any one or more of the provisions in this Indenture or in the Notes
shall be held invalid, illegal or unenforceable, in any respect for any reason,
the validity, legality and enforceability of any such provision in every other
<PAGE> 124
-116-
respect and of the remaining provisions shall not in any way be affected or
impaired thereby, it being intended that all of the provisions hereof shall be
enforceable to the full extent permitted by law.
<PAGE> 125
-117-
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
Issuer:
ROYAL OAK MINES INC.
By: /s/ M. K. Witte
------------------------------
Name: M. K. Witte
Title: Chairman and CEO
Guarantor:
KEMESS MINES INC.
By: /s/ M. K. Witte
------------------------------
Name: M. K. Witte
Title: Chairman and CEO
Trustee:
MELLON BANK, F.S.B.,
as Trustee
By: /s/ Robert R. Meyers
------------------------------
Name:
Title:
<PAGE> 126
EXHIBIT A
CUSIP No.: [ ]
ROYAL OAK MINES INC.
11% SENIOR SUBORDINATED NOTE DUE 2006
No. $
ROYAL OAK MINES INC., an ontario, Canada corporation (the "Company," which
term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars,
on August 15, 2006.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
ROYAL OAK MINES INC.
By:
------------------------------
Name:
Title:
Dated:
Certificate of Authentication
This is one of the 11% Senior Subordinated Notes due 2006 referred to in
the within-mentioned Indenture.
MELLON BANK, F.S.B.,
as Trustee
Dated: By:
------------------------------
Authorized Signatory
A-1
<PAGE> 127
(REVERSE OF SECURITY)
11% SENIOR SUBORDINATED NOTE DUE 2006
1. Interest. ROYAL OAK MINES INC., an Ontario, Canada corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from August 12, 1996. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing February 15, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes plus 2% per annum and on overdue installments of interest (without regard
to any applicable grace periods) to the extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, Mellon Bank, F.S.B. (the
"Trustee") will act as Registrar and Mellon Securities Trust Co., a New York
chartered trust company, will act as Paying Agent. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders.
4. Indenture and Guarantees. The Company issued the Notes under an
Indenture, dated as of August 12, 1996 (the "Indenture"), among the Company, the
Guarantor (as defined in the Indenture) and the Trustee. This Note is one of a
duly authorized issue of Initial Notes of the Company designated as its 11%
Senior Subordinated Notes due 2006 (the "Initial Notes"). The Notes are limited
in aggregate principal amount to $175,000,000. Payment on each Note is
guaranteed on a senior subordinated basis by the Guarantors pursuant to Article
Eleven of the Indenture. The Notes include the Initial Notes and the Exchange
Notes, as defined below, issued in exchange for the Initial Notes pursuant to
the Indenture.
A-2
<PAGE> 128
The Initial Notes and the Exchange Notes are treated as a single class of
securities under the Indenture. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code Section Section 77aaa-77bbbb)
(the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and said Act for a statement of them. The
Notes are general unsecured obligations of the Company.
5. Subordination. The Notes are subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full in cash or Cash Equivalents of all Senior Indebtedness of the Company,
whether outstanding on the date of the Indenture or thereafter incurred. The
Guarantee in respect of the Notes is subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of the
Guarantor, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof
agrees to be bound by such provisions and authorizes and expressly directs the
Trustee, on his behalf, to take such action as may be necessary or appropriate
to effectuate the subordination provided for in the Indenture and appoints the
Trustee his attorney-in-fact for such purposes.
6. Redemption.
(a) Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after August
15, 2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on August 15 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
A-3
<PAGE> 129
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2001 ................................ 105.500%
2002 ................................ 103.667
2003 ................................ 101.833
2004 and thereafter ................. 100.000%
</TABLE>
(b) Optional Redemption upon Public Equity Offerings. At any time, or from
time to time, prior to August 15, 1999, the Company may, at its option, use the
net proceeds of one or more Public Equity Offerings of the Company to redeem up
to 35% of the aggregate principal amount of Notes at the following redemption
prices (expressed as percentages of the principal amount) if redeemed during the
twelve-month period commencing on August 15 of the year set forth below, plus,
in each case, accrued interest thereon to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
1996 ................................ 111.000%
1997 ................................ 109.778%
1998 ................................ 108.556%
</TABLE>
In order to effect the foregoing redemption with the net proceeds of any
Public Equity Offering, the Company shall make such redemption on or prior to
120 days after the receipt of such net proceeds.
(c) Optional Redemption upon Changes to Certain Canadian Laws. The Notes
are redeemable, as a whole but not in part, at the option of the Company at any
time upon not less than 30 nor more than 60 days notice at a redemption price
equal to 100% of the aggregate principal amount so redeemed, plus accrued and
unpaid interest thereon to the date of redemption, if the Company has become or
would become obligated to pay, on the next date on which any amount would be
payable under or with respect to the Notes, any additional amounts ("Additional
Amounts") as a result of any change in, or amendment to, the laws (or any
regulations promulgated thereunder including changes to withholding tax laws) of
Canada (or any political subdivision or taxing authority thereof or therein), or
any change in, or amendment to, any official position regarding the application
or interpretation of such laws or regulations, which change or amendment is
announced or becomes effective on or after August 5, 1996.
7. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
A-4
<PAGE> 130
Except as set forth in the Indenture, if monies for the redemption of the
Notes called for redemption shall have been deposited with the Paying Agent for
redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the Redemption Price plus accrued interest, if any.
8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. Registration Rights. Pursuant to the Registration Rights Agreement
among the Company, the Guarantor and the Holders of the Initial Notes, the
Company will be obligated to consummate an exchange offer pursuant to which the
Holder of this Note shall have the right to exchange this Note for the Company's
Series B 11% Senior Subordinated Notes due 2006 (the "Exchange Notes"), which
have been registered under the Securities Act, in like principal amount and
having terms identical in all material respects to the Initial Notes. The
Holders of the Initial Notes shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
10. Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, in denominations of $1,000 and integral multiples of $1,000. A
Holder shall register the transfer of or exchange of Notes in accordance with
the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
11. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
12. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
A-5
<PAGE> 131
13. Discharge Prior to Redemption or Maturity. If the Company at any time
deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
14. Amendment; Supplement; Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the written consent
of the Holders of at least a majority in aggregate principal amount of the Notes
then outstanding, and any existing Default or Event of Default or noncompliance
with any provision may be waived with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, or comply with Article Five of the Indenture or make any
other change that does not adversely affect in any material respect the rights
of any Holder of a Note.
15. Restrictive Covenants. The Indenture imposes certain covenants that
limit the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with Affiliates, incur Indebtedness that is subordinated in right
of payment to any Senior Indebtedness and senior in right of payment to the
Notes, incur liens, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company and its Restricted
Subsidiaries, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of the Company or its Restricted Subsidiaries. Such limitations are
subject to a number of important qualifications and exceptions. The Company
must annually report to the Trustee on compliance with such limitations.
16. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those obligations.
17. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
A-6
<PAGE> 132
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of Notes notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of such Holders.
18. Trustee Dealings with Company. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
19. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
20. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
21. Governing Law. The Laws of the State of New York shall govern this
Note and the Indenture, without regard to principles of conflict of laws.
22. Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants
in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
24. Indenture. Each Holder, by accepting a Note, agrees to be bound by all
of the terms and provisions of the Indenture, as the same may be amended from
time to time.
A-7
<PAGE> 133
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: Royal Oak Mines Inc., 5501 Lakeview
Drive, Kirkland, WA 98033, Attn: Chief Financial Officer.
A-8
<PAGE> 134
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
SENIOR GUARANTEE
KEMESS MINES INC. (the "Guarantor"), has unconditionally guaranteed on a
senior subordinated basis (such guarantee by the Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and interest on the Notes, whether at maturity, by acceleration or otherwise,
the due and punctual payment of interest on the overdue principal and interest,
if any, on the Notes, to the extent lawful, and the due and punctual performance
of all other obligations of the Company to the Holders or the Trustee all in
accordance with the terms set forth in Article Eleven and Article Twelve of the
Indenture and (ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Holders and to the Trustee pursuant
to the Guarantee and the Indenture are expressly set forth and are expressly
subordinated and subject in right of payment to the prior payment in full of all
Guarantor Senior Indebtedness of such Guarantor, to the extent and in the manner
provided, in Article Eleven and Article Twelve of the Indenture, and reference
is hereby made to such Indenture for the precise terms of the Guarantees therein
made.
No past, present or future stockholder, officer, director, employee or
incorporator, as such, of any of the Guarantors shall have any liability under
the Guarantee of such Guarantor by reason of such person's status as
stockholder, officer, director, employee or incorporator. Each Holder of a Note
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Guarantee.
A-9
<PAGE> 135
The Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Notes upon which the Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized signatories.
KEMESS MINES INC.
By:
------------------------------
Name:
Title:
A-10
<PAGE> 136
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ______________________________________ , agent to
transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Signed:
------------------------- ------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) December 1, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
A-11
<PAGE> 137
[Check One]
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under the Securities
Act; or
(3) ___ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(4) ___ outside the United states to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act; or
(5) ___ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act; or
(6) ___ pursuant to an effective registration statement under the Securities
Act; or
(7) ___ pursuant to another available exemption from the registration
requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked,
the Company or the Trustee may require, prior to registering any such transfer
of the Notes, in its sole discretion, such legal opinions, certifications
(including an investment letter in the case of box (3) or (4)) and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
A-12
<PAGE> 138
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.17 of the Indenture shall have been satisfied.
Date: Signed:
------------------------- ------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Date: Signed:
------------------------- ------------------------------
NOTICE: To be executed by an
executive officer
A-13
<PAGE> 139
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.15 or Section 4.16 of the Indenture, check the appropriate box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$
--------------------
Dated:
-------------------- ------------------------------------
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in
every particular without alteration
or enlargement or any change
whatsoever and be guaranteed by the
endorser's bank or broker.
Signature Guarantee:
------------------------------------------------
A-14
<PAGE> 140
EXHIBIT B
CUSIP No.:
ROYAL OAK MINES INC.
SERIES B 11% SENIOR SUBORDINATED NOTE DUE 2006
No. $
ROYAL OAK MINES INC., an Ontario, Canada corporation (the "Company," which
term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum
of Dollars, on August 15, 2006.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
ROYAL OAK MINES INC.
By:
------------------------------
Name:
Title:
Dated:
Certificate of Authentication
This is one of the Series B 11% Senior Subordinated Notes due 2006
referred to in the within-mentioned Indenture.
MELLON BANK, F.S.B.,
as Trustee
Dated: By:
------------------------------
Authorized Signatory
B-1
<PAGE> 141
(REVERSE OF SECURITY)
SERIES B 11% SENIOR SUBORDINATED NOTE DUE 2006
1. Interest. ROYAL OAK MINES INC., an Ontario, Canada corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from August 12, 1996. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing February 15, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes plus 2% per annum and on overdue installments of interest (without regard
to any applicable grace periods) to the extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, Mellon Bank, F.S.B. (the
"Trustee") will act as Paying Agent and Mellon Securities Trust Co., a New York
chartered trust company, will act as Paying Agent. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders.
4. Indenture and Guarantees. The Company issued the Notes under an
Indenture, dated as of August 12, 1996 (the "Indenture"), among the Company, the
Guarantors (as defined in the Indenture) and the Trustee. This Note is one of a
duly authorized issue of Exchange Notes of the Company designated as its Series
B 11% Senior Subordinated Notes due 2006 (the "Exchange Notes"). The Notes are
limited in aggregate principal amount to $175,000,000. Payment on each Note is
guaranteed on a senior subordinated basis by the Guarantors pursuant to Article
Eleven of the Indenture. The Notes include the Initial Notes (the 13% Senior
Subordinated Notes due 2005) and the Exchange Notes, issued in exchange for the
B-2
<PAGE> 142
Initial Notes pursuant to the Indenture. The Initial Notes and the Exchange
Notes are treated as a single class of securities under the Indenture.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the
date of the Indenture. Notwithstanding anything to the contrary herein, the
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and said Act for a statement of them. The Notes are general unsecured
obligations of the Company.
5. Subordination. The Notes are subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full in cash or Cash Equivalents of all Senior Indebtedness of the Company,
whether outstanding on the date of the Indenture or thereafter incurred. The
Guarantee in respect of the Notes is subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of the
Guarantor, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof
agrees to be bound by such provisions and authorizes and expressly directs the
Trustee, on his behalf, to take such action as may be necessary or appropriate
to effectuate the subordination provided for in the Indenture and appoints the
Trustee his attorney-in-fact for such purposes.
6. Redemption.
(a) Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after August
15, 2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on August 15 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2001 .............................. 105.500%
2002 .............................. 103.667
2003 .............................. 101.833
2004 and thereafter ............... 100.000%
</TABLE>
(b) Optional Redemption upon Public Equity Offerings. At any time, or from
time to time, prior to August 15, 1999, the Company may, at its option, use the
net proceeds of one or more Public Equity Offerings of the Company to redeem up
to 35% of the aggregate principal amount of Notes at the following redemption
B-3
<PAGE> 143
prices (expressed as percentages of the principal amount) if redeemed during the
twelve-month period commencing on August 15 of the year set forth below, plus,
in each case, accrued interest thereon to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
1996 ............................... 111.000%
1997 ............................... 109.778%
1998 ............................... 108.556%
</TABLE>
In order to effect the foregoing redemption with the net proceeds of any
Public Equity Offering, the Company shall make such redemption on or prior to
120 days after the receipt of such net proceeds.
(c) Optional Redemption upon Changes to Certain Canadian Laws. The Notes
are redeemable, as a whole but not in part, at the option of the Company at any
time upon not less than 30 nor more than 60 days notice at a redemption price
equal to 100% of the aggregate principal amount so redeemed, plus accrued and
unpaid interest thereon to the date of redemption, if the Company has become or
would become obligated to pay, on the next date on which any amount would be
payable under or with respect to the Notes, any additional amounts ("Additional
Amounts") as a result of any change in, or amendment to, the laws (or any
regulations promulgated thereunder including changes to withholding tax laws) of
Canada (or any political subdivision or taxing authority thereof or therein), or
any change in, or amendment to, any official position regarding the application
or interpretation of such laws or regulations, which change or amendment is
announced or becomes effective on or after August 5, 1996.
7. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of the
Notes called for redemption shall have been deposited with the Paying Agent for
redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the Redemption Price plus accrued interest, if any.
8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in
B-4
<PAGE> 144
the Indenture) and upon the occurrence of a Change of Control (as defined in the
Indenture), and subject to further limitations contained therein, the Company
will make an offer to purchase certain amounts of the Notes in accordance with
the procedures set forth in the Indenture.
9. Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, in denominations of $1,000 and integral multiples of $1,000. A
Holder shall register the transfer of or exchange Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Notes or portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any time
deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
13. Amendment; Supplement; Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the written consent
of the Holders of at least a majority in aggregate principal amount of the Notes
then outstanding, and any existing Default or Event of Default or noncompliance
with any provision may be waived with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, or comply with Article Five of the Indenture or make any
other change that does not adversely affect in any material respect the rights
of any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain covenants that
limit the ability of the Company and its
B-5
<PAGE> 145
Restricted Subsidiaries to, among other things, incur additional Indebtedness,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with Affiliates, incur Indebtedness
that is subordinated in right of payment to any Senior Indebtedness and senior
in right of payment to the Notes, incur liens, impose restrictions on the
ability of a subsidiary to pay dividends or make certain payments to the Company
and its Restricted Subsidiaries, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company or its Restricted Subsidiaries.
Such limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
15. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of Notes notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
B-6
<PAGE> 146
19. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. The Laws of the State of New York shall govern this
Note and the Indenture, without regard to principles of conflict of laws.
21. Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants
in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
23. Indenture. Each Holder, by accepting a Note, agrees to be bound by
all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: Royal Oak Mines Inc., 5501 Lakeview
Drive, Kirkland, WA 98033, Attn: Chief Financial Officer.
B-7
<PAGE> 147
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
SENIOR GUARANTEE
KEMESS MINES INC. (the "Guarantor") has unconditionally guaranteed on a
senior subordinated basis (such guarantee by each Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and interest on the Notes, whether at maturity, by acceleration or otherwise,
the due and punctual payment of interest on the overdue principal and interest,
if any, on the Notes, to the extent lawful, and the due and punctual performance
of all other obligations of the Company to the Holders or the Trustee all in
accordance with the terms set forth in Article Eleven and Article Twelve of the
Indenture and (ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Holders and to the Trustee pursuant
to the Guarantee and the Indenture are expressly set forth and are expressly
subordinated and subject in right of payment to the prior payment in full of all
Guarantor Senior Indebtedness of such Guarantor, to the extent and in the manner
provided, in Article Eleven and Article Twelve of the Indenture, and reference
is hereby made to such Indenture for the precise terms of the Guarantee therein
made.
No past, present or future stockholder, officer, director, employee or
incorporator, as such, of any of the Guarantors shall have any liability under
the Guarantee of such Guarantor by reason of such person's status as
stockholder, officer, director, employee or incorporator. Each Holder of a Note
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Guarantee.
B-8
<PAGE> 148
The Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Notes upon which the Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized signatories.
KEMESS MINES INC.
By:
------------------------------
Name:
Title:
B-9
<PAGE> 149
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _________________________________ , agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Date: Signed:
------------------------- ------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------
B-10
<PAGE> 150
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.15 or Section 4.16 of the Indenture, check the appropriate box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$___________________
Dated:
------------------------- ------------------------------------
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in
every particular without alteration
or enlargement or any change
whatsoever and be guaranteed by the
endorser's bank or broker.
Signature Guarantee:
-------------------------------------
B-11
<PAGE> 151
Exhibit C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
___________, ____
Mellon Bank, F.S.B.
1111 Third Avenue, Suite 2230
Seattle, WA 98101
Attention: Corporate Trust Department
Re: Royal Oak Mines Inc.
11% Senior Subordinated Notes due 2006
--------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of 11% Senior Subordinated Notes
due 2006 (the "Notes") of Royal Oak Mines Inc. (the "Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated August 5, 1996 relating to the Notes and such other
information as we deem necessary in order to make our investment decision.
We acknowledge that we have read and agreed to the matters stated on pages
(i)-(iv) of the Offering Memorandum and in the section entitled "Transfer
Restrictions" of the Offering Memorandum, including the restrictions on
duplication and circulation of the Offering Memorandum.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Notes (as described in the Offering Memorandum) and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered
or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell or otherwise transfer any Notes
prior to the date which is three years after the original issuance of the
Notes, we will do so
C-1
<PAGE> 152
only (i) to the Company or any of its subsidiaries, (ii) inside the United
States in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act), (iii) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the
Trustee (as defined in the Indenture relating to the Notes), a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Notes, (iv) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (v)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (vi) pursuant to an effective
registration statement under the Securities Act, and we further agree to
provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein.
4. We are not acquiring the Notes for or on behalf of, and will not
transfer the Notes to, any pension or welfare plan (as defined in Section 3
of the Employee Retirement Income Security Act of 1974), except as
permitted in the section entitled "Transfer Restrictions" of the Offering
Memorandum.
5. We understand that, on any proposed resale of any Notes, we will
be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Notes purchased by
us will bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
7. We are acquiring the Notes purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a
C-2
<PAGE> 153
copy hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
By:
------------------------------
Name:
Title:
C-3
<PAGE> 154
Exhibit D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
______________, ____
Mellon Bank, F.S.B.
1111 Third Avenue, Suite 2230
Seattle, WA 98101
Attention: Corporate Trust Department
Re: Royal Oak Mines Inc. (the "Company")
11% Senior Subordinated
Notes due 2006 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $___________ aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
D-1
<PAGE> 155
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------
Authorized Signature
D-2
<PAGE> 1
Exhibit 10.1
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of August 12, 1996
Among
ROYAL OAK MINES INC.
and
KEMESS MINES INC.
and
BT SECURITIES CORPORATION
and
SCOTIA CAPITAL MARKETS (USA) INC.
as Initial Purchasers
================================================================================
$175,000,000
11% SENIOR SUBORDINATED NOTES DUE 2006
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions ......................................... 1
2. Exchange Offer ...................................... 5
3. Shelf Registration .................................. 8
4. Liquidated Damages .................................. 9
5. Registration Procedures ............................. 11
6. Registration Expenses ............................... 21
7. Indemnification ..................................... 23
8. Rule 144 and 144A ................................... 27
9. Underwritten Registrations .......................... 27
10. Miscellaneous ....................................... 28
(a) No Inconsistent Agreements .................... 28
(b) Adjustments Affecting Registrable
Notes ....................................... 28
(c) Amendments and Waivers ........................ 28
(d) Notices ....................................... 29
(e) Successors and Assigns ........................ 30
(f) Counterparts .................................. 30
(g) Headings ...................................... 30
(h) Governing Law ................................. 30
(i) Severability .................................. 31
(j) Notes Held by the Issuers or their
Affiliates .................................. 31
(k) Third Party Beneficiaries ..................... 31
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of August
12, 1996, by and among Royal Oak Mines Inc., an Ontario, Canada corporation (the
"Company"), Kemess Mines Inc., an Ontario, Canada corporation (the "Guarantor"),
and BT Securities Corporation ("BTSC") and Scotia Capital Markets (USA) Inc.
(together with BTSC, the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated August 5, 1996, among the Company, the Guarantor and the Initial
Purchasers (the "Purchase Agreement"), which provides, among other things, for
the sale by the Company to the Initial Purchasers of $175,000,000 aggregate
principal amount of the Company's 11% Senior Subordinated Notes due 2006 (the
"Notes"), which Notes will be guaranteed by the Guarantor. The Company and the
Guarantor are collectively referred to herein as the "Issuers." In order to
induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers
have agreed to provide the registration rights set forth in this Agreement for
the benefit of the Initial Purchasers and their direct and indirect transferees.
The execution and delivery of this Agreement is a condition to the obligation of
the Initial Purchasers to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the first introductory paragraph hereto.
Applicable Period: See Section 2(b) hereof.
Closing Date: The Closing Date as defined in the Purchase Agreement.
Company: See the first introductory paragraph hereto.
Effectiveness Date: The 120th day after the Issue Date.
<PAGE> 4
-2-
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Registration Statement: See Section 2(a) hereof.
Filing Date: The 45th day after the Issue Date.
Guarantor: See the first introductory paragraph hereto.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of August 12, 1996 between the Company,
the Guarantor and Mellon Bank, F.S.B., as trustee, pursuant to which the Notes
are being issued, as amended or supplemented from time to time in accordance
with the terms thereof.
Initial Purchasers: See the first introductory paragraph hereto.
Inspectors: See Section 5(o) hereof.
Issue Date: The date on which the original Notes were sold to the Initial
Purchasers pursuant to the Purchase Agreement.
Issuers: The Company and the Guarantor.
Liquidated Damages: See Section 4(a) hereof.
NASD: National Association of Securities Dealers, Inc.
<PAGE> 5
-3-
Notes: See the second introductory paragraph hereto.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph hereto.
Records: See Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the Notes and at
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until in the case of any such Note, Exchange Note or Private
Exchange Note, as the case may be, the earliest to occur of (i) a Registration
Statement (other than, with respect to any Exchange Note as to which Section
2(c)(iv) hereof is applicable, the Exchange Registration Statement) covering
such Note, Exchange Note or Private Exchange Note, as the case may be, has been
declared effective by the SEC and such Note (unless such Note was not tendered
for exchange by the Holder thereof), Exchange Note or Private Exchange Note, as
<PAGE> 6
-4-
the case may be, has been disposed of in accordance with such effective
Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note,
as the case may be, is sold in compliance with Rule 144, or (iii) such Note,
Exchange Note or Private Exchange Note, as the case may be, ceases to be
outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
<PAGE> 7
-5-
Underwritten registration or underwritten offering: A registration in
which securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) Each of the Issuers agrees to file with the SEC no later than the
Filing Date an offer to exchange (the "Exchange Offer") any and all of
the Registrable Notes (other than the Private Exchange Notes, if any)
for a like aggregate principal amount of debt securities of the
Company, guaranteed by the Guarantor, which are identical in all
material respects to the Notes (the "Exchange Notes") (and which are
entitled to the benefits of the Indenture or a trust indenture which is
identical in all material respects to the Indenture (other than such
changes to the Indenture or any such identical trust indenture as are
necessary to comply with any requirements of the SEC to effect or
maintain the qualification thereof under the TIA) and which, in either
case, has been qualified under the TIA), except that the Exchange Notes
(other than Private Exchange Notes, if any) shall have been registered
pursuant to an effective Registration Statement under the Securities
Act and shall contain no restrictive legend thereon. The Exchange Offer
shall be registered under the Securities Act on the appropriate form
(the "Exchange Registration Statement") and shall comply with all
applicable tender offer rules and regulations under the Exchange Act.
The Issuers agree to use their best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities
Act on or before the Effectiveness Date; (y) keep the Exchange Offer
open for at least 20 business days (or longer if required by applicable
law) after the date that notice of the Exchange Offer is mailed to
Holders; and (z) consummate the Exchange Offer on or prior to the 180th
day following the Issue Date. If after such Exchange Registration
Statement is declared effective by the SEC, the Exchange Offer or the
issuance of the Exchange Notes thereunder is interfered with by any
stop order, injunction or other order or requirement of the SEC or any
other governmental agency or court, such Exchange Registration
Statement shall be deemed not to have become effective for purposes of
this Agreement. Each Holder who participates in the Exchange Offer will
be required to represent that any Exchange Notes received by it will be
acquired in the ordinary course of its business, that at the time of
the consummation of the Exchange Offer such Holder will have no
arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes in violation of the provisions of
the Securities Act, and that such Holder is not
<PAGE> 8
-6-
an affiliate of any of the Issuers within the meaning of the Securities
Act. Upon consummation of the Exchange Offer in accordance with this
Section 2, the Issuers shall have no further obligation to register
Registrable Notes (other than Private Exchange Notes and other than in
respect of any Exchange Notes as to which clause 2(c)(iv) hereof
applies) pursuant to Section 3 hereof. No securities other than the
Exchange Notes shall be included in the Exchange Registration
Statement.
(b) The Issuers shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which
shall contain a summary statement of the positions taken or policies
made by the Staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes
received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies, in
the judgment of the Initial Purchasers, represent the prevailing views
of the Staff of the SEC. Such "Plan of Distribution" section shall also
expressly permit the use of the Prospectus by all Persons subject to
the prospectus delivery requirements of the Securities Act, including
all Participating Broker-Dealers, and include a statement describing
the means by which Participating Broker-Dealers may resell the Exchange
Notes.
Each of the Issuers shall use all reasonable efforts to keep the
Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein, in order to permit such Prospectus to be lawfully
delivered by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange Notes;
provided, however, that such period shall not exceed 180 days after the
consummation of the Exchange Offer (or such longer period if extended pursuant
to the last paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial Purchasers
hold any Notes acquired by them and having the status of an unsold allotment in
the initial distribution, the Issuers shall, upon the request of either of the
Initial Purchasers, simultaneously with the delivery of the Exchange Notes in
the Exchange Offer, issue and deliver to the Initial
<PAGE> 9
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Purchasers in exchange (the "Private Exchange") for such Notes held by the
Initial Purchasers a like principal amount of debt securities of the Company,
guaranteed by the Guarantor, that are identical in all material respects to the
Exchange Notes (the "Private Exchange Notes") (and which are issued pursuant to
the same indenture as the Exchange Notes) except for the placement of a
restrictive legend on such Private Exchange Notes. The Private Exchange Notes
shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with an
address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable laws,
rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Issuers shall:
(1) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or
<PAGE> 10
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Private Exchange Notes, as the case may be, equal in principal amount
to the Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be issued under
(i) the Indenture or (ii) an indenture identical in all material respects to the
Indenture, which in either event shall provide that (1) the Exchange Notes shall
not be subject to the transfer restrictions set forth in the Indenture and (2)
the Private Exchange Notes shall be subject to the transfer restrictions set
forth in the Indenture. The Indenture or such indenture shall provide that the
Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent
together on all matters as one class and that none of the Exchange Notes, the
Private Exchange Notes or the Notes will have the right to vote or consent as a
separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Issuers are not permitted
to effect an Exchange Offer, (ii) the Exchange Offer is not consummated
within 180 days of the Issue Date, (iii) any holder of Private Exchange
Notes so requests at any time after the consummation of the Private
Exchange, or (iv) in the case of any Holder that participates in the
Exchange Offer, such Holder does not receive Exchange Notes on the date
of the exchange that may be sold without restriction under state and
federal securities laws (other than due solely to the status of such
Holder as an affiliate of any of the Issuers within the meaning of the
Securities Act), then the Issuers shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") to the
Trustee and in the case of clauses (i) and (ii), all Holders, in the
case of clause (iii), the Holders of the Private Exchange Notes and in
the case of clause (iv), the affected Holder, and shall file a Shelf
Registration pursuant to Section 3 hereof.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c) hereof,
then:
(a) Shelf Registration. The Issuers shall as promptly as reasonably
practicable file with the SEC a Registration Statement for an offering
to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Notes (the "Shelf Registration"). If the Issuers shall
not have yet filed an Exchange Registration Statement,
<PAGE> 11
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each of the Issuers shall use its best efforts to file with the SEC the
Shelf Registration on or prior to the Filing Date. The Shelf
Registration shall be on Form S-1 or another appropriate form
permitting registration of such Registrable Notes for resale by Holders
in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Issuers shall not
permit any securities other than the Registrable Notes to be included
in the Shelf Registration.
Each of the Issuers shall use its best efforts to cause the Shelf
Registration to be declared effective under the Securities Act on or prior to
the Effectiveness Date and to keep the Shelf Registration continuously effective
under the Securities Act until the date which is three years from the Issue
Date, subject to extension pursuant to the last paragraph of Section 5 hereof
(the "Effectiveness Period"), or such shorter period ending when all Registrable
Notes covered by the Shelf Registration have been sold in the manner set forth
and as contemplated in the Shelf Registration.
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
effective for any reason at any time during the Effectiveness Period
(other than because of the sale of all of the securities registered
thereunder), each of the Issuers shall use its best efforts to obtain
the prompt withdrawal of any order suspending the effectiveness
thereof.
(c) Supplements and Amendments. The Issuers shall promptly supplement
and amend the Shelf Registration if required by the rules, regulations
or instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of
the Registrable Notes covered by such Registration Statement or by any
underwriter of such Registrable Notes.
4. Liquidated Damages
(a) The Issuers and the Initial Purchasers agree that the Holders of
Registrable Notes will suffer damages if the Issuers fail to fulfill
its obligations under Section 2 or Section 3 hereof and that it would
not be feasible to ascertain the extent of such damages with precision.
Accordingly, the Issuers agree to pay, as liquidated damages,
additional interest on the Notes ("Liquidated Damages") under the
circumstances and to the extent set forth below:
<PAGE> 12
-10-
(i) if neither the Exchange Registration Statement nor the Shelf
Registration has been filed on or prior to the Filing Date, then,
commencing on the 46th day after the Issue Date, Liquidated
Damages shall accrue on the Notes over and above the stated
interest at a rate of 0.50% per annum of the principal amount of
the Notes for the first 90 days immediately following the Filing
Date, such Liquidated Damages rate increasing by an additional
0.50% per annum of the principal amount of the Notes at the
beginning of each subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor the Shelf
Registration is declared effective by the SEC on or prior to the
Effectiveness Date, then, commencing on the 121st day after the
Issue Date, Liquidated Damages shall accrue on the Notes included
or which should have been included in such Registration Statement
over and above the stated interest at a rate of 0.50% per annum
of the principal amount of the Notes for the first 90 days
immediately following the Effectiveness Date, such Liquidated
Damages increasing by an additional 0.50% per annum of the
principal amount of the Notes at the beginning of each subsequent
90-day period; and
(iii) if (A) the Issuers have not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 180th day after the Issue Date
or (B) if applicable, the Shelf Registration has been declared
effective and such Shelf Registration ceases to be effective at
any time during the Effectiveness Period (unless all the Notes
have previously been sold thereunder), then Liquidated Damages
shall accrue (over and above any interest otherwise payable on
such Notes) at a rate of 0.50% per annum of the principal amount
of the Notes for the first 90 days commencing on (x) the 181st
day after the Issue Date with respect to the Notes validly
tendered and not exchanged by the Company, in the case of (A)
above, or (y) the day such Shelf Registration ceases to be
effective in the case of (B) above, such Liquidated Damages rate
increasing by an additional 0.50% per annum of the principal
amount of the Notes at the beginning of each such subsequent
90-day period (it being understood and agreed that, in the case
of (B) above, so long as any Note is then covered by an effective
Shelf Registration Statement, no Liquidated Damages shall accrue
on such Note);
provided, however, that the Liquidated Damages rate on any affected Note may not
exceed at any one time in the aggregate
<PAGE> 13
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2.0% per annum of the principal amount of the Notes; and provided, further, that
(1) upon the filing of the Exchange Registration Statement or a Shelf
Registration (in the case of clause (i) of this Section 4(a)), (2) upon the
effectiveness of the Exchange Registration Statement or the Shelf Registration
(in the case of clause (ii) of this Section 4(a)), or (3) upon the exchange of
Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this
Section 4(a)), or upon the effectiveness of the Shelf Registration which had
ceased to remain effective (in the case of clause (iii)(B) of this Section
4(a)), Liquidated Damages on the affected Notes as a result of such clause (or
the relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Issuers shall notify the Trustee within one business day after
each and every date on which an event occurs in respect of which
Liquidated Damages is required to be paid (an "Event Date"). Any
Liquidated Damages due pursuant to clauses (a)(i), (a)(ii) or (a)(iii)
of this Section 4 will be payable to the Holders of affected Notes in
cash semi-annually on each February 15 and August 15 (to the holders of
record on the February 1 and August 1 immediately preceding such
dates), commencing with the first such date occurring after any such
Liquidated Damages commences to accrue. The amount of Liquidated
Damages will be determined by multiplying the applicable Liquidated
Damages rate by the principal amount of the affected Registrable Notes
of such Holders, multiplied by a fraction, the numerator of which is
the number of days such Liquidated Damages rate was applicable during
such period (determined on the basis of a 360-day year comprised of
twelve 30-day months and, in the case of a partial month, the actual
number of days elapsed), and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant to
Sections 2 or 3 hereof, the Issuers shall effect such registration(s) to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Issuers hereunder, the Issuers
shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use their best efforts to cause each such
Registration Statement to become effective and remain effective as
provided herein; provided, however, that, if (1) such filing is
pursuant to Section 3
<PAGE> 14
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hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, before
filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Issuers shall, if requested, furnish to and
afford the Holders of the Registrable Notes covered by such
Registration Statement or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents
(including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed (in each case at
least five business days prior to such filing). The Issuers shall not
file any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders must be afforded an
opportunity to review prior to the filing of such document, if the
Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement, or any such Participating
Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness
Period or the Applicable Period or until consummation of the Exchange
Offer, as the case may be; cause the related Prospectus to be
supplemented by any Prospectus supplement required by applicable law,
and as so supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act
applicable to it with respect to the disposition of all securities
covered by such Registration Statement as so amended or in such
Prospectus as so supplemented and with respect to the subsequent resale
of any securities being sold by a Participating Broker-Dealer covered
by any such Prospectus. The Company shall be deemed not to have used
its best efforts to keep a Registration Statement effective during the
Applicable Period if it voluntarily takes any action that would result
in selling Holders of the Registrable Notes covered thereby or
Participating Broker-Dealers seeking to sell Exchange Notes not being
able to sell such Registrable Notes or such Exchange Notes during that
period unless such action is required by applicable law or unless the
Company complies with
<PAGE> 15
-13-
this Agreement, including without limitation, the provisions of
paragraph 5(k) hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, notify the selling Holders
of Registrable Notes, or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any,
promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same
has become effective under the Securities Act (including in such notice
a written statement that any Holder may, upon request, obtain, at the
sole expense of the Issuers, one conformed copy of such Registration
Statement or post-effective amendment including financial statements
and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop
order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose, (iii)
if at any time when a prospectus is required by the Securities Act to
be delivered in connection with sales of the Registrable Notes or
resales of Exchange Notes by Participating Broker-Dealers the
representations and warranties of the Issuers contained in any
agreement (including any underwriting agreement), contemplated by
Section 5(n) hereof cease to be true and correct, (iv) of the receipt
by the Issuers of any notification with respect to the suspension of
the qualification or exemption from qualification of a Registration
Statement or any of the Registrable Notes or the Exchange Notes to be
sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known that makes any statement
made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any
changes in or amendments or supplements to such Registration Statement,
Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the
<PAGE> 16
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statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (vi) of the
determination by the Issuers that a post-effective amendment to a
Registration Statement would be appropriate.
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the
Registrable Notes or the Exchange Notes for sale in any jurisdiction,
and, if any such order is issued, to use all reasonable efforts to
obtain the withdrawal of any such order at the earliest possible
moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
reasonably requested by the managing underwriter or underwriters (if
any), or the Holders of a majority in aggregate principal amount of the
Registrable Notes being sold in connection with an underwritten
offering, (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter
or underwriters (if any), such Holders, or counsel for any of them
reasonably request to be included therein, (ii) make all required
filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Issuers have received notification of
the matters to be incorporated in such prospectus supplement or
post-effective amendment, and (iii) supplement or make amendments to
such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and to each such Participating
Broker-Dealer who so requests and to counsel and each managing
underwriter, if any, at the sole expense of the Issuers, one conformed
copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to
be incorporated therein by reference and all exhibits.
<PAGE> 17
-15-
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such Participating Broker-Dealer,
as the case may be, their respective counsel, and the underwriters, if
any, at the sole expense of the Issuers, as many copies of the
Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, each
Issuer hereby consents to the use of such Prospectus and each amendment
or supplement thereto by each of the selling Holders of Registrable
Notes or each such Participating Broker-Dealer, as the case may be, and
the underwriters or agents, if any, and dealers (if any), in connection
with the offering and sale of the Registrable Notes covered by, or the
sale by Participating Broker-Dealers of the Exchange Notes pursuant to,
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use its best efforts to register or qualify such
Registrable Notes (and to cooperate with selling Holders of Registrable
Notes or each such Participating Broker-Dealer, as the case may be, the
managing underwriter or underwriters, if any, and their respective
counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Notes) for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer, or the managing underwriter or
underwriters reasonably request in writing; provided, however, that
where Exchange Notes held by Participating Broker-Dealers or
Registrable Notes are offered other than through an underwritten
offering, the Issuers agree to cause their counsel to perform Blue Sky
investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h); keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and
all other acts or things reasonably necessary or advisable to enable
the disposition in such jurisdictions of the Exchange Notes held by
Participating Broker-Dealers or the
<PAGE> 18
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Registrable Notes covered by the applicable Registration Statement;
provided, however, that none of the Issuers shall be required to (A)
qualify generally to do business in any jurisdiction where it is not
then so qualified, (B) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so
subject or (C) subject itself to taxation in excess of a nominal dollar
amount in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
Holders thereof or the underwriter or underwriters, if any, to dispose
of such Registrable Notes, except as may be required solely as a
consequence of the nature of a selling Holder's business, in which case
each of the Issuers will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly
as practicable prepare and (subject to Section 5(a) hereof) file with
the SEC, at the sole expense of the Issuers, a supplement or
post-effective amendment to the Registration Statement or a supplement
to the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Notes being sold thereunder or to the purchasers of the Exchange Notes
to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not
<PAGE> 19
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contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(l) Use its best efforts to cause the Registrable Notes covered by a
Registration Statement or the Exchange Notes, as the case may be, to be
rated with the appropriate rating agencies, if so requested by the
Holders of a majority in aggregate principal amount of Registrable
Notes covered by such Registration Statement or the Exchange Notes, as
the case may be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes or Exchange Notes, as the case
may be, in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes or
Exchange Notes, as the case may be.
(n) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement
as is customary in underwritten offerings of debt securities similar to
the Notes and take all such other actions as are reasonably requested
by the managing underwriter or underwriters in order to facilitate the
registration or the disposition of such Registrable Notes and, in such
connection, (i) make such representations and warranties to, and
covenants with, the underwriters with respect to the business of the
Issuers and their respective subsidiaries and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to
be incorporated by reference therein, in each case, as are customarily
made by issuers to underwriters in underwritten offerings of debt
securities similar to the Notes, and confirm the same in writing if and
when requested; (ii) obtain the written opinion of counsel to the
Issuers and written updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters,
addressed to the underwriters covering the matters customarily covered
in opinions requested in underwritten offerings of debt securities
similar to the Notes and such other matters as may be reasonably
requested by the managing underwriter or underwriters; (iii) obtain
"cold comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters
from the independent certified public accountants of the Issuers (and,
if necessary, any other independent certified public accountants of any
subsidiary of
<PAGE> 20
-18-
any of the Issuers or of any business acquired by any of the Issuers
for which financial statements and financial data are, or are required
to be, included or incorporated by reference in the Registration
Statement), addressed to each of the underwriters, such letters to be
in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with underwritten offerings of
debt securities similar to the Notes and such other matters as
reasonably requested by the managing underwriter or underwriters; and
(iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable
than those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal
amount of Registrable Notes covered by such Registration Statement and
the managing underwriter or underwriters or agents) with respect to all
parties to be indemnified pursuant to said Section . The above shall be
done at each closing under such underwriting agreement, or as and to
the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold,
or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Registrable Notes,
if any, and any attorney, accountant or other agent retained by any
such selling Holder or each such Participating Broker-Dealer, as the
case may be, or underwriter (collectively, the "Inspectors"), at the
offices where normally kept, during reasonable business hours, all
financial and other records, pertinent corporate documents and
instruments of the Issuers and their respective subsidiaries
(collectively, the "Records") as shall be reasonably necessary to
enable them to exercise any applicable due diligence responsibilities,
and cause the officers, directors and employees of the Issuers and
their respective subsidiaries to supply all information reasonably
requested by any such Inspector in connection with such Registration
Statement. Records which any of the Issuers determine, in good faith,
to be confidential and any Records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other
order
<PAGE> 21
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from a court of competent jurisdiction, (iii) disclosure of such
information is, in the opinion of counsel for any Inspector, necessary
or advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such
Inspector and arising out of, based upon, relating to, or involving
this Agreement, or any transactions contemplated hereby or arising
hereunder, or (iv) the information in such Records has been made
generally available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker- Dealer will
be required to agree that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Issuers unless and until such information is generally available to the
public. Each selling Holder of such Registrable Notes and each such
Participating Broker-Dealer will be required to further agree that it
will, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Issuers and allow
the Issuers to undertake appropriate action to prevent disclosure of
the Records deemed confidential at the Issuers' sole expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a) hereof, as the case may
be, to be qualified under the TIA not later than the effective date of
the Exchange Offer or the first Registration Statement relating to the
Registrable Notes; and in connection therewith, cooperate with the
trustee under any such indenture and the Holders of the Registrable
Notes, to effect such changes to such indenture as may be required for
such indenture to be so qualified in accordance with the terms of the
TIA; and execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to
<PAGE> 22
-20-
underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month
periods.
(r) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Issuers (or to
such other Person as directed by the Issuers) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, the
Issuers shall mark, or cause to be marked, on such Registrable Notes
that such Registrable Notes are being cancelled in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be; in no
event shall such Registrable Notes be marked as paid or otherwise
satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable Notes and their respective counsel
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(t) Use its best efforts to take all other steps necessary or advisable
to effect the registration of the Registrable Notes covered by a
Registration Statement contemplated hereby.
The Issuers may require each seller of Registrable Notes as to which
any Registration is being effected to furnish to the Issuers such information
regarding such seller and the distribution of such Registrable Notes as the
Issuers may, from time to time, reasonably request. The Issuers may exclude from
such registration the Registrable Notes of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving such request.
Each seller as to which any Shelf Registration is being effected agrees to
furnish promptly to the Issuers all information required to be disclosed in
order to make the information previously furnished to the Issuers by such seller
not materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon actual receipt
of any notice from the Issuers of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes
<PAGE> 23
-21-
covered by such Registration Statement or Prospectus or Exchange Notes to be
sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Issuers that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event the Issuers shall give any such notice,
each of the Effectiveness Period and the Applicable Period shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable Notes
covered by such Registration Statement or Exchange Notes to be sold by such
Participating Broker-Dealer, as the case may be, shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 5(k)
hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange Offer or a Shelf Registration is filed or
becomes effective, including, without limitation, (i) all registration
and filing fees (including, without limitation, (A) fees with respect
to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with
state securities or Blue Sky laws (including, without limitation,
reasonable fees and disbursements of counsel in connection with Blue
Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange
Notes for investment under the laws of such jurisdictions (x) where the
holders of Registrable Notes are located, in the case of the Exchange
Notes, or (y) as provided in Section 5(h) hereof, in the case of
Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses,
including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with
The Depository Trust Company and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriter or
underwriters, if any, or by the Holders of a majority in aggregate
principal amount of the Registrable Notes included in any Registration
Statement or sold by any Participating Broker-Dealer, as the case may
be, (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel
<PAGE> 24
-22-
for the Issuers, (v) fees and disbursements of all independent
certified public accountants referred to in Section 5(n)(iii) hereof
(including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance),
(vi) rating agency fees, if any, and any fees associated with making
the Registrable Notes or Exchange Notes eligible for trading through
The Depository Trust Company, (vii) Securities Act liability insurance,
if the Issuers desire such insurance, (viii) fees and expenses of all
other Persons retained by the Issuers, (ix) internal expenses of the
Issuers (including, without limitation, all salaries and expenses of
officers and employees of the Issuers performing legal or accounting
duties), (x) the expense of any annual audit, (xi) the fees and
expenses incurred in connection with the listing of the securities to
be registered on any securities exchange, if applicable, and (xii) the
expenses relating to printing, word processing and distributing all
Registration Statements and final forms of all underwriting agreements,
securities sales agreements, indentures and any other documents
necessary in order to comply with this Agreement.
(b) The Issuers, jointly and severally, shall reimburse out-of-pocket
expenses (other than legal expenses) of Holders of Registrable Notes
incurred in connection with the registration and sale of the
Registrable Notes pursuant to a Shelf Registration or in connection
with the exchange of Registrable Notes pursuant to the Exchange Offer.
7. Indemnification
(a) Each of the Issuers, jointly and severally, agrees to indemnify and
hold harmless each Holder of Registrable Notes offered pursuant to a
Shelf Registration Statement and each Participating Broker-Dealer
selling Exchange Notes during the Applicable Period, the affiliates,
directors, officers, agents, representatives and employees of each such
Person or its affiliates, and each other Person, if any, who controls
any such Person or its affiliates within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, the reasonable legal
fees and other expenses actually incurred in connection with any suit,
action or proceeding or any claim asserted) caused by, arising out of
or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement pursuant to which
the offering of such Registrable Notes or Exchange Notes, as the case
may be, is registered (or any
<PAGE> 25
-23-
amendment thereto) or related Prospectus (or any amendments or
supplements thereto) or any related preliminary prospectus, or caused
by, arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
Issuers will not be required to indemnify a Participant if (i) such
losses, claims, damages or liabilities are caused by any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any
Participant furnished to the Issuers in writing by or on behalf of such
Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Registrable Notes or Exchange
Notes which are the subject of such claim and such untrue statement or
omission or alleged untrue statement or omission was contained or made
in any preliminary prospectus and corrected in the Prospectus or any
amendment or supplement thereto and the Prospectus does not contain any
other untrue statement or omission or alleged untrue statement or
omission of a material fact that was the subject matter of the related
proceeding and it is established by the Issuers in the related
proceeding that such Participant failed to deliver or provide a copy of
the Prospectus (as amended or supplemented) to such Person with or
prior to the confirmation of the sale of such Registrable Notes or
Exchange Notes sold to such Person if required by applicable law,
unless such failure to deliver or provide a copy of the Prospectus (as
amended or supplemented) was a result of noncompliance by the Issuers
with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Issuers, their respective directors and officers
and each Person who controls the Issuers within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Issuers to each Participant,
but only (i) with reference to information relating to such Participant
furnished to the Issuers in writing by or on behalf of such Participant
expressly for use in any Registration Statement or Prospectus, any
amendment or supplement thereto, or any preliminary prospectus or (ii)
with respect to any untrue statement or representation made by such
Participant in writing to the Issuers. The liability of any Participant
under this paragraph shall in no event exceed the proceeds received by
such Participant from sales of Registrable Notes or Exchange Notes
giving rise to such obligations.
<PAGE> 26
-24-
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the
"Indemnified Person") shall promptly notify the Person against whom
such indemnity may be sought (the "Indemnifying Person") in writing,
and the Indemnifying Person, upon request of the Indemnified Person,
shall retain counsel reasonably satisfactory to the Indemnified Person
to represent the Indemnified Person and any others the Indemnifying
Person may reasonably designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred by such counsel related
to such proceeding; provided, however, that the failure to so notify
the Indemnifying Person shall not relieve it of any obligation or
liability which it may have hereunder or otherwise (unless and only to
the extent that such failure directly results in the loss or compromise
of any material rights or defenses by the Indemnifying Person and the
Indemnifying Person was not otherwise aware of such action or claim).
In any such proceeding, any Indemnified Person shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually
agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named
parties in any such proceeding (including any impleaded parties)
include both the Indemnifying Person and the Indemnified Person and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection
with any one such proceeding or separate but substantially similar
related proceeding in the same jurisdiction arising out of the same
general allegations, be liable for the fees and expenses of more than
one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be
reimbursed promptly as they are incurred. Any such separate firm for
the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest
of Registrable Notes and Exchange Notes sold by all such Participants
and any such separate firm for the Issuers, their directors, their
officers and such control Persons of the Issuers shall be designated in
writing by the Issuers. The Indemnifying Person shall not be liable for
any settlement of any proceeding effected without its prior written
consent, but if settled with
<PAGE> 27
-25-
such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to
indemnification pursuant to this Agreement, the Indemnifying Person
agrees to indemnify and hold harmless each Indemnified Person from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the
Indemnified Person for reasonable fees and expenses actually incurred
by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement
of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
Indemnifying Person of the aforesaid request and (ii) such Indemnifying
Person shall not have reimbursed the Indemnified Person in accordance
with such request prior to the date of such settlement; provided,
however, that the Indemnifying Person shall not be liable for any
settlement effected without its consent pursuant to this sentence if
the Indemnifying Person is contesting, in good faith, the request for
reimbursement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person, effect any settlement or compromise
of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could
have been sought hereunder by such Indemnified Person, unless such
settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to
such Indemnified Person, from all liability on claims that are the
subject matter of such proceeding and (B) does not include any
statement as to an admission of fault, culpability or failure to act by
or on behalf of any Indemnified Person and (C) does not contain any
explicit agreement to assist the other parties to such proceeding.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Person thereunder and in order to provide for just and
equitable contribution, shall contribute to the amount paid or payable
by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the
relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the
offering of the Notes or (ii) if the allocation provided by the
foregoing
<PAGE> 28
-26-
clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the Indemnifying Person or
Persons on the one hand and the Indemnified Person or Persons on the
other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof). The relative fault of
the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Issuers on the one hand or such Participant
or such other Indemnified Person, as the case may be, on the other, the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any
other equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for
such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified
Person as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the
amount by which proceeds received by such Participant from sales of
Registrable Notes or Exchange Notes, as the case may be, exceeds the
amount of any damages that such Participant has otherwise been required
to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this Section
7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
<PAGE> 29
-27-
8. Rule 144 and 144A
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner in accordance with
the requirements of the Securities Act and the Exchange Act and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder of Registrable Notes, make publicly available annual reports and such
information, documents and other reports of the type specified in Sections 13
and 15(d) of the Exchange Act. The Company further covenants for so long as any
Registrable Notes remain outstanding, to make available to any Holder or
beneficial owner of Registrable Notes in connection with any sale thereof and
any prospective purchaser of such Registrable Notes from such Holder or
beneficial owner the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and reasonably acceptable to the Issuers.
No Holder of Registrable Notes may participate in any underwritten
registation hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. None of the Issuers have entered, as of
the date hereof, and none of the Issuers shall, after the date of this
Agreement, enter into any agreement with respect to any of its
securities that is inconsistent with the rights granted to the Holders
of Registrable Notes in this Agreement or otherwise conflicts with the
provisions hereof. None of the Issuers have entered and
<PAGE> 30
-28-
none of the Issuers will enter into any agreement with respect to any
of its securities which will grant to any Person piggy-back
registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Registrable Notes. None of the Issuers shall,
directly or indirectly, take any action with respect to the Registrable
Notes as a class that would adversely affect the ability of the Holders
of Registrable Notes to include such Registrable Notes in a
registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than
with the prior written consent of the Holders of not less than a
majority in aggregate principal amount of the then outstanding
Registrable Notes. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect, impair, limit or compromise the
rights of other Holders of Registrable Notes may be given by Holders of
at least a majority in aggregate principal amount of the Registrable
Notes being sold by such Holders pursuant to such Registration
Statement; provided, however, that the provisions of this sentence may
not be amended, modified or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar under the Indenture, with a copy in like
manner to the Initial Purchasers as follows:
<PAGE> 31
-29-
BT Securities Corporation
Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Facsimile No: (212) 250-7200
Attention: Corporate Finance
Department
SCOTIA CAPITAL MARKETS
1 Liberty Plaza
25th Floor
165 Broadway
New York, New York 10006
Attention: Corporate Finance
Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No: (212) 269-5420
Attention: William B. Gannett, Esq.
2. if to the Initial Purchasers, at the addresses
specified in Section 10(d)(1);
3. if to an Issuer, as follows:
Royal Oak Mines Inc.
5501 Lakeview Drive
Kirkland, WA 98033
Attention: Chief Executive Officer
with copies to:
Lang Michener
BCE Place, Suite 2500
Toronto, Ontario M5J 2T7
Attention: William J.V. Sheridan, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: David A. Katz, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the
<PAGE> 32
-30-
mail, postage prepaid, if mailed; one business day after being timely delivered
to a next-day air courier; and when receipt is acknowledged by the addressee, if
sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the
parties hereto; provided, however, that this Agreement shall not inure
to the benefit of or be binding upon a successor or assign of a Holder
unless and to the extent such successor or assign holds Registrable
Notes.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions
without including any of such that
<PAGE> 33
-31-
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Notes Held by the Issuers or their Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable Notes
is required hereunder, Registrable Notes held by the Issuers or their
affiliates (as such term is defined in Rule 405 under the Securities
Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third party beneficiaries of
this Agreement and this Agreement may be enforced by such Persons.
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Issuer:
ROYAL OAK MINES INC.
By: /s/ M. K. Witte
----------------
Name: M. K. Witte
Title: Chairman and CEO
Guarantor:
KEMESS MINES INC.
By: /s/ M. K. Witte
---------------
Name: M. K. Witte
Title: Chairman and CEO
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written:
BT SECURITIES CORPORATION
By: /s/ Paul F. Cambridge
---------------------
Name: Paul F. Cambridge
Title: Managing Director
SCOTIA CAPITAL MARKETS (USA) INC.
By: /s/ Vance P. Shaw
-----------------
Name: Vance P. Shaw
Title: Director
<PAGE> 1
Exhibit 10.2
CREDIT AGREEMENT
BETWEEN
THE BANK OF NOVA SCOTIA
AS BANK
AND
ROYAL OAK MINES INC.
AS BORROWER
February 15, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES................................................................................................. 1
RECITALS................................................................................................ 1
ARTICLE 1 - INTERPRETATION
1.01 Defined Terms................................................................................. 1
1.02 Other Usages.................................................................................. 10
1.03 Plural and Singular........................................................................... 11
1.04 Headings...................................................................................... 11
1.05 Currency...................................................................................... 11
1.06 Applicable Law................................................................................ 11
1.07 Time of the Essence........................................................................... 11
1.08 Non-Banking Days.............................................................................. 11
1.09 Consents and Approvals........................................................................ 11
1.10 Amount of Credit.............................................................................. 11
1.11 Schedules..................................................................................... 12
1.12 Paramountcy................................................................................... 12
1.13 Extension of Credit........................................................................... 12
ARTICLE 2 - CREDIT FACILITY
2.01 Establishment of Credit Facility.............................................................. 12
2.02 Bank's Commitments............................................................................ 12
2.03 Reduction of Credit Facility.................................................................. 12
2.04 Termination of Credit Facility................................................................ 13
ARTICLE 3 - GENERAL PROVISIONS RELATING TO CREDITS
3.01 Types of Credit Availments.................................................................... 13
3.02 Funding of Loans.............................................................................. 13
3.03 Funding of Bankers' Acceptances............................................................... 13
3.04 Safekeeping of Drafts......................................................................... 14
3.05 Alternative Borrowings........................................................................ 14
3.06 Inability to Fund U.S. Dollar Advances in Canada.............................................. 14
3.07 Timing of Credit Availments................................................................... 16
3.08 Time and Place of Payments.................................................................... 16
3.09 Evidence of Indebtedness...................................................................... 16
3.10 Notice Periods................................................................................ 16
ARTICLE 4 - DRAWDOWNS
4.01 Drawdown Notice............................................................................... 16
4.02 Expiry of Availability........................................................................ 17
</TABLE>
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<TABLE>
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ARTICLE 5 - ROLLOVERS
5.01 Bankers' Acceptances.......................................................................... 17
5.02 LIBO Loans.................................................................................... 17
5.03 Rollover Notice............................................................................... 18
ARTICLE 6 - CONVERSIONS
6.01 Converting Loan to Other Type of Loan......................................................... 18
6.02 Converting Loan to Bankers' Acceptances....................................................... 18
6.03 Converting Bankers' Acceptances to Loan....................................................... 19
6.04 Converting Letter to Loan..................................................................... 19
6.05 Conversion Notice............................................................................. 19
6.06 Conversion After Default...................................................................... 20
6.07 Absence of Notice............................................................................. 20
ARTICLE 7 - INTEREST AND FEES
7.01 Interest Rates................................................................................ 20
7.02 Calculation and Payment of Interest........................................................... 20
7.03 General Interest Rules........................................................................ 21
7.04 Selection of Interest Periods................................................................. 22
7.05 Acceptance Fees............................................................................... 22
7.06 Arrangement Fee............................................................................... 22
7.07 Letter Fees................................................................................... 22
7.08 Standby Fee................................................................................... 22
ARTICLE 8 - RESERVE, CAPITAL, INDEMNITY AND TAX PROVISIONS
8.01 Conditions of Credit.......................................................................... 23
8.02 Change of Circumstances....................................................................... 23
8.03 Indemnity Relating to Credits................................................................. 24
8.04 Indemnity for Transactional Liability......................................................... 24
8.05 Payments Free and Clear of Taxes.............................................................. 25
ARTICLE 9 - REPAYMENTS AND PREPAYMENTS
9.01 Repayment..................................................................................... 25
9.02 Voluntary Prepayments under Credit Facility................................................... 25
9.03 Bankers' Acceptances and Letters.............................................................. 26
9.04 Early Termination of Letters.................................................................. 26
</TABLE>
2.
<PAGE> 4
<TABLE>
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ARTICLE 10 - REPRESENTATIONS AND WARRANTIES
<S> <C> <C>
10.01 Representations and Warranties....................................................... 27
10.02 Survival of Representations and Warranties........................................... 30
ARTICLE 11 - COVENANTS
11.01 Affirmative Covenants................................................................ 30
11.02 Performance of Covenants by the Bank................................................. 33
11.03 Restrictive Covenants................................................................ 34
ARTICLE 12 - CONDITIONS PRECEDENT TO OBTAINING CREDIT
12.01 Conditions Precedent to All Credit................................................... 35
12.02 Conditions Precedent to Initial Drawdown............................................. 35
12.03 Waiver............................................................................... 36
ARTICLE 13 - DEFAULT AND REMEDIES
13.01 Events of Default.................................................................... 36
13.02 Remedies Cumulative.................................................................. 38
13.03 Set-Off.............................................................................. 38
ARTICLE 14 - MISCELLANEOUS
14.01 Waivers.............................................................................. 38
14.02 Notices.............................................................................. 38
14.03 Severability......................................................................... 39
14.04 Counterparts......................................................................... 39
14.05 Successors and Assigns............................................................... 39
14.06 Assignment........................................................................... 39
14.07 Entire Agreement..................................................................... 39
14.08 Further Assurances................................................................... 39
14.09 Judgment Currency.................................................................... 39
Schedule A - Form of Drawdown/Rollover Notice
Schedule B - Existing Security Interests Materiality $100,000
Schedule C - Compliance Certificate
Schedule D - Principal Places of Business
Schedule E - List of Restricted and Material Subsidiaries of Royal Oak Mines Inc.
Schedule F - List of Material Actions
</TABLE>
3.
<PAGE> 5
CREDIT AGREEMENT
THIS AGREEMENT dated as of the 15th day of February, 1996.
B E T W E E N:
THE BANK OF NOVA SCOTIA, a Canadian chartered
bank
(herein called the "Bank"),
OF THE FIRST PART,
- and -
ROYAL OAK MINES INC., a corporation amalgamated
under the laws of the Province of Ontario
(herein called the "Borrower"),
OF THE SECOND PART.
WHEREAS the Borrower has requested the Bank to establish a
certain credit facility for general corporate purposes;
AND WHEREAS the Bank is willing to provide such credit
facility to the Borrower for the aforesaid purposes upon the terms and
conditions contained herein;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration
of the mutual covenants and agreements herein contained and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.01 DEFINED TERMS. The following defined terms shall for all purposes of this
agreement, or any amendment hereto, have the following respective meanings
unless the context otherwise
<PAGE> 6
2.
specifies or requires or unless otherwise defined herein and all accounting
terms shall be construed in accordance with generally accepted accounting
principles:
"ALTERNATE BASE RATE CANADA" means, at any particular time, the variable rate of
interest per annum, calculated on the basis of a 360-day year, which is equal to
the greater of (a) the Base Rate Canada at such time and (b) the aggregate of
(i) the Federal Funds Effective Rate at such time and (ii) 1/2 of 1% per annum.
"AVAILABLE CREDIT" means, at any particular time, the amount, if any, by which
the amount of the Credit Facility at such time exceeds the amount of credit
outstanding under the Credit Facility at such time.
"BANKERS' ACCEPTANCE" means a bill of exchange (a) drawn by the Borrower and
accepted by the Bank, (b) denominated in Canadian dollars, (c) having a term to
maturity of 7 to 180 days, (d) issued and payable only in Canada and (e) having
a face amount of not less than Cdn. $100,000.
"BANKING DAY" means any day other than a Saturday or a Sunday on which banks
generally are open for business in Vancouver, British Columbia and New York, New
York, and when used in respect of LIBO Loans, means any day other than a
Saturday or a Sunday on which banks generally are open for business in
Vancouver, British Columbia, New York, New York and London, England and on which
transactions can be carried on in the London interbank market.
"BASE RATE CANADA" means the variable rate of interest per annum determined by
the Bank from time to time as its base rate for United States dollar loans made
by the Bank in Canada from time to time, being a variable per annum reference
rate of interest adjusted automatically upon change by the Bank, calculated on
the basis of a 360-day year.
"BASE RATE CANADA LOAN" means monies lent by the Bank to the Borrower hereunder
in United States dollars and upon which interest accrues at a rate referrable to
the Alternate Base Rate Canada.
"BRANCH OF ACCOUNT" means the Vancouver main branch of the Bank located at 650
West Georgia St., P.O. Box 11502, Vancouver, British Columbia, V6P 4P2 or such
other branch of the Bank located in Canada as the Borrower and the Bank may
agree upon.
"CANADIAN DOLLAR EQUIVALENT" means, as of any particular time and with respect
to any amount of United States dollars:
(a) for the purposes of Section 1.10, the equivalent amount of Canadian
dollars determined by using the noon rate of exchange for Canadian
interbank transactions applied in converting United States
dollars into Canadian dollars published by the Bank of Canada
for the day in question; and
(b) for all other purposes herein, the equivalent amount of Canadian
dollars determined by using the quoted spot rate at which the
Bank's principal office in
<PAGE> 7
3.
Vancouver offers to sell Canadian dollars in exchange for United
States dollars at such time.
"COLOMAC MINE" means the mining property and related facilities located in the
Northwest Territories approximately 137 miles north-west of Yellowknife on the
western shore of Indin Lake consisting of 16 stated claims, 4 mining leases and
3 surface leases, covering 24,343.81 acres of mining rights, and 4,630.59 acres
of surface rights, and commonly known as the "Colomac Mine".
"CONSOLIDATED DEBT" means, at any time for the Company and its Subsidiaries the
total of (i) all indebtedness of the Company or any Subsidiary for borrowed
money, including the Company's or any Subsidiary's reimbursement and other
obligations with respect to borrowings of gold or other commodities, bankers'
acceptances, letters of credit and letters of guarantee, (ii) all indebtedness
of the Company or any Subsidiary for the deferred purchase price of property or
services represented by a note or other security, (iii) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by the Company or any Subsidiary, (iv) all current
liabilities represented by any note, bond, debenture or other evidence of debt,
(v) all obligations under leases which are or should be (in accordance with
generally accepted accounting principles) recorded as capital leases in respect
of which the Company or any Subsidiary is liable as lessee, and (vi) all
guarantees of the Company or any Subsidiaries; less Subordinated Debt. For
greater certainty, margin limits, credit lines or other similar arrangements
made available to the Borrower and its Subsidiaries in connection with any
hedging arrangements of the Borrower or its Subsidiaries are not to be construed
as falling within the definition of "Consolidated Debt".
"CONSOLIDATED TANGIBLE NET WORTH" means, at any time, the total (which shall be
added to such total if positive or deducted if negative) of (i) stated capital
(or the equivalent account in respect of issued and outstanding shares, but
excluding treasury shares and any subscribed but unissued shares); (ii) retained
earnings; (iii) contributed surplus; and (iv) Subordinated Debt, less (v) all
intangible assets, including, without limitation, organization expenses,
patents, copyrights, trade marks, goodwill, covenants not to compete, research
and development costs, training costs, unamortized debt discounts and deferred
charges (other than capitalized development and related charges in respect of
any resource property); all determined as of such time with respect to the
Borrower and its Subsidiaries on a consolidated basis, in accordance with
generally accepted accounting principles.
"CONTAMINANT" means any contaminant, as defined by EPA.
"CONVERSION NOTICE" shall have the meaning ascribed thereto in Section 6.05.
"CORPORATE B/A FEE" means a fluctuating fee rate expressed as a percentage per
annum determined and adjusted automatically upon change by the Bank from time to
time as a reference rate for determining fees to be charged to designated
corporate customers for the acceptance by the Bank of drafts or bills of
exchange in Canadian dollars issued by such corporate customers.
<PAGE> 8
4.
"CREDIT EXCESS" means, at a particular date, the amount, if any, by which the
aggregate amount of credit outstanding under the Credit Facility as at the close
of business on such date exceeds the aggregate amount of the Credit Facility as
at the close of business on such date.
"CREDIT FACILITY" means the revolving term credit facility established by the
Bank in favour of the Borrower pursuant to Section 2.01.
"DEBT SERVICE" means Interest Expensed, Interest Capitalized and sinking fund
payments or other periodic principal repayments, other than principal payments
due on maturity, required to be made during the relevant period.
"DEFAULT" means any event which is or which, with the passage of time, the
giving of notice or both, would be an Event of Default.
"DESIGNATED ACCOUNT" means, with respect to transactions in a particular
currency, an account of the Borrower maintained by the Bank at the Branch of
Account for the purposes of transactions in such currency under this agreement.
"$" denotes Canadian dollars or U.S. dollars as the context may permit.
"DRAWDOWN NOTICE" shall have the meaning ascribed thereto in Section 4.01.
"ENVIRONMENTAL LAWS" means all applicable federal, state, provincial or local
statutes, laws, ordinances, codes, rules, regulations, decrees and orders
relating to or imposing liability or standards of conduct concerning public
health or the protection of the environment (including, without limitation,
EPA).
"EPA" means, the Environmental Protection Act (Ontario), as amended from time to
time, and any successor statute.
"EVENT OF DEFAULT" means any one of the events set forth in Section 13.01.
"EXCHANGE EQUIVALENT" means, as of any particular date, with reference to any
amount (the "original amount") expressed in a particular currency (the "original
currency"), the amount expressed in another currency which would be required to
buy the original amount of the original currency using the quoted spot rates at
which the principal office in Vancouver of the Bank offers to provide such other
currency in exchange for such original currency at 12:00 noon (Vancouver time)
on such date.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any particular day, the variable rate
of interest per annum, calculated on the basis of a 360-day year and for the
actual number of days elapsed, equal to the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by Federal Funds brokers as published for such day (or, if such day is
not a Banking Day, for the next preceding Banking Day) by the Federal Reserve
Bank of New York or, for any Banking Day on which such rate is not so published
by the Federal Reserve Bank of New York, the average of the quotations for such
day for such
<PAGE> 9
5.
transactions received by the Bank from three Federal Funds brokers of recognized
standing selected by the Bank.
"FISCAL QUARTER" means any of the three-month periods ending on the last day of
March, June, September and December in each Fiscal Year.
"FISCAL YEAR" means any of the twelve-month periods ending on the last day of
December in each year.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted accounting
principles in effect in Canada from time to time as recommended in the Handbook
of the Canadian Institute of Chartered Accountants.
"GIANT MINE" means the mining property and related facilities located
approximately 5 kilometres north of Yellowknife, Northwest Territories,
consisting of 6 mining leases covering 1,635.55 acres, one surface lease
covering 2,242.76 acres and one docking facility lease covering 3.43 acres, and
commonly known as the "Giant Mine".
"GUARANTEES" mean any contract or other arrangement whereby a person directly or
indirectly:
(i) guarantees, endorses (or otherwise than for collection or deposit
in the ordinary course of business), discounts with recourse,
agrees (contingently or otherwise) to purchase or repurchase or
otherwise acquire, any indebtedness, obligation or liability of
any other person; or
(ii) agrees to supply or advance funds (whether by way of loan, share
purchase or capital contribution, through a commitment to pay for
property or services regardless of the non-delivery of such
property or the non-furnishing of such services, or otherwise) in
respect of any indebtedness, obligation or liability of any other
person; or
(iii) provides security for the indebtedness, obligations or
liabilities of any other person, whether or not it assumes
liability, contingent or otherwise, for the indebtedness,
liabilities or obligations so secured; or
(iv) becomes liable in respect of any indebtedness, obligation or
liability of any other person.
"HAZARDOUS MATERIALS" means any Pollutant or Contaminant or hazardous or toxic
chemical, material or substance within the meaning of any applicable federal,
state, provincial or local law, regulation, ordinance or requirement (including
consent decrees and administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous or toxic waste, substance or
material or concerning the environment or public health, all as in effect on the
applicable date.
<PAGE> 10
6.
"HOPE BROOK MINE" means the mining property and related facilities located near
the towns of Burgeo and Port aux Basques, Newfoundland, consisting of 6,802
acres of mining rights and 490 acres of surface rights, and commonly known as
the "Hope Brook Mine".
"INDEBTEDNESS CURRENCY" shall have the meaning ascribed thereto in Section
14.09.
"INTEREST CAPITALIZED" means, with respect to the Borrower, interest recorded as
being capitalized to projects on the Borrower's financial statements.
"INTEREST COVERAGE RATIO" means the ratio of Net Income of the Borrower
(adjusted so that (A) gains and losses from extraordinary events are eliminated
and (B) income tax expense, non-cash uses of funds and Interest Expensed is
added back to Net Income) in a period to Debt Service in the same period.
"INTEREST EXPENSED" means, with respect to the Borrower, interest recorded as a
deduction on the Borrower's financial statements.
"INTEREST PERIOD" means, in the case of any LIBO Loan, the applicable period for
which interest on such LIBO Loan shall be calculated pursuant to Article 7.
"JUDGMENT CONVERSION DATE" and "JUDGMENT CURRENCY" shall have the respective
meanings ascribed thereto in Section 14.09.
"LETTERS" means Letters of Credit.
"LETTERS OF CREDIT" means stand-by letters of credit issued by the Bank on the
instructions and credit of the Borrower, each being denominated in Canadian
dollars or United States dollars, having a maturity of not more than 1 year,
being renewable at the sole discretion of the Bank, being issued to a named
beneficiary and being otherwise in a form satisfactory to the Bank.
"LIBO LOANS" means monies lent by the Bank to the Borrower hereunder in United
States dollars and upon which interest accrues at a rate referrable to the LIBO
Rate.
"LIBO RATE" means the rate of interest per annum, calculated on the basis of a
360 day year, determined by the Bank for a particular Interest Period to be the
arithmetic average (rounded upwards to the nearest 1/16 of 1%) of the rates of
interest per annum, calculated on the basis of a 360 day year, at which the Bank
is offered deposits by prime banks in the London interbank market at
approximately 11:00 a.m. (London time) on the second Banking Day prior to the
commencement of such Interest Period in an amount of United States dollars
similar to the principal amount of the applicable LIBO Loan and for a deposit
period comparable to such Interest Period.
"LIEN" means any deed of trust, mortgage, charge, hypothec, assignment, pledge,
lien, security interest, encumbrance, vendor privilege or vendor's right of
reclamation of whatever kind or nature, regardless of form and whether
consensual or arising by law (statutory or otherwise), that secures the payment
of any indebtedness or liability or the observance or performance of any
<PAGE> 11
7.
obligation (including any agreement to give any of the foregoing and any
filing of or agreement to give any financing statement under the Personal
Property Security Act (Ontario) or any similar action under any similar law of
any other jurisdiction).
"LOAN DOCUMENTS" means this agreement, the Bankers' Acceptances and the Letters
and all other documents to be executed and delivered by the Borrower hereunder.
"LOANS" means Prime Rate Loans, Base Rate Canada Loans and LIBO Loans.
"MATERIAL ADVERSE CHANGE" means any change of circumstances or event which would
or does have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means a material adverse effect (or a series of
adverse effects, none of which is material in and of itself but which,
cumulatively, result in a material adverse effect) on the financial condition,
operations, assets, business, properties or prospects of the Borrower and its
Subsidiaries, on the ability of the Borrower to perform its obligations under
any of the Loan Documents, on the ability of the Bank to enforce any of such
obligations.
"MATURITY DATE" means the date which is 364 days after the execution and
delivery of this agreement, subject to annual extension in the discretion of the
Bank. A written request for such extension (an "Extension Request") shall be
delivered by the Borrower to the Bank at least 60 days prior to the Maturity
Date. The Bank shall have 15 business days following receipt of an Extension
Request to advise the Borrower of its decision to agree to the Extension Request
or to refuse the Extension Request.
"NET INCOME" means in respect of the period for which it is being determined,
the net income of the Borrower as set forth in the audited financial statements
of the Borrower for such period.
"NIGHTHAWK LAKE MINE" means the mining property and related facilities located
on the boundary between Cody and Macklem Townships on Nighthawk Lake,
approximately 20 miles east of Timmins, Ontario, consisting of the mining rights
and surface rights to 13 patented claims and 1 ten year leased claim, mining
rights only to 3 Licences of Occupation and the use of surface rights of an
island held under a Licence of Occupation, representing approximately 2,229.03
acres of mining rights and 522.69 acres of surface rights, and commonly known as
the "Nighthawk Lake Mine".
"OFFICIAL BODY" means any national government or government of any political
subdivision thereof, or any agency, authority, board, central bank, monetary
authority, commission, department or instrumentality thereof, or any court,
tribunal, grand jury, mediator, arbitrator or referee, whether foreign or
domestic.
"PAMOUR MINE" means the mining property and related facilities located near
Timmins, Ontario, in Northeastern Whitney Township, in the Porcupine Mining
Division, consisting of 57 patented claims, one leased claim and one licence of
occupation covering over 1,575 acres of mining rights and 1,571 acres of surface
rights, and commonly known as the "Pamour Mine".
<PAGE> 12
8.
"PERMITTED ENCUMBRANCES" means any one or more of the following with respect to
the property and assets of the Borrower or any of its Subsidiaries:
(a) Liens for taxes, assessments or governmental charges or levies
not at the time due or delinquent or the validity of which are
being contested in good faith by appropriate proceedings and
as to which reserves are being maintained in accordance with
generally accepted accounting principles so long as forfeiture
of any part of such property or assets will not result from
the failure to pay such taxes, assessments or governmental
charges or levies during the period of such contest;
(b) the Lien of any judgment rendered or the Lien of any claim
filed which is being contested in good faith by appropriate
proceedings and as to which reserves are being maintained in
accordance with generally accepted accounting principles so
long as forfeiture of any part of such property or assets will
not result from the failure to satisfy such judgment or claim
during the period of such contest;
(c) undetermined or inchoate Liens and charges including royalty
obligations incidental to current operations which have not at
such time been filed pursuant to law or which relate to
obligations not due or delinquent;
(d) restrictions, easements, rights-of-way, servitudes or other
similar rights in land granted to or reserved by other persons
which in the aggregate do not materially impair the
usefulness, in the operation of the business of the Borrower
or any of its Subsidiaries, of the property subject to such
restrictions, easements, rights-of-way, servitudes or other
similar rights in land granted to or reserved by other
persons;
(e) the right reserved to or vested in any municipality or
governmental or other public authority by the terms of any
lease, licence, franchise, grant or permit acquired by either
the Borrower or any of its Subsidiaries or by any statutory
provision, to terminate any such lease, licence, franchise,
grant or permit, or to require annual or other payments as a
condition to the continuance thereof;
(f) the Lien resulting from the deposit of cash or securities (i)
in connection with contracts, tenders, reclamation or
expropriation proceedings, or (ii) to secure workers'
compensation, surety or appeal bonds, costs of litigation when
required by law, and public and statutory obligations, or
(iii) in connection with the discharge of Liens or claims
incidental to construction and mechanics', warehouseman's,
carriers' and other similar liens;
(g) security given to a public utility or any municipality or
governmental or other public authority when required by such
utility or other authority in connection with the operations
of the Borrower or any of its Subsidiaries, all in the
ordinary course of business;
<PAGE> 13
9.
(h) the reservations, limitations, provisos and conditions, if
any, expressed in any original grants from the Crown or in
comparable grants, if any, in jurisdictions other than Canada;
(i) title defects or irregularities which are of a minor nature
and in the aggregate will not materially impair the use of the
property for the purpose for which it is held;
(j) applicable municipal and other governmental restrictions
affecting the use of land or the nature of any structures
which may be erected thereon, provided such restrictions have
been complied with and will not materially impair the use of
the property for the purpose for which it is held;
(k) Liens to secure the payment of the purchase price or the
repayment of monies borrowed to pay the purchase price of any
personal property hereafter or previously acquired by the
Borrower or any of its Subsidiaries and having an aggregate
purchase price of less than $10,000,000;
(l) the extension, renewal or refinancing of any Permitted
Encumbrance, provided that the amount so secured does not
exceed the original amount secured immediately prior to such
extension, renewal or refinancing and the Lien is not extended
to any additional property; and
(m) security interests existing on the date hereof, disclosed in
Schedule B and securing payment or performance of indebtedness
disclosed in Schedule B up to the amount thereof permitted
pursuant to Section 11.03(k).
"PERSON" means an individual, partnership, firm, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature, whether acting in an
individual, fiduciary or other capacity.
"PRESCRIBED STOCK EXCHANGE" means, on any particular date with respect to a
particular class of securities, the stock exchange on which the most number of
such class of securities were traded on such date or, if there was no trading in
such class of securities on either of such stock exchanges on such date, such
stock exchange on which the most number of such class of securities were traded
on the most recent date on which such class of securities was traded on either
of such stock exchanges.
"PRIME RATE" means the variable rate of interest per annum, calculated on the
basis of a 365 day year or a 366 day year in the case of a leap year, equal to
the rate of interest publicly announced by the Bank from time to time as its
prime rate for Canadian dollar loans made by the Bank in Canada from time to
time, being a variable per annum reference rate of interest adjusted
automatically upon change by the Bank.
"PRIME RATE LOANS" means monies lent by the Bank to the Borrower hereunder in
Canadian dollars and upon which interest accrues at a rate referrable to the
Prime Rate.
<PAGE> 14
10.
"PRINCIPAL PROPERTIES" means, collectively, all current operating properties of
the Borrower including the Colomac Mine, the Giant Mine, the Hope Brook Mine,
the Nighthawk Lake Mine and the Pamour Mine, and, in the singular, any one of
them.
"RESTRICTED SUBSIDIARY" means, at any time, and except as provided in the next
following sentence, a Subsidiary of the Borrower which holds or owns (whether
held or owned directly or indirectly through the ownership of shares or any
other interest in one or more Persons or otherwise) any interest in a Principal
Property at such time. A Subsidiary of the Borrower which does not own or hold
an interest in a Principal Property may be designated by the Borrower, with the
consent of the Bank, as a Restricted Subsidiary, and any Subsidiary of the
Borrower which is a Restricted Subsidiary may be designated by the Borrower,
with the consent of the Bank, not to be a Restricted Subsidiary.
"ROLLOVER NOTICE" shall have the meaning ascribed thereto in Section 5.03.
"SUBORDINATED DEBT" means all indebtedness of the Borrower whether unsecured or
secured by a security interest in or other encumbrance of any kind on the
property or assets of the Borrowers or its Subsidiaries, which indebtedness and
security, if any, are fully subordinated in a manner satisfactory to the Bank as
to payment, priority and acceleration to the rights of the Bank hereunder.
"SUBSIDIARY" means any corporation, whatsoever and howsoever incorporated, a
majority of the shares of any class of which entitle the holder to elect a
majority of the board of directors thereof (including shares which are entitled
to vote upon the happening of any event or contingency which shall have occurred
and be continuing) are owned by the Borrower, and shall include any Subsidiary
of a Subsidiary.
"U.S. DOLLAR EQUIVALENT" means, as of any particular time and with respect to
any amount of Canadian dollars:
(a) for the purposes of Section 2.01, the equivalent amount of
United States dollars determined by using the noon rate of
exchange for Canadian interbank transactions applied in
converting Canadian dollars into United States dollars
published by the Bank of Canada for the day in question; and
(b) for all other purposes herein, the equivalent amount of United
States dollars determined by using the quoted spot rate at
which the Bank's principal office in Vancouver offers to buy
or sell United States dollars, as the case may be, in exchange
for Canadian dollars at such time.
1.02 OTHER USAGES. References to "this agreement", "the agreement", "hereof",
"herein", "hereto" and like references refer to this Credit Agreement and not to
any particular Article, Section or other subdivision of this agreement. Any
references herein to any agreements or documents shall mean such agreements or
documents as amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof and thereof.
<PAGE> 15
11.
1.03 PLURAL AND SINGULAR. Where the context so requires, words importing the
singular number shall include the plural and vice versa.
1.04 HEADINGS. The division of this agreement into Articles and Sections and the
insertion of headings in this agreement are for convenience of reference only
and shall not affect the construction or interpretation of this agreement.
1.05 CURRENCY. Unless otherwise specified herein, all statements of or
references to dollar amounts in this agreement shall mean lawful money of
Canada.
1.06 APPLICABLE LAW. This agreement and, unless otherwise expressly provided for
therein, all documents delivered pursuant hereto shall be governed by and
construed and interpreted in accordance with the laws of the Province of Ontario
and the laws of Canada applicable therein and the parties hereto do hereby
attorn to the non-exclusive Jurisdiction of the courts of the Province of
Ontario.
1.07 TIME OF THE ESSENCE. Time shall in all respects be of the essence of this
agreement.
1.08 NON-BANKING DAYS. Subject to Section 7.04(c), whenever any payment to be
made hereunder shall be stated to be due or any action to be taken hereunder
shall be stated to be required to be taken on a day other than a Banking Day,
such payment shall be made or such action shall be taken on the next succeeding
Banking Day and, in the case of the payment of any amount, the extension of time
shall be included for the purposes of computation of interest, if any, thereon.
1.09 CONSENTS AND APPROVALS. Whenever the consent or approval of a party hereto
is required in a particular circumstance, unless otherwise expressly provided
for therein, such consent or approval shall not be unreasonably withheld or
delayed by such party.
1.10 AMOUNT OF CREDIT. Any reference herein to the "amount of credit
outstanding" or "amount of outstanding credit" or "outstanding amount of credit"
or any similar phrase shall mean, at any particular time:
(a) in the case of a Prime Rate Loan or a loan in Canadian dollars made
pursuant to Section 3.05, the principal amount thereof;
(b) in the case of a LIBO Loan, a Base Rate Canada Loan or a loan in
United States dollars made pursuant to Section 3.05, the Canadian
Dollar Equivalent of the principal amount thereof;
(c) in the case of Bankers' Acceptances, the face amount of the
Bankers' Acceptances;
(d) in the case of a Letter denominated in Canadian Dollars, the
outstanding amount of the contingent liability of the Bank
thereunder; and
<PAGE> 16
12.
(e) in the case of a Letter denominated in United States Dollars, the
Canadian Dollar Equivalent of the outstanding amount of the
contingent liability of the Bank thereunder.
1.11 SCHEDULES. Each and every one of the schedules which is referred to in this
agreement and attached to this agreement shall form a part of this agreement.
1.12 PARAMOUNTCY. In the event of any conflict or inconsistency between the
provisions of this agreement and the provisions of any other Loan Document, the
provisions of this agreement shall prevail and be paramount. If any covenant,
representation, warranty or event of default contained in any other Loan
Document is in conflict with or is inconsistent with a provision of this
agreement relating to the same specific matter, such covenant, representation,
warranty or event of default shall be deemed to be amended to the extent
necessary to ensure that it is not in conflict with or inconsistent with the
provision of this agreement relating to the same specific matter.
1.13 EXTENSION OF CREDIT. For the purposes hereof, each drawdown, rollover and
conversion shall be deemed to be an extension of credit to the Borrower
hereunder.
ARTICLE 2
CREDIT FACILITY
2.01 ESTABLISHMENT OF CREDIT FACILITY. Subject to the terms and conditions
hereof, the Bank hereby establishes a revolving term credit facility (the
"Credit Facility") in favour of the Borrower in the aggregate amount of Cdn.
$28,000,000 or the U.S. Dollar Equivalent thereof. Any Credit Excess of
$1,000,000 or more shall be repaid by the Borrower forthwith so that following
such payments or repayments to the Bank the amount of credit outstanding under
the Credit Facility will not exceed the Credit Facility.
2.02 BANK'S COMMITMENTS. Subject to the terms and conditions hereof, the Bank
agrees to extend credit to the Borrower hereunder from time to time provided
that the aggregate amount of credit extended by the Bank under the Credit
Facility shall not at any time exceed the amount of the Credit Facility referred
to in Section 2.01 as the same may be reduced pursuant to Section 2.03. All
credit requested hereunder, shall be made available to the Borrower by the Bank.
Subject to Sections 3.05 and 3.06, the Bank shall provide to the Borrower each
credit, whether such credit is extended by way of drawdown, rollover or
conversion.
2.03 REDUCTION OF CREDIT FACILITY. The Borrower may, from time to time and at
any time, by notice in writing to the Bank, permanently reduce the Credit
Facility to the extent it is not being utilized at the time such notice is
given, provided that such reduction shall not become effective until two Banking
Days after such notice has been given. The amount of the Credit Facility will be
permanently reduced to nil upon repayment on the Maturity Date of the aggregate
credit under the Credit Facility, all in accordance with Section 9.01. Any such
reduction shall not affect or diminish any of the obligations of the Borrower
hereunder. Any repayment or prepayment of credit outstanding under the Credit
Facility (other than pursuant to Section 9.01)
<PAGE> 17
13.
shall not cause a reduction in the amount of the Credit Facility.
Any repayment of outstanding credit which forms part of any conversion from one
type of credit to another type of credit under Article 3 or Article 6 shall not
cause any reduction in the amount of the Credit Facility.
2.04 TERMINATION OF CREDIT FACILITY.
(a) The Credit Facility shall terminate upon the earliest to occur of:
(i) the termination of the Credit Facility in accordance with
Section 13.01;
(ii) the date on which the Credit Facility has been
permanently reduced to zero pursuant to Section 2.03; and
(iii) the Maturity Date.
(b) Upon the termination of the Credit Facility, the right of the
Borrower to obtain any credit thereunder and all of the
obligations of the Bank to extend credit thereunder shall
automatically terminate.
ARTICLE 3
GENERAL PROVISIONS RELATING TO CREDITS
3.01 TYPES OF CREDIT AVAILMENTS. Subject to the terms and conditions hereof, the
Borrower may obtain credit under the Credit Facility by way of one or more Prime
Rate Loans, Base Rate Canada Loans, LIBO Loans, Bankers' Acceptances and, when
applicable, loans pursuant to Section 3.05. Subject also to the terms and
conditions hereof, the Borrower may obtain credit from the Bank by way of
overdrafts and by way of Letters.
3.02 FUNDING OF LOANS. The Bank shall make available the principal amount of
each Loan, in the appropriate currency, prior to 11:00 a.m. (Vancouver time) on
the date of the extension of credit. The Bank shall, upon fulfilment by the
Borrower of the terms and conditions set forth in Article 12, make such funds
available to the Borrower on the date of the extension of credit by crediting
the applicable Designated Account (or causing such account to be credited)
unless otherwise irrevocably authorized and directed in the Drawdown Notice.
3.03 FUNDING OF BANKERS' ACCEPTANCES.
(a) Subject to Section 3.05, the Bank shall, not later than 11:00
a.m. (Vancouver time) on the date of the extension of the
credit, accept drafts of the Borrower which are presented to
it for acceptance prior to the date of the credit and which
have an aggregate face amount equal to the total credit being
extended by way of Bankers' Acceptances on such date. With
respect to each drawdown of, rollover of or conversion into
Bankers' Acceptances, the Bank shall not be required to accept
any draft which has a face amount which is not an integral
multiple of Cdn. $100,000. Subject to the provisions hereof,
the Bank shall be responsible for
<PAGE> 18
14.
making all necessary arrangements with respect to the
stamping of Bankers' Acceptances.
(b) It shall be the responsibility of the Borrower to arrange in
accordance with normal market practice for the sale of the
Bankers' Acceptances and, accordingly, the Borrower shall
advise the Bank (no later than 11:00 a.m. (Vancouver time) on
the date of the extension of the credit) of the price payable
for each such Bankers' Acceptance by the purchaser thereof and
the purchaser who will be paying such price to and taking
delivery of such Bankers' Acceptances from the Bank. The Bank
is hereby authorized to release each Bankers' Acceptance
accepted by it to such purchaser upon receipt of an amount
equal to such price. Upon receipt of such purchase price, the
Bank shall deposit the amount so received to the applicable
Designated Account. The Borrower agrees to provide
ScotiaMcLeod Inc. with an opportunity to purchase each
Bankers' Acceptance issued by the Borrower.
3.04 SAFEKEEPING OF DRAFTS. The Bank agrees that, in respect of the safekeeping
of executed drafts of the Borrower which are delivered to it for acceptance
hereunder, it shall exercise the same degree of care which the Bank gives to its
own property, provided that the Bank shall not be deemed to be insurers thereof.
3.05 ALTERNATIVE BORROWINGS. If, in the sole judgment of the Bank reasonably
exercised, it is unable to extend credit by way of Bankers' Acceptances in
accordance with this agreement, the Bank shall give an irrevocable notice to
such effect to the Borrower prior to 10:00 a.m. (Vancouver time) on the date of
the requested credit extension and shall make available to the Borrower prior to
11:00 a.m. (Vancouver time) on the date of such requested credit extension a
Canadian dollar loan in the principal amount equal to the Bank's total credit to
be extended by way of Bankers' Acceptances, such loan to be funded in the same
manner as a Loan is funded pursuant to Section 3.02. Such loan shall have the
same term as the Bankers' Acceptances for which it is a substitute and shall
bear such rate of interest per annum throughout the term thereof as shall permit
the Bank to obtain the same effective rate as if the Bank had accepted and
purchased a Bankers' Acceptance at approximately 11:00 a.m. (Vancouver time) on
the date such loan is made, on the basis that, and the Borrower hereby agrees
that, for such a loan, interest shall be payable in advance on the date of the
credit by the Bank deducting the interest payable in respect thereof from the
principal amount of such loan.
3.06 INABILITY TO FUND U.S. DOLLAR ADVANCES IN CANADA. If the Bank determines in
good faith, which determination shall be final, conclusive and binding on the
Borrower, and the Bank notifies the Borrower that (i) by reason of circumstances
affecting financial markets inside or outside Canada, deposits of United States
dollars are unavailable to the Bank in Canada, (ii) adequate and fair means do
not exist for ascertaining the applicable interest rate on the basis provided in
the definition of LIBO Rate or Alternate Base Rate Canada, as the case may be,
(iii) the making or continuation of United States dollar advances in Canada has
been made impracticable by the occurrence of a contingency (other than a mere
increase in rates payable by the Bank to fund the advance) which materially and
adversely affects the funding of the advances at any interest rate computed on
the basis of the LIBO Rate or Alternate Base Rate Canada, as
<PAGE> 19
15.
the case may be, or by reason of a change in any applicable law or
government regulation, guideline or order (whether or not having the force of
law but, if not having the force of law, one with which a responsible Canadian
chartered bank would comply) or in the interpretation thereof by any Official
Body affecting the Bank or any relevant financial market, or (iv) any change to
present law or any future law, regulation, order, treaty or official directive
(whether or not having the force of law but, if not having the force of law,
one with which a responsible Canadian chartered bank would comply) or any
change therein or any interpretation or application thereof by any Official
Body has made it unlawful for the Bank to make or maintain or give effect to
its obligations in respect of United States dollar advances in Canada as
contemplated herein, then
(a) the right of the Borrower to obtain any affected type of
credit from the Bank shall be suspended until the Bank
determines that the circumstances causing such suspension no
longer exist and the Bank so notifies the Borrower;
(b) if any affected type of credit is not yet outstanding, any
applicable Drawdown Notice shall be cancelled and the advance
requested therein shall not be made;
(c) if any LIBO Loan is already outstanding at any time when the
right of the Borrower to obtain credit by way of a LIBO Loan
is suspended, it shall, subject to the Borrower having the
right to obtain credit by way of a Base Rate Canada Loan at
such time, be converted on the last day of the Interest Period
applicable thereto (or on such earlier date as may be required
to comply with any applicable law) to a Base Rate Canada Loan
in the principal amount equal to the principal amount of the
LIBO Loan or, if the Borrower does not have the right to
obtain credit by way of a Base Rate Canada Loan at such time,
such LIBO Loan shall be converted on the last day of the
Interest Period applicable thereto (or on such earlier date as
may be required to comply with any applicable law) to a Prime
Rate Loan in the principal amount equal to the Canadian Dollar
Equivalent of the principal amount of such LIBO Loan; and
(d) if any Base Rate Canada Loan is already outstanding at any
time when the right of the Borrower to obtain credit by way of
a Base Rate Canada Loan is suspended, it shall, subject to the
Borrower having the right to obtain credit by way of a LIBO
Loan at such time, be immediately converted to a LIBO Loan in
the principal amount equal to the principal amount of the Base
Rate Canada Loan and having an Interest Period of one month
or, if the Borrower does not have the right to obtain credit
by way of a LIBO Loan at such time, it shall be immediately
converted to a Prime Rate Loan in the principal amount equal
to the Canadian Dollar Equivalent of the principal amount of
the Base Rate Canada Loan.
3.07 TIMING OF CREDIT AVAILMENTS. No Bankers' Acceptance, LIBO Loan or loan
pursuant to Section 3.05 may have a maturity date later than the Maturity Date.
3.08 TIME AND PLACE OF PAYMENTS. Unless otherwise expressly provided herein, the
Borrower shall make all payments pursuant to this agreement by deposit to the
applicable Designated Account before 12:00 noon (Vancouver time) on the day
specified for payment and the Bank
<PAGE> 20
16.
shall be entitled to withdraw the amount of any payment due to the Bank
hereunder from such account on the day specified for payment.
3.09 EVIDENCE OF INDEBTEDNESS. The Bank shall maintain accounts wherein the Bank
shall record the amount of credit outstanding, each payment of principal and
interest on account of each Loan, each Bankers' Acceptance accepted and
cancelled, each Letter issued and drawn upon and all other amounts becoming due
to and being paid to the Bank hereunder, including acceptance fees, standby fees
and Letter fees. The Bank's accounts constitute, in the absence of manifest
error, prima facie evidence of the indebtedness of the Borrower to the Bank
pursuant to this agreement.
3.10 NOTICE PERIODS. Each Drawdown Notice, Rollover Notice and Conversion Notice
shall be given to the Bank:
(a) prior to 10:00 a.m. (Vancouver time) on the second Banking Day
prior to the date of a drawdown by the issuance of a Letter;
(b) prior to 10:00 a.m. (Vancouver time) on the second Banking Day
prior to the date of a drawdown of, rollover of or conversion
into a LIBO Loan or a drawdown of or conversion into a Base
Rate Canada Loan or a Prime Rate Loan having a principal
amount greater than $1,000,000;
(c) prior to 10:00 a.m. (Vancouver time) on the second Banking day
prior to the date of a drawdown of or conversion into a Base
Rate Canada Loan or a Prime Rate Loan having a principal
amount greater than or equal to $1,000,000 and less than or
equal to $1,000,000 or a drawdown of, rollover of or
conversion into a Bankers' Acceptance; and
(d) prior to 10:00 a.m. (Vancouver time) on the first Banking day
prior to the date of any other drawdown, rollover or
conversion.
ARTICLE 4
DRAWDOWNS
4.01 DRAWDOWN NOTICE. Subject to Sections 2.01, 3.05 and 3.06 and provided that
all of the applicable conditions precedent set forth in Article 12 have been
fulfilled by the Borrower or waived by the Bank, the Borrower may have credit
extended to it hereunder by giving to the Bank an irrevocable notice in
substantially the form of Schedule A hereto ("Drawdown Notice") specifying:
(a) the date the credit is to be extended;
(b) whether the credit is to be extended by way of Prime Rate
Loan, Base Rate Canada Loan, LIBO Loan or Bankers'
Acceptance;
<PAGE> 21
17.
(c) in the case of any credit to be extended by way of a Loan, the
principal amount of the Loan;
(d) if the credit is to be extended by way of LIBO Loan, the
applicable Interest Period;
(e) if the credit is to be extended by way of Bankers'
Acceptances, the aggregate face amount of the Bankers'
Acceptances to be issued (which may not be less than $100,000)
and the term of the Bankers' Acceptances;
(f) in the case of any credit obtained by Letters, the date of the
credit (being the requested date of issuance of the Letters),
the named beneficiary of the Letters, the maturity date and
aggregate amount of the Letters, the currency in which the
Letters are to be denominated and all other terms of the
Letters; and
(g) the details of any irrevocable authorization and direction
pursuant to Section 3.02.
4.02 EXPIRY OF AVAILABILITY. The Borrower shall not be entitled to have credit
extended to it by means of a drawdown under the Credit Facility after the
Maturity Date.
ARTICLE 5
ROLLOVERS
5.01 BANKERS' ACCEPTANCES. Subject to Section 3.05 and provided that the
Borrower has, by giving notice to the Bank in accordance with Section 5.03,
requested the Bank to accept its drafts to replace all or a portion of
outstanding Bankers' Acceptances as they mature, the Bank shall, on the maturity
of such Bankers' Acceptances and concurrent with the payment by the Borrower
to the Bank of the face amount of such Bankers' Acceptances or the portion
thereof to be replaced, accept the Borrower's drafts having an aggregate face
amount equal to the aggregate face amount of the matured Bankers' Acceptances or
the portion thereof to be replaced.
5.02 LIBO LOANS. Subject to Section 3.06 and provided that the Borrower has, by
giving notice to the Bank in accordance with Section 5.03, requested the Bank to
continue to extend credit by way of LIBO Loans to replace all or a portion of an
outstanding LIBO Loan as it matures, the Bank shall, on the maturity of the LIBO
Loan, continue to extend credit to the Borrower by way of a LIBO Loan (without a
further advance of funds to the Borrower) in the principal amount equal to the
principal amount of the matured LIBO Loan or the portion thereof to be replaced.
5.03 ROLLOVER NOTICE. The notice to be given to the Bank pursuant to Section
5.01 or 5.02 ("Rollover Notice") shall be an irrevocable notice in substantially
the same form as Schedule A attached hereto specifying:
(a) the maturity date of the maturing Bankers' Acceptances or the
maturing LIBO Loan, as the case may be;
<PAGE> 22
18.
(b) the face amount of the maturing Bankers' Acceptances or the
principal amount of the maturing LIBO Loan, as the case may
be, and the portion thereof to be replaced;
(c) in the case of a maturing LIBO Loan, the Interest Period or
Interest Periods of the replacement LIBO Loans; and
(d) in the case of maturing Bankers' Acceptances, the aggregate
face amount of the new Bankers' Acceptances to be issued and
the term of the new Bankers' Acceptances.
ARTICLE 6
CONVERSIONS
6.01 CONVERTING LOAN TO OTHER TYPE OF LOAN. Subject to Section 3.06 and provided
that the Borrower has, by giving notice to the Bank in accordance with Section
6.05, requested the Bank to convert all or a portion of an outstanding Loan of a
particular type (and, for the purposes of this Section 6.01, a loan pursuant to
Section 3.05 shall be deemed to be a Loan) into another type of Loan, the Bank
shall, on the date of conversion (which, in the case of the conversion of all or
a portion of an outstanding LIBO Loan or loan pursuant to Section 3.05, shall be
the date on which such Loan matures), continue to extend credit to the Borrower
by way of the type of Loan into which the outstanding Loan or a portion thereof
is converted (without a further advance of funds to the Borrower) in the
aggregate principal amount equal to the principal amount or the Canadian Dollar
Equivalent or U.S. Dollar Equivalent of the principal amount, as the case may
be, of the outstanding Loan or the portion thereof which is being converted.
6.02 CONVERTING LOAN TO BANKERS' ACCEPTANCES. Subject to Section 3.05 and
provided that the Borrower has, by giving notice to the Bank in accordance with
Section 6.05, requested the Bank to accept its drafts to replace all or a
portion of an outstanding Loan (and, for the purposes of this Section 6.02, a
loan pursuant to Section 3.05 shall be deemed to be a Loan) and, if a LIBO Loan
or a loan pursuant to Section 3.05 is to be replaced the date of conversion is
the date on which such Loan matures, the Bank shall, on the date of conversion
and concurrent with the payment by the Borrower to the Bank of the principal
amount of such outstanding Loan or the portion thereof which is being converted,
accept the Borrower's draft or drafts having an aggregate face amount equal to
the aggregate principal amount of such Loan or the portion thereof which is
being converted (if a Prime Rate Loan or a loan in Canadian Dollars pursuant to
Section 3.05 is being converted into a Bankers' Acceptance) or the Canadian
Dollar Equivalent of the aggregate principal amount of such Loan or the
portion thereof which is being converted (if a Base Rate Canada Loan, a loan
in United States dollars pursuant to Section 3.05 or a LIBO Loan is being
converted into a Bankers' Acceptance).
6.03 CONVERTING BANKERS' ACCEPTANCES TO LOAN. The Bank shall, on the maturity
date of a Bankers' Acceptance which the Bank has accepted, pay to the holder
thereof the face amount of such Bankers' Acceptance. Subject to Section 3.06 and
provided that the Borrower has, by giving notice to the Bank in accordance with
Section 6.05, requested the Bank to convert all or a portion
<PAGE> 23
19.
of outstanding maturing Bankers' Acceptances into a Loan, the Bank
shall, upon the maturity date of such Bankers' Acceptances and the payment by
the Bank to the holders of such Bankers' Acceptances of the aggregate face
amount thereof and concurrent with the payment by the Borrower to the Bank of
the aggregate face amount of such Bankers' Acceptances, extend credit to the
Borrower by way of the Loan into which the matured Bankers' Acceptances or a
portion thereof are converted in the aggregate principal amount equal to the
aggregate face amount or the U.S. Dollar Equivalent of the aggregate face
amount, as the case may be, of the matured Bankers' Acceptances or the portion
thereof which are being converted.
6.04 CONVERTING LETTER TO LOAN.
(a) In the event that the Bank is required to make a payment to
honour any demand under a Letter, it shall be deemed to have
extended credit to the Borrower by way of a Loan in the
principal amount equal to the amount of such payment or the
exchange equivalent of the amount of such payment, as the case
may be. If the Letter was denominated in Canadian dollars,
such Loan shall be a Canadian Loan. If the Letter was
denominated in United States dollars, such Loan shall be a
Base Rate Canada Loan. Such Loan shall constitute credit
outstanding under the Credit Facility.
(b) In the event that the Borrower is in default in respect of any
payment in respect of an outstanding Letter which it is
required to make to the Bank pursuant to Section 9.03, the
Bank shall be deemed to have extended credit to the Borrower
by way of a Loan in the principal amount equal to the amount
of such payment or the exchange equivalent of the amount of
such payment, as the case may be. If the Letter was
denominated in Canadian dollars, such Loan shall be a Canadian
Loan. If the Letter was denominated in United States dollars,
such Loan shall be a Base Rate Canada Loan. Such Loan shall
constitute credit outstanding under the Credit Facility.
6.05 CONVERSION NOTICE. The notice to be given to the Bank pursuant to Section
6.01, 6.02, 6.03 or 6.04 ("Conversion Notice") shall be irrevocable and shall
specify:
(a) whether an outstanding Loan or Bankers' Acceptances are to be
converted and the type of Loan to be converted;
(b) the date on which the conversion is to take place;
(c) the face amount of the Bankers' Acceptances or the portion
thereof which is to be converted or the principal amount of
the Loan or the portion thereof which is to be converted;
(d) the type and amount of the Loan or Bankers' Acceptances into
which the outstanding Loan or Bankers' Acceptances are to be
converted;
<PAGE> 24
20.
(e) if an outstanding Loan or Bankers' Acceptances are to be
converted into a LIBO Loan, the applicable Interest Period;
and
(f) if an outstanding Loan is to be converted into Bankers'
Acceptances, the aggregate face amount of the new Bankers'
Acceptances to be issued and the term of the new Bankers'
Acceptances.
6.06 CONVERSION AFTER DEFAULT. Upon written notice to such effect to the
Borrower at such time as a Default has occurred and is continuing, the Bank may,
on the maturity date of a Bankers' Acceptance, a loan pursuant to Section 3.05
or a LIBO Loan, as the case may be, automatically convert such Bankers'
Acceptance, loan pursuant to Section 3.05 or LIBO Loan into a Prime Rate Loan or
a Base Rate Canada Loan, as the case may be.
6.07 ABSENCE OF NOTICE. Subject to Section 3.06, in the absence of a Rollover
Notice or Conversion Notice within the appropriate time periods referred to
herein, a maturing LIBO Loan shall be automatically converted into a Base Rate
Canada Loan and a maturing Bankers' Acceptance shall be automatically converted
into a Prime Rate Loan, as though a notice to such effect had been given in
accordance with Section 6.05.
ARTICLE 7
INTEREST AND FEES
7.01 INTEREST RATES. The Borrower shall pay to the Bank interest on the
outstanding principal amount from time to time of each Loan and on the amount of
overdue interest thereon, at the rate per annum equal to:
(a) in the case of each Prime Rate Loan, the Bank's Prime Rate;
(b) in the case of each Base Rate Canada Loan, the Alternative
Base Rate Canada; and
(c) in the case of each LIBO Loan, the LIBO Rate plus 3/4% per
annum.
7.02 CALCULATION AND PAYMENT OF INTEREST.
(a) Interest on the outstanding principal amount from time to time
of each Prime Rate Loan and on overdue interest thereon shall
accrue from day to day from and including the date on which
credit is obtained by way of such Loan or on which such
overdue interest is due, as the case may be, to but
excluding the date on which such Loan or overdue interest, as
the case may be, is repaid in full (both before and after
maturity and as well after as before judgment) and shall be
calculated on the basis of the actual number of days elapsed
divided by 365 or by 366 in the case of a leap year.
<PAGE> 25
21.
(b) Interest on the outstanding principal amount from time to time
of each LIBO Loan and each Base Rate Canada Loan and on
overdue interest thereon shall accrue from day to day from and
including the date on which credit is obtained by way of such
Loan on which such overdue interest is due, as the case may
be, to but excluding the date on which such Loan or overdue
interest, as the case may be, is repaid in full (both before
and after maturity and as well after as before judgment) and
shall be calculated on the basis of the actual number of days
elapsed divided by 360.
(c) Accrued interest shall be paid,
(i) in the case of interest on Prime Rate Loans and Base
Rate Canada Loans and on overdue interest thereon,
monthly in arrears on the 22nd day of each calendar
month; and
(ii) in the case of interest on LIBO Loans, on the last
day of the applicable Interest Period; provided that,
in the case of Interest Periods of a duration longer
than three months, accrued interest shall be paid no
less frequently than every three months from the
first day of such Interest Period during the term of
such Interest Period and on the date on which such
LIBO Loans are otherwise required to be repaid.
7.03 GENERAL INTEREST RULES.
(a) For the purposes hereof, whenever interest is calculated on
the basis of a year of 360 days, each rate of interest
determined pursuant to such calculation expressed as an annual
rate for the purposes of the Interest Act (Canada) is
equivalent to such rate as so determined multiplied by the
actual number of days in the calendar year in which the same
is to be ascertained and divided by 360.
(b) Interest on each Loan and on overdue interest thereon shall be
payable in the currency in which such Loan is denominated
during the relevant period.
(c) If the Borrower fails to pay any fee or other amount (other
than principal or interest) of any nature payable by it
hereunder on the due date therefor, the Borrower shall pay to
the Bank interest on such overdue amount in the same currency
as such overdue amount is payable from and including such due
date to but excluding the date of actual payment (as well
after as before judgment) at the rate per annum, calculated
and compounded monthly, which is equal to: (i) the Alternate
Base Rate Canada plus 2% in the case of overdue amounts
denominated in U.S. dollars; and (ii) the Prime Rate plus
2% in the case of all other overdue amounts. Such interest
on overdue amounts shall become due and be paid on demand
made by the Bank.
<PAGE> 26
22.
7.04 SELECTION OF INTEREST PERIODS. With respect to each LIBO Loan, the Borrower
shall specify in the Drawdown Notice, Rollover Notice or Conversion Notice, the
duration of the Interest Period provided that:
(a) Interest Periods for LIBO Loans shall have a duration from one
to six months;
(b) the first Interest Period for a LIBO Loan shall commence on
and include the day on which credit is extended by way of such
Loan and each subsequent Interest Period applicable thereto
shall commence on and include the date of the expiry of the
immediately preceding Interest Period applicable thereto; and
(c) if any Interest Period would end on a day which is not a
Banking Day, such Interest Period shall be extended to the
next succeeding Banking Day unless such next succeeding
Banking Day falls in the next calendar month, in which case
such Interest Period shall be shortened to end on the
immediately preceding Banking Day.
7.05 ACCEPTANCE FEES. Upon the acceptance of any draft of the Borrower pursuant
hereto, the Borrower shall pay to the Bank, in advance, an acceptance fee
calculated at the rate per annum, on the basis of a year of 365 days or 366 days
in the case of a leap year, equal to the Corporate B/A Fee plus 1/8% per annum
on the face amount of such Bankers' Acceptance for its term, being the actual
number of days in the period commencing on the date of acceptance of the
Borrower's draft and ending on but excluding the maturity date of the Bankers'
Acceptance; provided, however, that such fee shall not be less than $100 with
respect to any single transaction involving the issuance of one or more Bankers'
Acceptances.
7.06 ARRANGEMENT FEE. The Borrower has agreed to pay an arrangement fee in the
amount of $25,000 to the Bank, of which $10,000 has been paid as of November 17,
1995, and of which the remaining $15,000 will be paid by the Borrower to the
Bank on the date first written above.
7.07 LETTER FEES. Upon the issue by the Bank of Letters hereunder and on the
last Banking Day in each fiscal quarter thereafter, the Borrower shall pay to
the Bank, in advance, a flat fee of 3/4% per annum based on the amount
guaranteed subject to a minimum of $250.
7.08 STANDBY FEE. Upon the 22nd day of each calendar month, the Borrower shall
pay to the Bank, in arrears, a standby fee calculated at the rate per annum, on
the basis of a 365-day year, equal to twenty (20) basis points on the unused
portion of the Credit Facility, such fee to accrue daily from the date of the
execution of this agreement.
ARTICLE 8
RESERVE, CAPITAL, INDEMNITY AND TAX PROVISIONS
8.01 CONDITIONS OF CREDIT. The obtaining or maintaining of credit hereunder
shall be subject to the terms and conditions contained in this Article 8.
<PAGE> 27
23.
8.02 CHANGE OF CIRCUMSTANCES. If, with respect to any type of credit, the
introduction or adoption of any law, regulation, guideline, request or directive
(whether or not having the force of law) of any governmental authority, central
bank or comparable agency ("Restraint") or any change therein or in the
application thereof to the Borrower or to the Bank or in the interpretation or
administration thereof or any compliance by the Bank therewith:
(a) prohibits or restricts extending or maintaining such type of
credit or the charging of interest or fees in connection
therewith, the Borrower agrees that the Bank shall have the
right to comply with such Restraint, shall have the right to
refuse to permit the Borrower to obtain such type of credit
and shall have the right to require, at the option of the
Borrower, the conversion of such outstanding credit to another
type of credit to permit compliance with the Restraint or
repayment in full of such credit together with accrued
interest thereon on the last day on which it is lawful for the
Bank to continue to maintain and fund such credit or to charge
interest or fees in connection therewith, as the case may be;
or
(b) shall impose or require any reserve, special deposit
requirements or tax (excluding taxes measured with reference
to the net income of the Bank), shall establish an appropriate
amount of capital to be maintained by the Bank or shall impose
any other requirement or condition which results in an
increased cost to the Bank of extending or maintaining a
credit or obligation hereunder or reduces the amount received
or receivable by the Bank with respect to any credit under
this agreement or reduces the Bank's effective return
hereunder or on its capital or causes the Bank to make any
payment or to forego any return based on any amount received
or receivable hereunder, then, on notification to the Borrower
by the Bank, the Borrower shall pay immediately to the Bank
such amounts as shall fully compensate the Bank for all such
increased costs, reductions, payments or foregone returns
which accrue up to and including the date of receipt by the
Borrower of such notice and thereafter, upon demand from time
to time, the Borrower shall pay such additional amount as
shall fully compensate the Bank for any such increased or
imposed costs, reductions, payments or foregone returns. The
Bank shall notify the Borrower of any actual increased or
imposed costs, reductions, payments or foregone returns
forthwith on becoming aware of same and shall concurrently
provide to the Borrower a certificate of an officer of the
Bank setting forth the amount of compensation to be paid to
the Bank and the basis for the calculation of such amount.
Notwithstanding this Section 8.02(b), the Borrower shall not
be liable to compensate the Bank for any such cost, reduction,
payment or foregone return occurring more than 30 days before
receipt by the Borrower of the aforementioned notification
from the Bank; provided, however, that the aforementioned
limitation shall not apply to any such cost, reduction,
payment or foregone return of a retroactive nature.
8.03 INDEMNITY RELATING TO CREDITS. Upon notice from the Bank to the Borrower
(which notice shall be accompanied by a detailed calculation of the amount to be
paid by the Borrower), the Borrower shall pay to the Bank such amount or amounts
as will compensate the Bank for any loss, or reasonable cost or expense incurred
by it:
<PAGE> 28
24.
(a) in the liquidation or redeposit of any funds acquired by the
Bank to fund or maintain any portion of a LIBO Loan or a loan
pursuant to Section 3.05 as a result of:
(i) the failure of the Borrower to borrow or make
repayments on the dates specified under this
agreement or in any notice from the Borrower to the
Bank; or
(ii) the repayment or prepayment of any amounts on a day
other than the payment dates prescribed herein; or
(b) with respect to any Bankers' Acceptance or Letter, arising
from claims or legal proceedings, and including reasonable
legal fees and disbursements, respecting the collection of
amounts owed by the Borrower hereunder in respect of such
Bankers' Acceptance or Letter or the enforcement of the Bank's
rights hereunder in respect of such Bankers' Acceptance or
Letter including, without limitation, legal proceedings
attempting to restrain the Bank from paying any amount under
such Bankers' Acceptance or Letter.
8.04 INDEMNITY FOR TRANSACTIONAL LIABILITY.
(a) The Borrower hereby agrees to indemnify, exonerate and hold
the Bank and each of its shareholders, officers, directors,
employees, and agents (collectively, the "Indemnified
Parties") free and harmless from and against any and all
claims, demands, actions, causes of action, suits, losses,
costs (including, without limitation, all documentary,
recording filing, mortgage or other stamp taxes or duties),
charges, liabilities and damages, and reasonable expenses in
connection therewith (irrespective of whether such Indemnified
Party is a party to the action for which indemnification
hereunder is sought), and including, without limitation,
reasonable legal fees and out of pocket disbursements
(collectively the "Indemnified Liabilities"), incurred or
suffered by, or asserted against, the Indemnified Parties or
any of them as a result of, or arising out of, or relating to
(i) the extension of credit contemplated herein; (ii) any
transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any credit
obtained hereunder, (iii) any actual or threatened
investigation, litigation or other proceeding relating to any
credit extended or proposed to be extended as contemplated
herein; or (iv) the execution, delivery, performance or
enforcement of this agreement and any instrument, document or
agreement executed pursuant hereto, except for any such
Indemnified Liabilities that a court of competent
jurisdiction, arbitration or mediation determined arose on
account of the relevant Indemnified Party's negligence or
willful misconduct and, to the extent that the foregoing
undertaking may be unenforceable for any reason, the
Borrower agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
<PAGE> 29
25.
(b) All obligations provided for in this Section 8.04 shall
survive for two years following the permanent repayment of the
outstanding Credit hereunder and any termination of this
agreement and shall not be reduced or impaired by any
investigation made by or on behalf of the Bank.
(c) The Borrower hereby agrees that, for the purposes of
effectively allocating the risk of loss placed on the Borrower
by this Section 8.04, the Bank shall be deemed to be acting as
the agent or trustee on behalf of and for the benefit of its
shareholders, officers, directors, employees and agents.
8.05 PAYMENTS FREE AND CLEAR OF TAXES. The Borrower hereby agrees that any and
all payments made hereunder by the Borrower to or for the benefit of the Bank
("Applicable Payments") shall be made free and clear of, and without deduction
for, any and all present or future taxes, levies, imposts, deductions, charges,
fees, duties or withholding or other charges of any nature imposed by any taxing
authority, and all liabilities with respect thereto, imposed by any jurisdiction
(the "Applicable Jurisdiction") as a consequence or result of any action taken
by the Borrower, including the making of an Applicable Payment but excluding, in
the case of the Bank, taxes imposed on its net income or capital taxes or
receipts and franchise taxes (all such non-excluded taxes, levies, imposts,
deductions, charges, fees, duties, withholding and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any Applicable Payment to the Bank, the sum so
payable to the Bank shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 8.05) the Bank receives an amount equal to the sum it
would have received had no such deductions been made. Without prejudice to the
survival of any other agreement of the Borrower hereunder, the agreements and
obligations of the Borrower contained in this Section 8.05 shall survive for two
years following the permanent repayment of the outstanding credit hereunder and
the termination of the Credit Agreement.
ARTICLE 9
REPAYMENTS AND PREPAYMENTS
9.01 REPAYMENT. The Borrower shall repay to the Bank all of the outstanding
credit under the Credit Facility on the Maturity Date.
9.02 VOLUNTARY PREPAYMENTS UNDER CREDIT FACILITY. The Borrower shall be entitled
to prepay all or any portion of the outstanding credit under the Credit Facility
(other than the prepayment of Bankers' Acceptances on any day other than the
last day of their term) at any time, without penalty, provided that (i)
notice of such prepayment is given to the Bank at least one Banking Day
prior to the date of such prepayment and (ii) Section 8.03 (a) shall be
complied with in connection with any such prepayment. Amounts which are
prepaid as aforesaid may be reborrowed.
9.03 BANKERS' ACCEPTANCES AND LETTERS. If any repayment or prepayment by the
Borrower hereunder shall require the prepayment of a Bankers' Acceptance or a
Letter on any day other
<PAGE> 30
26.
than the last day of its term, the amount of such repayment or
prepayment of a Bankers' Acceptance or a Letter shall be the aggregate amount
guaranteed under any outstanding Letters issued by the Bank under the Credit
Facility and the present value of the face amount of such Bankers' Acceptance
based on its maturity date, such present value to be calculated using a
discount rate equal to the yield of Government of Canada treasury bills having
a similar maturity date.
9.04 EARLY TERMINATION OF LETTERS. The Borrower shall pay to the Bank all of the
Bank's contingent liability in respect of any Letter which is the subject matter
of any order, judgment, injunction or other such determination restricting
payment by the Bank under and in accordance with such Letter or extending the
Bank's liability under such Letter beyond the expiration date stated therein (an
"Order"). Such payment in respect of each such Letter shall be due forthwith
upon demand and in the currency in which such Letter is denominated (the "Letter
Currency"). The Bank hereby agrees that it shall, with respect to each such
Letter, upon the later of:
(a) the date on which any final and non-appealable order, judgment
or other such determination has been rendered or issued either
terminating the applicable Order or permanently enjoining the
Bank from paying under such Letter; and
(b) the earlier of:
(i) the date on which either the original counterpart of
such Letter is returned to the Bank for cancellation
or the Bank is released by the beneficiary from any
further obligations in respect of such Letter; and
(ii) the expiry of such Letter;
pay to the Borrower an amount in the applicable Letter Currency equal to any
excess of the amount received by the Bank hereunder in respect of the Bank's
contingent liability under such Letter over the equivalent in such Letter
Currency of the total of amounts applied to reimburse the Bank for amounts paid
by it under such Letter (the Bank having the right to so appropriate such
funds). In accordance with standard industry practice, the Bank shall pay to the
Borrower interest on any amounts paid to the Borrower under this Section 9.04.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.01 REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
agreement, the Borrower hereby represents and warrants to the Bank, as at the
date of this agreement and as at the date of each extension of credit hereunder
as set forth in Article 12, as follows and acknowledges and confirms that the
Bank is relying upon such representations and warranties in executing this
agreement and in extending credit hereunder:
(a) STATUS AND POWER. The Borrower and each of its Restricted
Subsidiaries is a corporation duly incorporated, amalgamated
or continued, as the case may be,
<PAGE> 31
27.
organized and validly subsisting in good standing under the
laws of its jurisdiction of incorporation. The Borrower and
each of its Restricted Subsidiaries is duly qualified,
registered or licensed in all jurisdictions where such
qualification, registration or licensing is required except
where the failure to be so qualified, registered or licensed
would not have a Material Adverse Effect. The Borrower and
each of its Restricted Subsidiaries has all requisite
corporate capacity, power and authority to own, hold under
licence or lease its properties, to carry on its business
as now conducted and to otherwise enter into, and carry out
the transactions contemplated by, the Loan Documents to
which it is a signatory.
(b) AUTHORIZATION AND ENFORCEMENT OF DOCUMENTS. All necessary
action, corporate or otherwise, has been taken to authorize
the execution, delivery and performance of the Loan Documents
by the Borrower. The Borrower has duly executed and delivered
this agreement and the Borrower will duly execute and deliver
the Loan Documents to which it is a signatory. The Loan
Documents are, or will be upon their execution, legal, valid
and binding obligations of the Borrower, enforceable against
the Borrower by the Bank in accordance with their respective
terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization and other laws of general
application limiting the enforcement of creditors' rights and
the fact that the courts may deny the granting or enforcement
of equitable remedies.
(c) COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance by the Borrower of the Loan Documents, and the
consummation of the transactions contemplated herein and
therein do not and will not conflict with, result in any
material breach or violation of, or constitute a material
default under, the terms, conditions or provisions of the
charter or constating documents or by-laws of, or any
shareholder agreement relating to, the Borrower or of any law,
regulation, judgment, decree or order binding on or applicable
to the Borrower or to which its property is subject or of any
material agreement, lease, licence, permit or other instrument
to which the Borrower is a party or is otherwise bound or by
which the Borrower benefits or to which its property is
subject and do not require the consent or approval of any
Official Body or any other party.
(d) FINANCIAL STATEMENTS. The audited financial statements of the
Borrower for its Fiscal Year ended December 31, 1994 and the
unaudited financial statements of the Borrower for its Fiscal
Quarter ended September 30, 1995 were prepared in accordance
with generally accepted accounting principles and no Material
Adverse Change has occurred in the condition, financial or
otherwise, of the Borrower since September 30, 1995, save and
except for costs associated with the acquisition and
development of the Kemess South property as disclosed to the
Bank. The balance sheet of the aforesaid financial statements
present a fair statement of the financial condition and
assets and liability of the Borrower as at the respective
dates hereof and the statement of income and retained
earnings and changes in the financial condition contained in
the aforesaid financial statements fairly present the results
of the operations of the Borrower throughout the periods
<PAGE> 32
28.
covered thereby. Except to the extent reflected or reserved
against in the aforesaid balance sheet (including the notes
thereto) and except as incurred in the ordinary and usual
course of the business of the Borrower, the Borrower does
not have any outstanding indebtedness or any liability or
obligations (whether accrued, absolute, contingent or
otherwise) of a nature customarily reflected or reserved
against in a balance sheet (including the notes thereto)
prepared in accordance with generally accepted accounting
principles.
(e) LITIGATION. There are no actions, suits, inquiries, claims or
proceedings (whether or not purportedly on behalf of the
Borrower or any of its Subsidiaries) pending or threatened in
writing against or affecting the Borrower or any of its
Subsidiaries before any Official Body which in any case or in
the aggregate could reasonably be expected to have a Material
Adverse Effect other than those set out in Schedule F hereto.
(f) TITLE TO ASSETS. The Borrower and each of its Subsidiaries has
a good and marketable title to all of its property, assets and
undertaking, free from any Lien other than the Permitted
Encumbrances.
(g) CONDUCT OF BUSINESS. The Borrower and each of its Subsidiaries
is not in violation of any mortgage, franchise, licence,
judgment, decree, order, statute, rule or regulation relating
in any way to itself or to the operation of its business or to
its property or assets (including, without limitation,
Environmental Laws or laws relating to the discharge, spill,
disposal or emission of any Hazardous Materials) and which
could reasonably be expected to have a Material Adverse
Effect. The Borrower and each of its Restricted Subsidiaries
has all material licenses, permits and consents which are
required to operate its businesses where they are currently
being operated except when the failure to have such licences,
certificates of approval, approvals, registrations, permits
and consents could not reasonably be expected to have a
Material Adverse Effect.
(h) OUTSTANDING DEFAULTS. No event has occurred which constitutes
or which, with the giving of notice, lapse of time or both,
would constitute a default under or in respect of any material
agreement, undertaking or instrument to which the Borrower
or any of its Subsidiaries is a party or to which
their property or assets may be subject and which could
reasonably be expected to have a Material Adverse Effect.
(i) SOLVENCY. The Borrower and each of its Subsidiaries has not:
(i) admitted its inability to pay its debts generally as
they become due or failed to pay its debts generally
as they become due;
(ii) filed a notice of intention to file a proposal, an
assignment or petition in bankruptcy or a petition to
take advantage of any insolvency statute;
<PAGE> 33
29.
(iii) made an assignment for the benefit of its creditors;
(iv) consented to the appointment of a receiver of the
whole or any substantial part of its assets;
(v) filed a petition or answer seeking a reorganization,
arrangement, adjustment or composition under
applicable bankruptcy laws or any other applicable
law or statute of Canada or the United States; or
(vi) been adjudged by a court having jurisdiction a
bankrupt or insolvent; nor has a decree or order of a
court having jurisdiction been entered for the
appointment of a receiver, liquidator, trustee or
assignee in bankruptcy with such decree or order
having remained in force and undischarged or unstayed
for a period of thirty days.
(j) MARKETABLE TITLE. The Borrower and each of its Restricted
Subsidiaries has good and marketable title to all of their
respective right, title and interest in and to the Principal
Properties and other properties, subject only to the existing
securities interests described in Schedule B.
(k) LEASED PROPERTIES. Each mining lease in respect of the
Principal Properties and other leased property of the Borrower
or any Restricted Subsidiary is in good standing and all
amounts owing thereunder have been paid to the date hereof.
(l) SUBSIDIARIES. Schedule E sets out a complete and correct list
of all Restricted Subsidiaries of the Borrower at the date
hereof and such Restricted Subsidiaries and the other
Subsidiaries mentioned therein are the only Subsidiaries
material to the conduct of the business of the Borrower and
its Subsidiaries as carried on the date hereof.
(m) TAX RETURNS AND TAXES. Upon each extension of credit
hereunder, the Borrower and each of its Subsidiaries will have
filed all tax returns and tax reports required by law to have
been filed by it and will have paid all taxes and governmental
charges thereby shown to be owing, except any such taxes or
charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in
accordance with generally accepted accounting principles
shall have been set aside on its books.
(n) EXPROPRIATION. Subject to completion of the settlement reached
with the Government of British Columbia on the Windy Craggy
property, there is no present or threatened (in writing)
expropriation of the property or assets of the Borrower or any
of its Subsidiaries, which expropriation could reasonably be
expected to have a Material Adverse Effect.
(o) PARTNERSHIP, ETC. The Borrower or any of its Subsidiaries is
not, directly or indirectly, a member of or participant in any
partnership, joint venture or syndicate
<PAGE> 34
30.
where the joint liability arising from such membership or
participation could reasonably be expected to have a
Material Adverse Effect.
(p) FRENCH FORM OF NAMES. There is no French form of the corporate
name of the Borrower or any of its Subsidiaries.
(q) OFFICES AND PLACES OF BUSINESS. The address of the registered
or corporate office of the Borrower is c/o Royal Oak Mines
(USA) Inc., 5501 Lakeview Drive, Kirkland, Washington, 98033.
(r) TRADE NAMES, ETC. Save and except for Arctic Precious Metals,
Inc. which carries on business under the name "Royal Oak Mines
(USA) Inc.", neither the Borrower nor any of its Subsidiaries
carries on any business under any business name, business
style or trade name other than their corporate names.
(s) NO OMISSIONS. None of the representations and statements of
fact set forth in this Section 10.01 omits to state any
material fact necessary to make any such representation or
statement of fact not misleading in any nature and respect.
10.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Borrower contained in Section 10.01 shall survive the
execution and delivery of this agreement until all credit outstanding hereunder
has been repaid in full and the Credit Facility has been cancelled
notwithstanding any investigation made at any time by or on behalf of the Bank.
ARTICLE 11
COVENANTS
11.01 AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees with the
Bank that, until all credit outstanding hereunder has been repaid in full and
the Credit Facility has been cancelled, and unless the Bank otherwise expressly
consents in writing:
(a) FINANCIAL REPORTING. The Borrower shall furnish the Bank with
the following statements and reports:
(i) within 120 days after the end of each Fiscal Year of
the Borrower, copies of the Borrower's audited
consolidated financial statements with respect
thereto and the auditors' reports thereon;
(ii) within 120 days after the end of each Fiscal Year of
the Borrower, copies of the Borrower's unaudited
unconsolidated financial statements with respect
thereto;
<PAGE> 35
31.
(iii) within 60 days after the end of each Fiscal Quarter
of the Borrower, a copy of the Borrower's unaudited
consolidated financial statements with respect
thereto;
(iv) within 30 days after the end of each calendar month,
a duly executed and completed compliance certificate,
in the form attached as Schedule C hereto, evidencing
compliance with the terms of this agreement and
certifying the information contained therein;
(v) such additional financial or operating reports or
statements as the Bank may, from time to time,
reasonably require.
(b) COPIES OF PUBLIC FILINGS. The Borrower shall upon request,
furnish the Bank with copies of all documents filed with any
securities commission in compliance with applicable securities
legislation except those filed on a confidential basis until
confidentiality is waived by the Borrower.
(c) CORPORATE EXISTENCE. The Borrower shall maintain and preserve
and cause each of its Restricted Subsidiaries to maintain and
preserve its corporate existence in good standing and shall
qualify and remain duly qualified to carry on business and own
property in each jurisdiction in which such qualification is
necessary and where failure to so qualify would have a
Material Adverse Effect.
(d) CONDUCT OF BUSINESS. The Borrower shall conduct, and cause
each of its Restricted Subsidiaries to conduct, its business
in such a manner so as to comply in all material respects with
all material laws and regulations, (including, without
limitation, Environmental Laws) so as to observe and perform
all its obligations under leases, licences and agreements
necessary for the proper conduct of its business and so as to
preserve and protect its property and assets and the earnings,
income and profits therefrom including, without limitation,
laws intended to protect the environment or relating to the
discharge, spill, disposal or emission of Hazardous Materials.
The Borrower shall perform, and cause each of its Restricted
Subsidiaries to perform all material obligations incidental to
any trust imposed upon it by statute and shall ensure that any
material breaches of the said obligations and the consequences
of any such breach shall be promptly remedied. The Borrower
shall obtain and maintain, and cause each of its Restricted
Subsidiaries to obtain and maintain, all material licenses,
permits, government approvals, franchises, authorizations and
other rights necessary for the operation of its respective
business where failure to do so could reasonably be expected
to have a Material Adverse Change.
(e) USE OF PROCEEDS. The Borrower shall apply all of the proceeds
of the credit obtained under the Credit Facility for general
corporate purposes.
(f) INSURANCE. The Borrower shall insure, and cause each of its
Restricted Subsidiaries to insure, and keep insured, with
insurers, for risks, in amounts and
<PAGE> 36
32.
otherwise upon terms satisfactory to the Bank, all of its
tangible property and assets. The Borrower shall deliver to
the Bank certificates of insurance in respect of the
aforesaid insurance.
(g) TAXES. The Borrower shall pay and cause each of its Restricted
Subsidiaries to pay all material taxes, rates, government fees
and dues levied, assessed or imposed upon it and upon its
property or assets or any part thereof, as and when the same
become due and payable, save and except when and so long as
the validity of any such taxes, rates, fees, dues, levies,
assessments or imposts is being contested in good faith by
appropriate proceedings and reserves are being maintained in
accordance with generally accepted accounting principles while
forfeiture of any part of the property or assets of any of
them may result from the failure to so pay during the period
of any such contest, and the Borrower shall deliver to the
Bank, when requested, certified copies of the receipts and
vouchers establishing such payment.
(h) REIMBURSEMENT OF EXPENSES. The Borrower shall reimburse the
Bank, on demand, for all reasonable out-of-pocket costs,
charges and expenses incurred by or on behalf of the Bank
including, without limitation, the reasonable fees and
out-of-pocket disbursements of counsel to the Bank in
connection with:
(i) the development, negotiation, preparation, execution
and delivery of the Loan Documents and all closing
documentation ancillary to the completion of the
transactions contemplated thereby (limited to a
maximum of $10,000 for legal fees incurred in
connection with the preparation of the Loan
Documents) and any amendments and waivers thereto
(whether or not consummated or entered into); and
(ii) any lien search fees and recording and filing fees.
The Borrower shall also reimburse the Bank, on demand, for all
reasonable out-of-pocket costs, charges and expenses incurred
by the Bank (including, without limitation, the reasonable
fees and out-of-pocket disbursements of counsel to the Bank)
in connection with the interpretation and enforcement of the
rights of the Bank under the Loan Documents or any other
documentation ancillary to the completion of the
transactions contemplated thereby.
(i) INSPECTION OF ASSETS AND OPERATIONS. The Borrower shall
permit, and cause each of its Restricted Subsidiaries to
permit, representatives of the Bank to inspect the tangible
property and assets and the operations of the Principal
Properties and for that purpose to enter its premises and any
other location where any of its tangible property or assets
may be situated during reasonable business hours and, unless a
Default has occurred and is continuing, upon reasonable
notice, not more than once a year.
<PAGE> 37
33.
(j) BOOKS AND RECORDS. The Borrower shall keep, and cause each of
its Restricted Subsidiaries to keep, proper books of account
and records covering all its business and affairs on a current
basis.
(k) CHANGE OF NAME OR PLACE OF BUSINESS. If the Borrower changes
its corporate or head office or its principal place of
business or if it adopts a French form of its corporate name,
the Borrower shall promptly notify the Bank in writing of the
details of such change.
(l) NOTICE OF LITIGATION. The Borrower shall promptly notify, and
cause each of its Restricted Subsidiaries to promptly notify,
the Bank of any actions, suits, inquiries, claims or
proceedings (whether or not purportedly on behalf of the
Borrower or any of its Subsidiaries) commenced or threatened
in writing against or affecting the Borrower or any of its
Subsidiaries before any Official Body which affects the
Principal Properties singly or in the aggregate and which
could reasonably be expected to have a Material Adverse
Effect.
(m) PROPERTIES IN GOOD CONDITION. The Borrower shall keep, and
cause each of its Restricted Subsidiaries to keep, the
Principal Properties and its other properties in all material
respects in good repair, working order and condition
(reasonable wear and tear excepted) and, from time to time,
make or cause to make all needful and proper repairs,
renewals, replacements, additions and improvements thereto, so
that the business carried on may be properly and
advantageously conducted at all times in accordance with
prudent business management.
(n) DEBT TO TANGIBLE NET WORTH. At all times and from time to time
the Consolidated Debt to Consolidated Tangible Net Worth Ratio
shall be equal to or less than 0.15:1.
(o) INTEREST COVERAGE. At all times and from time to time the
Interest Coverage Ratio shall be greater than or equal to
2.0:1.
11.02 PERFORMANCE OF COVENANTS BY THE BANK. The Bank may, in its sole discretion
and upon reasonable notice by the Bank to the Borrower, perform any covenant of
the Borrower under this agreement which the Borrower fails to perform or cause
to be performed and which the Bank is capable of performing, including any
covenants the performance of which requires the payment of money, provided that
the Bank shall not be obligated to perform any such covenant on behalf of the
Borrower and no such performance by the Bank shall require the Bank to further
perform the Borrower's covenants or shall operate as a derogation of the rights
and remedies of the Bank under this agreement. Any amounts paid by the Bank as
aforesaid shall be repaid by the Borrower to the Bank on demand.
11.03 RESTRICTIVE COVENANTS. The Borrower hereby covenants and agrees with the
Bank that, until all credit outstanding hereunder has been repaid in full and
the Credit Facility has been cancelled, and unless the Bank otherwise expressly
consents in writing:
<PAGE> 38
34.
(a) ENCUMBRANCES. The Borrower and its Restricted Subsidiaries
shall not enter into or grant, create, assume or suffer to
exist any Lien affecting any of its properties or assets, save
and except only for the Permitted Encumbrances.
(b) CORPORATE EXISTENCE. The Borrower shall not, except with
direct and indirect Subsidiaries of the Borrower, take part in
any amalgamation, merger, dissolution, winding up,
reorganization or similar proceeding or arrangement or
discontinue any material businesses.
(c) OWNERSHIP OF RESTRICTED SUBSIDIARIES. The Borrower shall not
sell or otherwise dispose of any shares in the capital of any
Restricted Subsidiary or permit any Restricted Subsidiary to
issue, sell or otherwise dispose of any shares of its capital,
or the capital of any other Restricted Subsidiary except to
the Borrower.
(d) OWNERSHIP OF PRINCIPAL PROPERTIES. Neither the Borrower nor
any Restricted Subsidiary shall sell or transfer or otherwise
dispose of any of the Principal Properties.
(e) LEASE-BACKS. The Borrower shall not enter into, or permit any
of its Restricted Subsidiaries to enter into, any
arrangements, directly or indirectly, with any Person, whereby
the Borrower or one of its Restricted Subsidiaries, as the
case may be, shall sell or transfer any Principal Property or
other property, whether now owned or hereafter acquired, used
or useful in its business, in connection with the rental or
lease of the property so sold or transferred or of other
property used for substantially the same purpose or purposes
as the property so sold or transferred; provided that
lease-back arrangements with respect to property hereafter
acquired will be permitted in circumstances where the only
recourse with respect to the debt owing thereunder will be to
the hereafter acquired property.
(f) AMENDMENTS TO ARTICLES. The Borrower shall not amend, or
suffer or permit the amendment of, the articles of
incorporation (or similar constating document) of itself or
each of its Restricted Subsidiaries.
ARTICLE 12
CONDITIONS PRECEDENT TO OBTAINING CREDIT
12.01 CONDITIONS PRECEDENT TO ALL CREDIT. The obligation of the Bank to extend
credit hereunder is subject to fulfilment of the following conditions precedent
on the date such credit is extended:
(a) no Default has occurred and is continuing or would arise
immediately after giving effect to or as a result of such
extension of credit;
(b) the Borrower shall have complied with the requirements of
Article 4, 5 or 6, as the case may be, in respect of the
relevant credit;
<PAGE> 39
35.
(c) the representations and warranties of the Borrower contained
in Section 10.01 shall be true and correct in all material
respects at the time such credit is extended as if such
representations and warranties were made on such date; and
(d) there has not occurred a material adverse change in the
financial condition, operations, assets, business, properties
or prospects of the Borrower or any of its Subsidiaries or in
the ability of the Borrower to perform its obligations under
this agreement or in the ability of the Bank to enforce any of
such obligations.
12.02 CONDITIONS PRECEDENT TO INITIAL DRAWDOWN. The obligation of the Bank to
extend credit for the first time hereunder is subject to fulfilment of the
following conditions precedent on the date such credit is extended:
(a) the conditions precedent set forth in Section 12.01 have been
fulfilled;
(b) there has not occurred a Material Adverse Change;
(c) the Bank had received the certificates of insurance referred
to in Section 11.01(g);
(d) the Bank has received in form and substance satisfactory to
the Bank:
(i) a duly certified resolution of the board of directors
of the Borrower authorizing the Borrower to execute,
deliver and perform its obligations under this
agreement;
(ii) a certificate of a senior officer of the Borrower
setting forth specimen signatures of the individuals
authorized to sign this agreement,
(iii) a certificate of a senior officer of the Borrower
certifying that, to the best of his/her knowledge
after due inquiry, (A) no Default has occurred and is
continuing and (B) there are no Subsidiaries of the
Borrower of which the Borrower is aware other than
those set out in Schedule E;
(iv) a specimen Compliance Certificate in the form of
Schedule C using values as at the most recently
completed month end; and
(e) the Bank has received in the form and substance satisfactory
to the Bank, opinions of the Borrower's counsel addressed to
the Bank and to the Bank's counsel, Messrs. Smith Lyons
relating to the status and capacity of the Borrower, the due
authorization, execution and delivery and the validity and
enforceability of the Loan Documents in the jurisdictions of
incorporation of the signatories thereto and other
appropriate jurisdictions and such other matters as the Bank
may reasonably request.
12.03 WAIVER. The terms and conditions of Sections 12.01 and 12.02 are inserted
for the sole benefit of the Bank and the Bank may waive them in whole or in
part, with or without terms or
<PAGE> 40
36.
conditions, in respect of any extension of credit, without prejudicing the
Bank's right to assert them in whole or in part in respect of any other
extension of credit.
ARTICLE 13
DEFAULT AND REMEDIES
13.01 EVENTS OF DEFAULT. Upon the occurrence of any one or more of the following
events, unless expressly waived in writing by the Bank.
(a) the breach by the Borrower of the provisions of Section 9.01;
(b) the non-payment of any amount due hereunder (other than amount
due pursuant to Section 9.01) within three Banking Days after
payment is due;
(c) the commencement of proceedings for the dissolution,
liquidation or winding-up of the Borrower or any of its
Restricted Subsidiaries (other than as permitted herein) or
for the suspension of the operations of the Borrower or any of
its Restricted Subsidiaries unless such proceedings are
approved by the Bank or are commenced by another party and
such proceedings are being diligently defended and have been
discharged, vacated or stayed within sixty days after
commencement;
(d) the Borrower or any of its Restricted Subsidiaries ceases or
threatens to cease to carry on its business or is adjudged or
declared bankrupt or insolvent or admits in writing its
inability to pay debts as they become due or files a notice of
intention to file a proposal or makes an assignment for the
general benefit of creditors, petitions or applies to any
tribunal for the appointment of a receiver or trustee for it
or for any part of its property (or such a receiver or trustee
is appointed for it or any part of its property), or commences
(or any other person commences) any proceedings relating to it
under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction whether now or hereafter in
effect, or by any act indicates its consent to, approval of,
or acquiescence in, any such proceeding for it or for any
material part of its property, or suffers the appointment of
any receiver or trustee, sequestrator or other custodian
(unless, such proceedings are commenced by another person,
such proceedings are being diligently defended and
have been discharged, vacated or stayed within sixty days
after commencement);
(e) any representation or warranty made by the Borrower in any
Loan Document or in any other document, agreement or
instrument delivered pursuant thereto or referred to therein
or any material information furnished in writing to the Bank
by the Borrower proves to have been incorrect in any material
respect when made or furnished;
<PAGE> 41
37.
(f) a writ, execution, attachment or similar process is issued or
levied against all or any material portion of the property of
the Borrower or any of its Restricted Subsidiaries in
connection with any judgment against it in any amount which
could reasonably be expected to have a Material Adverse
Effect, and such writ, execution, attachment or similar
process is not being diligently defended by the Borrower and
is not released, bonded, satisfied, discharged, vacated or
stayed within sixty days after its entry, commencement or
levy;
(g) the breach or failure of due observance or performance by the
Borrower or any of its Restricted Subsidiaries of any covenant
or provision of this agreement, other than those heretofore or
hereafter dealt with in this Section 13.01, or of any other
document, agreement or instrument delivered pursuant hereto or
referred to herein or entered into between the Bank and the
Borrower which is not remedied within ten days after written
notice to do so has been given by the Bank to the Borrower;
(h) one or more encumbrancers, lienors or landlords take
possession of any part of the property of the Borrower or any
of its Restricted Subsidiaries or attempt to enforce their
security or other remedies against such property and their
claims remain unsatisfied for such period as would permit such
property to be sold thereunder and such property which has
been repossessed or is capable of being sold has an aggregate
fair market value of at least $10,000,000; or
(i) a default or an event of default under any one or more
agreements, indentures or instruments under which the Borrower
or any of its Restricted Subsidiaries has outstanding
indebtedness in an amount greater than $10,000,000 or under
which any other person has outstanding indebtedness in an
amount greater than $10,000,000 which is guaranteed by the
Borrower or any of its Restricted Subsidiaries shall happen
and be continuing, or if any indebtedness of or guaranteed by
the Borrower or any of its Restricted Subsidiaries in an
amount greater than $10,000,000 which is payable on demand is
not paid on demand.
<PAGE> 42
<PAGE> 43
38.
the right of the Borrower to obtain any credit hereunder and all of the
obligations of the Bank hereunder to extend such credit shall automatically
terminate and the Bank, may, by notice to the Borrower, declare all indebtedness
of the Borrower to the Bank pursuant to this agreement to be immediately due and
payable whereupon all such indebtedness shall immediately become and be due and
payable without further demand or other notice of any kind, all of which are
expressly waived by the Borrower (provided, however, that all such indebtedness
of the Borrower to the Bank shall automatically become due and payable, without
notice of any kind, upon the occurrence of an event described in clause (c)
above). Upon the payment by the Borrower to the Bank of the present value of the
face amount of all Bankers' Acceptances issued and outstanding hereunder, the
Borrower shall have no further liability to the Bank with respect to such
Bankers' Acceptances.
13.02 REMEDIES CUMULATIVE. The Borrower expressly agrees that the rights and
remedies of the Bank under this agreement are cumulative and in addition to and
not in substitution for any rights or remedies provided by law. Any single or
partial exercise by the Bank of any right or remedy for a default or breach of
any term, covenant or condition in this agreement does not waive, alter, affect
or prejudice any other right or remedy to which the Bank may be lawfully
entitled for the same default or breach, any waiver by the Bank of the strict
observance, performance or compliance with any term, covenant or condition of
this agreement is not a waiver of any subsequent default and any indulgence by
the Bank with respect to any failure to strictly observe, perform or comply with
any term, covenant or condition of this agreement is not a waiver of the entire
term, covenant or condition or any subsequent default.
13.03 SET-OFF. Subject to any rights now or hereafter granted under applicable
law, and not by way of limitation of any such rights, when an event of default
has occurred and is subsisting the Bank is authorized, without notice to the
Borrower or to any other person, any such notice being expressly waived by the
Borrower, to set-off, appropriate and apply any and all deposits, matured or
unmatured, general or special, and any other indebtedness at any time held by or
owing by the Bank to or for the credit of or the account of the Borrower against
and on account of the obligations and liabilities of the Borrower which are due
and payable to the Bank under this agreement.
ARTICLE 14
MISCELLANEOUS
14.01 WAIVERS. No failure or delay by the Bank in exercising any right shall
operate as a waiver of such right nor shall any single or partial exercise of
any power or right preclude its further exercise or the exercise of any other
power or right.
14.02 NOTICES. All notices and other communications provided for herein shall be
in writing and shall be personally delivered to an officer or other responsible
employee of the addressee or sent by facsimile, charges prepaid, at or to the
applicable addresses or facsimile numbers, as the case may be, set opposite the
party's name on the signature page hereof or at or to such other address or
addresses or facsimile number or numbers as any party hereto may from time to
time designate to the other parties in such manner. Any communication which is
personally delivered
<PAGE> 44
39.
as aforesaid shall be deemed to have been validly and effectively
given on the date of such delivery if such date is a Banking Day and such
delivery was made during normal business hours of the recipient, otherwise, it
shall be deemed to have been validly and effectively given on the Banking Day
next following such date of delivery. Any communication which is transmitted by
facsimile as aforesaid shall be deemed to have been validly and effectively
given on the date of transmission if such date is a Banking day and such
transmission was made during normal business hours of the recipient; otherwise,
it shall be deemed to have been validly and effectively given on the Banking Day
next following such date of transmission.
14.03 SEVERABILITY. Any provision hereof which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof.
14.04 COUNTERPARTS. This agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original and all of which taken together
shall be deemed to constitute one and the same instrument.
14.05 SUCCESSORS AND ASSIGNS. This agreement shall enure to the benefit of and
shall be binding upon the parties hereto and their respective successors and
permitted assigns.
14.06 ASSIGNMENT. Neither this agreement nor the benefit thereof may be assigned
by the Borrower. The rights and obligations of the Bank hereunder may be
assigned or participated by the Bank in whole or in part.
14.07 ENTIRE AGREEMENT. This agreement and the agreements referred to herein and
delivered pursuant hereto constitute the entire agreement between the parties
hereto and supersede any prior agreements, undertakings, declarations,
representations and understandings, both written and verbal, in respect of the
subject matter hereof.
14.08 FURTHER ASSURANCES. The Borrower shall do, execute and deliver or shall
cause to be done, executed and delivered all such further acts, documents and
things as the Bank may reasonably request for the purpose of giving effect to
this agreement and to each and every provision hereof.
14.09 JUDGMENT CURRENCY.
(a) If, for the purpose of obtaining or enforcing judgment against
the Borrower in any court in any jurisdiction, it becomes necessary
to convert into a particular currency (such currency being
hereinafter in this Section 14.09 referred to as the "Judgment
Currency") an amount due in another currency (such other currency
being hereinafter in this Section 14.09 referred to as the
"Indebtedness Currency") under this agreement, the conversion shall
be made at the rate of exchange prevailing on the Banking Day
immediately preceding:
(i) the date of actual payment of the amount due, in the
case of any proceeding in the courts of the Province
of Ontario or in the courts of any
<PAGE> 45
40.
other jurisdiction that will give effect to such
conversion being made on such date; or
(ii) the date on which the judgment is given, in the case
of any proceeding in the courts of any other
jurisdiction (the date as of which such conversion is
made pursuant to this Section 14.09(a)(ii) being
hereinafter in this Section 14.09 referred to as the
"Judgment Conversion Date").
(b) If, in the case of any proceeding in the court of any
jurisdiction referred to in Section 14.09(a)(ii), there is a
change in the rate of exchange prevailing between the Judgment
Conversion Date and the date of actual payment of the amount
due, the Borrower shall pay to the Bank such additional amount
(if any, but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment
Currency, when converted at the rate of exchange prevailing on
the date of payment, will produce the amount of the
Indebtedness Currency which could have been purchased with the
amount of Judgment Currency stipulated in the judgment or
judicial order at the rate of exchange prevailing on the
Judgment Conversion Date.
(c) Any amount due from the Borrower under the provisions of
Section 14.09(b) shall be due to the Bank as a separate debt
and shall not be affected by judgment being obtained for any
other amounts due under or in respect of this agreement.
The term "rate of exchange" in this Section 14.09 means the noon spot
rate of exchange for Canadian interbank transactions applied in converting the
Indebtedness Currency into the Judgment Currency published by the Bank of Canada
for the day in question.
<PAGE> 46
41.
IN WITNESS WHEREOF the parties hereto have executed this agreement.
THE BANK OF NOVA SCOTIA THE BANK OF NOVA SCOTIA
Corporate Banking
16th Floor
44 King Street West By:______________________________
Toronto, Ontario
M5H 1H1
By:______________________________
Attention: Vice-President
Corporate Banking-Mining
Telefax: (416) 866-2009
ROYAL OAK MINES INC. ROYAL OAK MINES INC.
c/o Royal Oak Mines (USA), Inc.
5501 Lakeview Drive
Kirkland, Washington 98033 By: /s/ M. K. Witte
U.S.A. ---------------
Attention: Chief Financial Officer By: /s/ James H. Wood
Telefax: (206) 822-3552 -----------------
<PAGE> 47
A-1
SCHEDULE A
FORM OF DRAWDOWN/ROLLOVER NOTICE
TO: The Bank of Nova Scotia
RE: Credit Agreement made as of February 15, 1996 (the "Credit Agreement")
between Royal Oak Mines Inc. and The Bank of Nova Scotia
Pursuant to the terms of the Credit Agreement, the undersigned
hereby irrevocably notifies you that it wishes to draw down [ROLLOVER] the
Credit Facility on [DATE OF DRAWDOWN] as follows:
1. Availment Option:___________________________________________
2. Currency & Amount:__________________________________________
3. If LIBO Loan, Interest Period:______________________________
4. If Banker's Acceptance, term:_______________________________
[YOU ARE HEREBY IRREVOCABLY AUTHORIZED AND DIRECTED TO PAY THE PROCEEDS OF THE
DRAWDOWN TO - AND THIS SHALL BE YOUR GOOD AND SUFFICIENT AUTHORITY FOR SO
DOING.]
All capitalized terms defined in the Credit Agreement and used
herein shall have the meeting ascribed thereto in the Credit Agreement.
DATED the day of , 1996.
ROYAL OAK MINES INC.
Per:____________________________
Name:
Title:
<PAGE> 48
B-1
SCHEDULE B
EXISTING SECURITY INTERESTS
MATERIALITY $100,000
1. Royal Bank of Canada
5 - 300M LHD John Clark Loaders
Serial No. 64493, 64693, 64893, 64993, 65293
Rental Payment: $18,581.88 monthly plus tax
Lease Term: January 24, 1994 to January 23, 1998
Purchase option end of lease $83,888.50
2. Royal Bank of Canada
1 - Solo Drill H1066 RA
Serial No. 1523
Rental Payment: $10,510.15 monthly plus taxes
Lease Term: November 1993 to October 1997
Purchase option end of lease: $47,500
3. Associates Leasing
2 - Toro 501 D/LHD scoop trams
Serial No. 24005/303, 24005/300
Rental Payment: $21,840 monthly plus taxes
Lease Term: August 1, 1994 to July 31, 1999
Purchase option $100 at end of lease
4. Royal Bank of Canada
Mortgage on 18 Windsor Street, Corner Brook, Newfoundland
Balance at December 31, 1995: $133,708
5. Continuous Mining Systems
2 - CD 360 Auto Drills S/N 2146 & 2147
2 - CHB Water Boosters S/N 2105 & 2158
Rental Payments (based on cost per foot of 97(cent)):
Minimum annual payment $388,000
Lease Term: 36 months from June 1995
Purchase option at end of lease: $266,200
<PAGE> 49
C-1
SCHEDULE C
COMPLIANCE CERTIFICATE
TO: THE BANK OF NOVA SCOTIA
I, - the chief financial officer of Royal Oak Mines Inc., hereby
certify that:
1. I am the duly appointed chief financial officer of Royal Oak Mines Inc.,
the Borrower named in the credit agreement dated as of February 15, 1996
between Royal Oak Mines Inc. and The Bank of Nova Scotia, as the Bank
(the "Credit Agreement") and as such I am providing this Certificate
for and on behalf of the Borrower pursuant to the Credit Agreement.
2. I am familiar with and have examined the provisions of the Credit
Agreement including, without limitation, those of Articles 10, 11
and 13 therein.
3. To the best of my knowledge, information and belief and after due
inquiry no Default has occurred and is continuing as at the date hereof.
4. Unless the context otherwise requires, capitalized terms in the Credit
Agreement which appear herein without definitions shall have the
meanings ascribed thereto in the Credit Agreement.
5. As at - (the most recently completed month end), the ratio of Consolidated
Debt to Consolidated Tangible Net Worth was calculated as follows:
6. As at - (the most recently completed month end), the Interest Coverage
Ratio was calculated as follows:
DATED this - day of -, 19-.
-------------------------------
(Signature)
-------------------------------
(Name - please print)
Chief Financial Office
<PAGE> 50
D-1
SCHEDULE D
PRINCIPAL PLACES OF BUSINESS
COMPANY CORPORATE HEAD OFFICE
Borrower c/o Royal Oak Mines (USA), Inc.
5501 Lakeview Drive
Kirkland, WA
98033 USA
Registered Head Office
c/o W.J.V. Sheridan
Suite 2500
BCE Place, 181 Bay Street
Toronto, Ontario
M5J 2T7
<PAGE> 51
E-1
SCHEDULE E
LIST OF RESTRICTED AND MATERIAL SUBSIDIARIES OF ROYAL OAK MINES INC.
Restricted Subsidiaries
1. Ronnoco Gold Mines Limited
Material Subsidiaries
1. Arctic Precious Metals, Inc.
- Oz Investments, Inc.
2. Kemess Mines Inc. (formerly Geddes Resources Limited)
3. El Condor Resources Ltd.
4. St. Philips Resources Inc.
- Stock Ventures Ltd.
5. Witteck Development Inc.
6. Beaverhouse Resources Ltd.
7. 934962 Ontario Inc.
8. Northbelt Yellowknife Mines Limited
<PAGE> 52
F-1
SCHEDULE F
LIST OF MATERIAL ACTIONS
1. Giant Mine Explosion:
On September 18, 1992, nine miners were murdered in an underground
explosion at the Company's Giant Mine. A member of the union which was on strike
at the time was charged and convicted of nine counts of second degree murder. In
September, 1994, dependants of the deceased miners sued the Company and two of
its officers and directors, along with 23 other named defendants including
Procon Miners Inc., Pinkerton's of Canada Limited, the Government of the
Northwest Territories, and National Automobile, Aerospace and Agricultural
Implement Workers Union of Canada, for losses allegedly suffered as a result of
the explosion. The claim against the Company and all defendants but one, totals
approximately $10.8 million plus taxes, interest and costs. The claim against
the two officers and directors and all other defendants, excluding the Company,
totals approximately $33.65 million plus taxes, interest and costs.
The claim is being vigorously defended. Counsel for the Company's
insurer has stated that, based on allegations in the amended Statement of Claim
- -- being the only pleading filed to date, any liability that might be imposed
would be within the Company's liability insurance coverage. The Company believes
that the claim is without merit.
2. Salamita Property:
In October, 1983 Mack Lake Mining Corp. Ltd. sued Giant Yellowknife
Mines Ltd. (a predecessor of Royal Oak) and eight other named defendants for
damages in the sum of $10 million alleging a beneficial ownership in the
Salamita gold property and a conspiracy on the part of the named defendants to
transfer title to the said property without its knowledge or participation. The
Company has defended the action on the grounds that it was a bona fide purchaser
for value without notice of the plaintiff's alleged title. Outside counsel have
opined that the defence is sound. In the absence of the matter proceeding, the
Company moved in 1993 to dismiss the action for want of prosecution. That
application was dismissed and is presently under appeal by the Company for
determination by the Court of Appeal in April, 1996. Production is complete but
discovery has not been held to date.
<PAGE> 1
Exhibit 10.3
AMENDING AGREEMENT made as of the 5th day of August, 1996.
B E T W E E N:
ROYAL OAK MINES INC.
(hereinafter collectively called the "Borrower")
OF THE FIRST PART
- and -
THE BANK OF NOVA SCOTIA
(hereinafter called the "Lender")
OF THE SECOND PART
WHEREAS the Lender established a credit facility in favour of the
Borrower pursuant to a credit agreement dated as of the 15th day of February,
1996 between the Borrower and the Lender (the "Credit Agreement");
AND WHEREAS the parties have agreed to amend certain provisions of the
Credit Agreement;
NOW THEREFORE it is agreed by the parties hereto as follows:
SECTION 1.01 GENERAL: In this Amending Agreement, unless otherwise defined or
the context otherwise requires, all capitalized terms shall have the respective
meanings specified in the Credit Agreement.
SECTION 1.02 TO BE READ WITH CREDIT AGREEMENT: This Amending Agreement is an
amendment to the Credit Agreement. Unless the context of this Amending Agreement
otherwise requires, the Credit Agreement and this Amending Agreement shall be
read together and shall have effect as if the provisions of the Credit Agreement
and this Amending Agreement were contained in one agreement. The term
"Agreement" when used in the Credit Agreement and this Amending Agreement means
the Credit Agreement as amended, supplemented or modified from time to time.
<PAGE> 2
2.
SECTION 1.03 AMENDMENTS:
(a) AFFIRMATIVE COVENANTS:
(i) Section 11.01(o) of the Credit Agreement is amended
to read as follows:
"(o) INTEREST COVERAGE. At all times and from time to
time the Interest Coverage Ratio, for the most
recently completed twelve-month period, shall be
greater than or equal to 1.5:1."
(b) MISCELLANEOUS:
(i) Article 14 of the Credit Agreement is amended by the
addition of the following thereto:
"14.10 SENIOR INDEBTEDNESS. The parties hereto agree
that this agreement qualifies as "Senior
Indebtedness" as defined in an offering memorandum
dated August 5, 1996 (the "Offering Memorandum") for
a note offering of general unsecured obligations of
the Borrower limited in the aggregate principal
amount to US$175,000,000 and maturing in 2006 (the
"Notes") in the United States."
(c) SCHEDULES:
(i) Paragraph 6 of Schedule C to the Credit Agreement is
amended to read as follows:
"6. As at - (the most recently completed month end),
the Interest Coverage Ratio for the most recently
completed twelve-month period was calculated as
follows:"
SECTION 1.03 ACKNOWLEDGEMENT: The Lender hereby acknowledges and agrees that the
indebtedness of the Borrower evidenced by the Notes to be issued pursuant to the
Offering Memorandum of the Borrower on or about August 12, 1996 will be
"Subordinated Debt" for all purposes under the Credit Agreement.
SECTION 1.04 REPRESENTATION AND WARRANTIES: In order to induce the Lender to
enter into this Amending Agreement, the Borrower makes the following
representations and warranties to the Lender which shall survive the execution
and delivery hereof:
(a) STATUS AND POWER. The Borrower and each of its Restricted
Subsidiaries is a corporation duly incorporated, amalgamated
or continued, as the case may be, organized and validly
subsisting in good standing under the laws of its jurisdiction
of incorporation. The Borrower and each of its Restricted
Subsidiaries is duly qualified, registered or licensed in all
jurisdictions where such qualification, registration or
licensing is required except where the failure to be so
qualified,
<PAGE> 3
3.
registered or licensed would not have a Material Adverse
Effect. The Borrower and each of its Restricted Subsidiaries
has all requisite corporate capacity, power and authority to
own, hold under licence or lease its properties, to carry on
its business as now conducted and to otherwise enter into, and
carry out the transactions contemplated by this Amending
Agreement.
(b) AUTHORIZATION AND ENFORCEMENT OF DOCUMENTS. All necessary
action, corporate or otherwise, has been taken to authorize
the execution, delivery and performance of this Amending
Agreement by the Borrower. The Borrower has duly executed and
delivered this agreement. This Amending Agreement is, or will
be upon its execution, a legal, valid and binding obligation
of the Borrower, enforceable against the Borrower by the
Lender in accordance with its terms, except to the extent that
the enforceability thereof may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization and other
laws of general application limiting the enforcement of
creditors' rights and the fact that the courts may deny the
granting or enforcement of equitable remedies.
(c) COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance by the Borrower of this Amending Agreement and the
consummation of the transactions contemplated herein do not
and will not conflict with, result in any material breach or
violation of, or constitute a material default under, the
terms, conditions or provisions of the charter or constating
documents or by-laws of, or any shareholder agreement relating
to, the Borrower or of any law, regulation, judgment, decree
or order binding on or applicable to the Borrower or to which
its property is subject or of any material agreement, lease,
licence, permit or other instrument to which the Borrower is a
party or is otherwise bound or by which the Borrower benefits
or to which its property is subject and do not require the
consent or approval of any Official Body or any other party.
(d) The representations and warranties set forth in Article Ten of
the Credit Agreement are true and correct as of the date
hereof.
SECTION 1.05 CONDITIONS PRECEDENT: This Amending Agreement shall be effective as
of the date first above written.
SECTION 1.06 EXPENSES: The Borrower shall pay all reasonable expenses,
including, without limitation, the reasonable legal fees incurred by the Lender
in connection with the preparation, negotiation, execution, delivery and review
of this Amending Agreement and all other documents and instruments executed in
connection with this transaction.
SECTION 1.07 CONTINUANCE OF CREDIT AGREEMENT: The Credit Agreement, as changed,
altered, amended or modified by this Amending Agreement, shall be and continue
in full force and effect and is hereby confirmed and the rights and obligations
of all parties thereunder shall not be affected or prejudiced in any manner
except as specifically provided for herein.
<PAGE> 4
4.
SECTION 1.08 COUNTERPARTS: This Amending Agreement may be executed in any number
of separate counterparts, each of which shall be deemed an original and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
SECTION 1.09 GOVERNING LAW: This Amending Agreement shall be construed and
interpreted in accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein.
IN WITNESS WHEREOF the parties hereto have executed this Amending
Agreement as of the day and year first above written.
ROYAL OAK MINES INC.
By: /s/ M. K. Witte
---------------
Name: M. K. Witte
Title: C.E.O.
c/s
By: /s/ James H. Wood
-----------------
Name: James H. Wood
Title: C.E.O.
THE BANK OF NOVA SCOTIA
By: /s/ J. W. Richmund
------------------
Name: J. W. Richmund
Title: Senior Relationship
Manager
By: /s/ C. D. Thomas
----------------
Name: C. D. Thomas
Title:
<PAGE> 1
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
JUNE 30,
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income 8,641 11,437 15,623 22,166 23,169 13,251 5,105
Add:
Income taxes 105 108 215 636 1,542 969 2,729
Minority portion of losses 0 (95) (136) 0 (594) 0 (30)
Equity in losses of companies 0 0 102 449 869 115 71
------ ------- ------- ------ ------- ------ ------
Adjusted net income 8,746 11,450 15,804 23,251 24,986 14,335 7,875
Add fixed charges
Interest on debt
(excluding capitalized int.) 2,553 0 97 62 298 96 86
------ ------- ------- ------ ------- ------ ------
Net earnings available for fixed 11,299 11,450 15,901 23,313 25,284 14,431 7,961
charges
Fixed charges
Interest on debt 2,553 0 97 62 298 96 86
------ ------- ------- ------ ------- ------ ------
Total fixed charges 2,553 0 97 62 298 96 86
------ ------- ------- ------ ------- ------ ------
Ratio of earnings to fixed charges 4.43 NA 163.93 376.02 84.85 150.32 92.57
====== ======= ======= ====== ======= ====== ======
</TABLE>
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Company
934962 Ontario Inc.
3194493 Canada Inc.
Arctic Precious Metals, Inc.
- Oz Investments, Inc.
Beaverhouse Resources Ltd.
Consolidated Professor Mines Limited
El Condor Resources Ltd.
Kemess Mines Inc.
- Greenbush Minerals Limited
- Alsek Mining Limited
Northbelt Yellowknife Mines Ltd.
Ronnoco Gold Mines Limited
Royal Eagle Exploration Inc.
- First Eagle Holdings, Inc.
Royal Oak Hope Brook Ltd.
Royal Oak Timmins Ltd.
Royal Oak Yellowknife Ltd.
St. Philips Resources Inc.
- Stork Ventures Ltd.
- V.A.B. 19965 Holdings Ltd.
Witteck Development Inc.
<PAGE> 1
Exhibit 23.1
[Letterhead of Arthur Andersen & Co.]
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Royal Oak Mines Inc.
5501 Lakeview Drive
Kirkland, Washington 98033
United States
Dear Sirs:
As independent chartered accountants, we hereby consent to the use of our
report dated February 16, 1996 (except as to note 14(b) of the consolidated
financial statements, which is as of February 27, 1996) and to all references
to our firm included in or made a part of this Form S-4 Registration Statement.
/s/ Arthur Andersen & Co.
-------------------------
Arthur Andersen & Co.
August 28, 1996
Vancouver, British Columbia
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM T-1
_______________________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS
TRUSTEE
_______________________
Check if an application to determine eligibility of
a Trustee pursuant to Section 305(b)(2) / /
MELLON BANK, F.S.B.
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C>
13-3680276 U.S.
(I.R.S. Employer Identification No.) (Jurisdiction of incorporation)
</TABLE>
MELLON BANK, F.S.B.
80 Route 4 East
Paramus, New Jersey 07652
(Address of Principal Executive Office)
ELAINE D. RENN
Vice President
MELLON BANK, N.A.
ONE MELLON BANK CENTER
PITTSBURGH, PENNSYLVANIA 15258-0001
(412) 234-4694
(Name, Address and Telephone Number of Agent for Service)
_______________________
ROYAL OAK MINES INC.
(Exact name of obligor as specified in its charter)
Information on a subsidiary guarantor is listed on Schedule I hereto
ONTARIO, CANADA
(State or Other Jurisdiction of Incorporation or Organization)
NONE
(I.R.S. Employer Identification No.)
5501 Lakeview Drive, Kirkland, WA 98033
(Address of Principal Executive Offices)
SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2006
(Title of Indenture Securities)
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE
--
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<S> <C>
Office of Thrift Supervision Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE
TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
The obligor is not an affiliate of the trustee.
ITEMS 3-15 ARE NOT APPLICABLE SINCE THE OBLIGOR IS NOT IN DEFAULT ON SECURITIES
ISSUED UNDER INDENTURES UNDER WHICH THE APPLICANT IS TRUSTEE.
16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS
STATEMENT OF ELIGIBILITY.
<TABLE>
<S> <C> <C>
Exhibit 1 - A copy of the Trustee's Federal Stock Charter dated November
1, 1992; a copy of the Written Consent of Trustee's Sole
Stockholder dated August 23, 1994 amending Trustee's Federal
Stock Charter effective August 24, 1994.
Exhibit 2 - Copy of Office of Thrift Supervision Order No.: 92-427 dated
September 30, 1992 approving Trustee's application to convert
to a federal savings bank pursuant to Section 5(o) of the Home
Owners' Loan Act, 12 U.S.C. Sec. 1464(o); copy of Certificate of
Corporate Existence of Trustee isssued by the Office of Thrift
Supervision dated May 28, 1996.
Exhibit 3 - Copy of letter from Angelo A. Vigna, Regional Director, Office
of Thrift Supervision, dated October 11, 1995 authorizing
Trustee to exercise corporate trust powers in New Jersey; copy
of letter from Michael L. Simone, Assistant Director, Office of
Thrift Supervision, dated April 5, 1996 providing non-objection to
Trustee's exercise of corporate trust powers in Indiana,
Maine, Michigan, New York, Ohio, Washington and Wyoming.
Exhibit 4 - Copy of Trustee's By-Laws as amended August 3, 1993 and March
20, 1996.
Exhibit 5 - Not Applicable.
Exhibit 6 - Consent of the Trustee required by Section 321(b) dated July 8,
1996.
Exhibit 7 - Trustee's audited balance sheets as of December 31, 1994 and
December 31, 1995.
</TABLE>
1
<PAGE> 3
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939, THE
TRUSTEE, MELLON BANK, F.S.B., A FEDERAL SAVINGS BANK ORGANIZED AND EXISTING
UNDER THE LAWS OF THE UNITED STATES OF AMERICA, HAS DULY CAUSED THIS STATEMENT
OF ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, ALL IN THE CITY OF PITTSBURGH, AND COMMONWEALTH OF PENNSYLVANIA, ON
THE 27TH DAY OF AUGUST, 1996.
MELLON BANK, F.S.B.
TRUSTEE
/s/ Elaine D. Renn
By:______________________
Elaine D. Renn
Vice President
2
<PAGE> 4
SCHEDULE I
----------
ADDITIONAL OBLIGOR
------------------
The following subsidiary guarantor is a wholly owned subsidiary of Royal Oak
Mines Inc.
<TABLE>
<CAPTION>
State or Other
Jurisdiction of IRS Employer
Incorporation or Identification
Name and Address Organization Number
- ----------------- ---------------- --------------
<S> <C> <C>
Kemess Mines Inc. Ontario, Canada None
Unit 9
3167 Tatlow Road
P. O. Box 3519
Smithers, British
Columbia VOJ 2N0
(614) 847-5667
</TABLE>
3
<PAGE> 5
EXHIBIT 1
THE DREYFUS SECURITY SAVINGS BANK, F.S.B.
WRITTEN CONSENT OF
SOLE STOCKHOLDER
The undersigned, being the holder of all the issued and outstanding capital
stock of THE DREYFUS SECURITY SAVINGS BANK, F.S.B. (the "Bank"), does hereby
adopt the following resolution by this its written consent, with full force and
effect as if adopted by vote at a duly constituted meeting:
RESOLVED, that effective August 24, 1994, the name of the Bank shall be
"Mellon Bank, F.S.B." and Section 1 of the Bank's Federal Stock Charter
shall be amended to read as follows:
Section 1. Corporate title. The full corporate title of the savings
bank is Mellon Bank, F.S.B.;
and be it further
RESOLVED, that the appropriate officers of the Bank, and any of them, be
and hereby are authorized and directed, on behalf of the Bank, to take such
actions as they may deem necessary or appropriate to effect the charter
amendment or otherwise carry out the intent of the foregoing resolution.
IN WITNESS WHEREOF, this consent has been executed as of the 23rd day of
August, 1994.
DREYFUS-LINCOLN, INC. (N.J.)
<TABLE>
<S> <C>
By: /s/ William V. Healy
--------------------
William V. Healy
Secretary
</TABLE>
<PAGE> 6
Charter No. 5707
FEDERAL STOCK CHARTER
Section 1. Corporate title. The full corporate title of the savings bank
is The Dreyfus Security Savings Bank, F.S.B.
Section 2. Office. The home office shall be located in Paramus, New
Jersey.
Section 3. Duration. The duration of the savings bank is perpetual.
Section 4. Purpose and powers. The purpose of the savings bank is to
pursue any or all of the lawful objectives of a Federal savings bank chartered
under section 5 of the Home Owners' Loan Act and to exercise all of the
express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the Constitution and
laws of the United States as they are now in effect, or as they may be
hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of
the capital stock which the savings bank has the authority to issue is 10,000,
all of which shall be common stock of par value of $300 per share. The shares
may be issued from time to time as authorized by the board of directors without
the approval of its shareholders, except as otherwise provided in this section
5 or to the extent that such approval is required by governing law, rule, or
regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the savings bank. The consideration for the
shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the savings bank), labor, or
services actually performed for the savings bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of
such property, labor, or services, as determined by the board of directors of
the savings bank, shall be conclusive. Upon payment of such consideration,
such shares shall be deemed to be fully paid and nonassessable. In the case of
a stock dividend, that part of the surplus of the savings bank which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
No shares of common stock (including shares issuable upon conversion,
exchange, or exercise of other securities) shall be issued, directly or
indirectly, to officers, directors, or controlling persons of the savings bank
other than as part of a general public offering or as qualifying shares to a
director, unless the issuance or the plan under which they would be issued has
been approved by a majority of the total votes eligible to be cast at a legal
meeting.
<PAGE> 7
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holder, except as to the cumulation of votes for the
election of directors. Subject to any provision for a liquidation account, in
the event of any liquidation, dissolution, or winding up of the savings bank,
the holders of the common stock shall be entitled, after payment or provision
for payment of all debts and liabilities of the savings bank, to receive the
remaining assets of the savings bank available for distribution, in cash or in
kind. Each share of common stock shall have the same relative rights as and be
identical in all respects with the other shares of common stock.
Section 6. Preemptive rights. Holders of the capital stock of the
savings bank shall not be entitled to preemptive rights with respect to any
shares of the savings bank which may be issued.
Section 7. Directors. The savings bank shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
savings bank's bylaws, shall not be fewer than seven nor more than fifteen
except when a greater number is approved by the Director of the Office.
Section 8. Amendment of charter. Except as provided in section 5, no
amendment, addition, alteration, change or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the savings
bank, then preliminarily approved by the Office, which preliminary approval may
be granted by the Office pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the Office in accordance with regulatory procedures or on such other date as
the Office may specify in its preliminary approval.
<TABLE>
<S> <C>
Attest: /s/ Joni L. Charatan
-----------------------------
Joni L. Charatan
Secretary of the Savings Bank
By: /s/ Philip L. Tora
-----------------------------
Philip L. Tora
President or Chief Executive
Officer of the Savings Bank
Attest: /s/ Nadine Y. Washington
-----------------------------
Nadine Y. Washington
Corporate Secretary of the Office of
Thrift Supervision
</TABLE>
<PAGE> 8
By: /s/ Johnathan L. Lichter
------------------------
Acting Director of the Office of
Thrift Supervision
Declared effective this 1st day of November, 1992.
<PAGE> 9
EXHIBIT 2
OFFICE OF THRIFT SUPERVISION
Approval of an Election under Section 10(1) of the Home Owners' Loan Act,
Conversion under Section 5(o) of the Home Owners' Loan Act, and Applications
for Holding Company Acquisition
<TABLE>
<S> <C>
Order No: 92-427
Date: September 30, 1992
</TABLE>
Dreyfus Corporation, New York, New York, Dreyfus-Lincoln, Inc. (a Delaware
Corporation), New York, New York, Dreyfus-Lincoln, Inc. (a New Jersey
Corporation), New York, New York, (collectively the "Holding Company"), and The
Dreyfus Consumer Bank, Paramus, New Jersey (collectively the "Applicants"),
have applied for the approval of the Office of Thrift Supervision ("OTS"): (i)
to elect to have their wholly owned subsidiary, Bank Insurance Fund member,
state-chartered savings bank, The Dreyfus Savings Bank of New Jersey, Paramus,
New Jersey, ("Interim"), treated as a savings association pursuant to section
10(1) of the Home Owners' Loan Act ("HOLA"), 12 U.S.C. Sec. 1467a(1); (ii) to
acquire Interim under section 10(a) of the HOLA, 12 U.S.C. Sec. 1467a(a) and
section 574.3(a) of the OTS's Acquisition of Control Regulations, 12 C.F.R.
Sec. 574.3(a); and (iii) to convert Interim to a federal savings bank, to be
known as The Dreyfus Security Savings Bank, F.S.B. ("New Thrift"), pursuant to
section 5(o) of the HOLA, 12 U.S.C. Sec. 1464(o), all as described in the
applications filed on June 5, 1992, as amended. (Collectively, the foregoing
are referred to as the "Applications".)
The OTS has considered the factors set forth in 12 U.S.C. Secs. 1464(o),
1467a(1), 1467a(o), and 12 C.F.R. Sec. 574.3 and has determined that
the proposed transaction would be in compliance with all the standards and
criteria therein. Accordingly, the Applications are hereby approved, subject
to the following conditions:
(1) the Applicants and the Interim must receive all required regulatory
approvals prior to consummation of the proposed transaction with
copies of all such approvals supplied to the OTS Northeast Regional
Office;
(2) on the business day prior to the date of consummation of the proposed
transaction, the chief financial officers of the Applicants and the
Interim shall certify in writing to the OTS Northeast Regional
Director that no material adverse events or material adverse changes
have occurred with respect to the financial condition or operations of
the Applicants or the Interim since the date of the financial
statements submitted with the Applicants:
<PAGE> 10
(3) the proposed transaction must be consummated within one hundred and
twenty (120) calendar days from the date of this Order or within such
additional period as the OTC Northeast Regional Director, or his
designee, may for good cause grant;
(4) on the effective date of the proposed transaction Interim shall
certify to the OTS Northeast Regional Director that as of such date,
Interim's "qualifying thrift investments" equal or exceed 65
percent of Interim's "portfolio assets", as such terms are defined
in 12 U.S.C. Sec. 1467a(m) and the OTS's regulations thereunder,
and within five (5) calendar days of the effective date of
the transaction, the Holding Company shall submit to the OTS Northeast
Regional Director detailed accounting of New Thrift's compliance
with such percentage test;
(5) the Applicants must advise the OTS Northeast Regional Office in
writing within thirty (30) calendar days after the effective date of
the proposed transaction: (1) on the effective date of the
transaction and (2) that the transaction was consummated in accordance
with applicable laws and regulations, the Applications, and this
Order:
(6) the Applicants must submit a final accounting of the transaction to
the OTS Northeast Regional Office within thirty (30) calendar days
after the effective date of the proposed transaction;
(7) within thirty (30) calendar days of the effective date of the
transaction, the Applicants shall submit closing financial statement
for the Interim, as of the effective date of the transaction;
(8) within thirty (30) calendar days of the effective day of the
transaction, the Holding company must submit to the OTS Northeast
Regional Director, an executed copy of its tax sharing agreement with
New Thrift;
(9) within thirty (30) calendar days of the effective date of the
transaction,the Holding must submit to the OTS Northeast Regional
Director, a final version its "Statement of Policy Governing
Relationships with Affiliates and their Employees"; and
(10) New Thrift shall be subject to the restrictions contained in 12 C.F.R.
Secs. 337.4(c), (e) and (h) as not or hereinafter in effect, in the
same manner and to the same extent as if New Thrift were a bank and an
insured nonmember bank, except that such provisions shall be
administered and enforced by the OTS.
For purposes of section 3201(3) of the Depository Institutions Management
Interlocks Act, 12 U.S.C. Sec. 3201(3), management officials of investment
companies that are currently
<PAGE> 11
sponsored, advised, managed, administered, or whose securities are
distributed by the Holding Company or its subsidiaries or that commence
operations in the future, shall not be treated as management officials of an
"affiliate" of a depository holding company for a period of two years
from the date of this Order, or in the case of investment companies
established after the date hereof, two years after the establishment of such
investment company. The OTS Northeast Regional Director may approve requests
for future extensions, and may deny an extension if continuation would be
objectionable on supervisory grounds.
By order of the Director of the Office of Thrift Supervision, or his
designee, effective September 30, 1992.
------------
/s/ Jonathan L. Fischter
------------------------
Jonathan L. Fischter
Deputy Director
for Washington Operations
<PAGE> 12
SECRETARY'S CERTIFICATE
MELLON BANK, F.S.B.
CERTIFICATE OF CORPORATE EXISTENCE
I, Joni Lacks Charatan, Secretary of Mellon Bank, F.S.B., do hereby
certify that:
The attached copy of the Certificate of Corporate Existence issued by the
Office of Thrift Supervision and dated May 28, 1996 is a true copy of the
original of such certificate which is in full force and effect at the date
hereof.
In witness whereof, I have hereunto set my hand and affix the seal this
10th of July 1996.
/s/ Joni Lacks Charatan
Joni Lacks Charatan
Secretary
SEAL
<PAGE> 13
May 28, 1996
CERTIFICATE OF CORPORATE EXISTENCE
----------------------------------
<TABLE>
<S> <C>
REFERENCE: Mellon Bank, F.S.B.
Paramus, New Jersey
</TABLE>
I, Nadine Y. Washington, Corporate Secretary, Office of Thrift
Supervision, hereby certify, according to the records of the Office of Thrift
Supervision, Department of the Treasury, Washington, D.C.:
1. Mellon Bank, F.S.B, Paramus, New Jersey, was chartered under the laws
of the United States to transact the business of a Federal savings bank;
2. The charter of Mellon Bank, F.S.B., Paramus, New Jersey is in full
force and effect;
3. The Office of Thrift Supervision has not appointed a conservator or
receiver for Mellon Bank, F.S.B., Paramus, New Jersey; and
4. As of May 28, 1996, Mellon Bank, F.S.B., Paramus, New Jersey, is
operating as a BIF-insured financial institution.
/s/ Nadine Y. Washington
Nadine Y. Washington
Corporate Secretary
SEAL
<PAGE> 14
EXHIBIT 3
OTS No.: 10357
FAX NO (201) 587-1785
October 11, 1995
Mr. William V. Healey, President
Mellon Bank, F.S.B.
The Atrium
80 Route 4 East
Paramus, New Jersey 07652
Dear Mr. Healey:
We have reviewed the application by Mellon Bank, F.S.B. ("Applicant"), for
permission to establish a trust department to exercise fiduciary powers
pursuant to 12 C.F.R. Sec. 550.2. The factors contained in Sec. 550.2(b) have
been considered and a determination has been made that the application is
consistent therewith.
Therefore, pursuant to authority delegated in OTS Order No. 95-177 dated
September 26, 1995, the application is hereby approved subject to the following
conditions:
1. Applicant is authorized to exercise only those corporate trust powers
that are authorized by the State of New Jersey. The exercise of trust powers
is limited to the Applicant's home office in New Jersey and to all future
offices that may be located in New Jersey.
2. The exercise of corporate trust powers through offices located in
additional states is subject to prior approval by the Northeast Regional
Director, or his designee.
Please be advised that, and consistent with the Applicant's submissions, the
approval contained in this letter does not authorize the Applicant to engage in
either personal trust powers or employment benefit trust powers. Upon
submission by the Applicant of such additional pertinent information as may be
required with respect thereto, the Northeast Regional Director, or his
designee, may issue a notice of non-objection regarding the exercise of
personal trust powers and employment benefit trust powers assuming continued
compliance with applicable statutory and regulatory criteria.
<PAGE> 15
William V. Healey
October 11, 1995
Page 2
The operation of the trust department regarding corporate trust activities
must be completed within one year of the date of this letter unless extended by
the Regional Director, or his designee.
Kindly advise Applications Coordinator Charles P. O'Toole when the trust
activities commence.
Very truly yours,
/s/ Angelo A. Vigna
Angelo A. Vigna
Regional Director
<TABLE>
<S> <C>
cc: Michael E. Bleier, Esq.
Michael Simone, OTS/NE
Thomas Barnes, OTS/NE
</TABLE>
<PAGE> 16
OTS No.: 10357
Fax No. (212) 922-6880
April 5, 1996
Mr. William V. Healey, President
Mellon Bank, F.S.B.
The Atrium
80 Route 4 East
Paramus, New Jersey 07652
Dear Mr. Healey:
This concerns the application by Mellon Bank, F.S.B. ("Mellon FSB"), filed
pursuant to 12 C.F.R. Sec. 545.92 on October 27, 1995, for permission to
establish nine interstate branch offices in seven states. The application was
subsequently amended for permission, pursuant to Sec. 545.96(b), to establish
Agency Offices rather than branch offices. Also, on December 1, 1995, Mellon
FSB submitted a request for non-objection regarding the exercise of corporate
trust powers in seven states through the subject Agency Offices.
The submissions have been reviewed by this Office and I hereby provide my
non-objection to (1) the exercise by Mellon FSB of corporate trust power
limited to those authorized by the States of Indiana, Maine, Michigan, New
York, Ohio, Washington, and Wyoming and (2) pursuant to authority delegated in
OTS Order No. 95-177 dated September 26, 1995, the establishment of the Agency
Offices to exercise the aforementioned corporate trust power at the following
locations:
<TABLE>
<S> <C>
Skylight Office Tower One Indiana Square
1660 W. Second Street Indianapolis, Indiana 46704
Cleveland, OH 44113
88 East Broad Street 3 Seagate
Suite 616 Toledo, Ohio 43603
Columbus, Ohio 43215
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
William V. Healey
April 5, 1996
Page 2
Market Place 1 Canal Plaza
303 Detroit Street Portland, Maine 04112
Ann Arbor, Michigan 48034
State Street Center 18th and Carey Avenue
80 State Street Cheyenne, Wyoming 82001
Albany, New York 12207
1113 3rd Avenue
Seattle, Washington 98101
</TABLE>
Should there be any changes in the above locations please contact Applications
Coordinator Charles P. O'Toole of this Office. Also advise Mr. O'Toole when
the activity commences.
Very truly yours,
/s/ Michael L. Simone
Michael L. Simone
Assistant Director
cc: Joni Lacks Charatan, Mellon Bank, FSB
<PAGE> 18
EXHIBIT 4
SECRETARY'S CERTIFICATE
RESOLUTION ADOPTED BY THE BOARD OF
DIRECTORS OF MELLON BANK, F.S.B.
--------------------------------
(AUGUST 3, 1993)
I, JONI LACKS CHARATAN, SECRETARY OF MELLON BANK, F.S.B., a Federal
savings bank, hereby certify that at a meeting of the Board of Directors of the
Bank duly called and held on August 3, 1993, the following resolution was duly
adopted and is now in full force and effect:
RESOLVED, that Article II, Section 2, of the By-laws of The Dreyfus
Security Savings Bank, F.S.B shall be amended to read as follow:
Section 2. Number and Term. The board of directors shall consist of 7
members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One
class shall be elected by ballot annually.
IN WITNESS WHEREOF, I have hereunto set my hand and affix the seal this
6th day of June, 1996.
/s/ Joni Lacks Charatan
Joni Lacks Charatan
Secretary
SEAL
<PAGE> 19
SECRETARY'S CERTIFICATE
RESOLUTION ADOPTED BY THE BOARD OF
DIRECTORS OF MELLON BANK, F.S.B.
--------------------------------
(MARCH 20, 1996)
I, JONI LACKS CHARATAN, SECRETARY OF MELLON BANK, F.S.B., a Federal
savings bank, hereby certify that at a meeting of the Board of Directors of the
Bank duly called and held on March 20, 1996, the following resolution was duly
adopted and is now in full force and effect:
RESOLVED, that the By-Laws of Mellon Bank, F.S.B. be amended to add the
following new Section 5 to Article VI:
Section 5. Corporate Trust Department Signing Authority. The President,
the Officer in charge of the Corporate Trust Department, or any Vice
President in such Department shall have full power and authority, in the
name and on behalf of the savings bank as trustee, administrator,
executor, registrar, transfer agent, or in any other fiduciary capacity,
under seal of the savings bank or otherwise:
(a) To execute, acknowledge and deliver deeds, bonds, mortgages,
agreements, bills of sale, powers of attorney and all other instruments
in writing that may be necessary or proper in the management or in the
sale, leasing or other disposition of any real or personal property held
by the savings bank in any fiduciary capacity; and to execute,
acknowledge, deliver or accept agreements, indentures, deeds of trust or
mortgages that may be necessary or proper in the acceptance of trusts,
depositaryships, agency, custodian, escrow or any other fiduciary
accounts;
(b) To execute, acknowledge and deliver any instrument in writing
that may be necessary in order to assign, subordinate, release, satisfy
or affect in any other manner of record the whole or part of any judgment
or of any mortgage or other lien (except a corporate mortgage, deed of
trust, indenture or other instrument executed and delivered to the
savings bank as trustee for the purpose of securing an issue of corporate
obligations) held by the savings bank in any fiduciary capacity;
(c) To execute, acknowledge and deliver all authentications or
certificates of the savings bank as trustee under any mortgage, deed of
trust, indenture or agreement securing or providing for bonds,
debentures, notes or other securities and all certificates as registrar
or transfer agent, and all checks as disbursing agent, and all
certificates of deposit, interim certificates and trust receipts or
certificates;
(d) To execute, acknowledge and deliver, pursuant to the terms of
any corporate mortgage, deed of trust, indenture or other instrument
executed and delivered to the savings bank as trustee for the purpose of
securing an issue of corporate obligations, any instrument in writing
that may be necessary to assign, modify, release or satisfy any such
mortgage, deed of trust, indenture or other instrument or that may be
necessary to release all or any part of the property covered by such
mortgage, deed of trust, indenture or other instrument from lien thereof;
(e) To appear in any court of record and to enter upon the record
in such court an assignment, subordination, release or satisfaction, in
whole or in part, of any judgment held by or controlled by the savings
bank in fiduciary capacity;
<PAGE> 20
(f) To verify under oath all pleadings and all other instruments of
every nature and description that may be prepared by or on behalf of the
savings bank in any fiduciary capacity and of which such verification may
be necessary or proper.
Any such agreement, instrument, or other document may also be
executed, acknowledged and delivered in the name and on behalf of the
savings bank in any fiduciary capacity, under seal of the savings bank or
otherwise, by such other officers, employees or agents of the savings
bank as the Board of Directors, the President or the Officer in charge of
the Corporate Trust Department or the authorized delegate of any of them
may from time to time authorize.
Any officer, employee or agent authorized herder to execute,
acknowledge and deliver any such agreement, instrument or document is
also authorized to cause any other officer of the savings bank to affix
the seal of the savings bank thereto and to attest it.
IN WITNESS WHEREOF, I have hereunto set my hand and affix the seal
this 6th day of June, 1996.
/s/ Joni Lacks Charatan
Joni Lacks Charatan
Secretary
SEAL
<PAGE> 21
BYLAWS OF THE DREYFUS SECURITY SAVINGS BANK, F.S.B.
Article I-Home Office
The home office of the savings bank shall be at 80 Route 4 East, Paramus
in the county of Bergen, in the state of New Jersey.
Article II-Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the savings bank or at such
other place in the State in which the principal place of business of the
savings bank is located as the board of directors may determine.
Section 2. Annual Meetings. A meeting of the shareholders of the savings
bank for the election of directors and for the transaction of any other
business of the savings bank shall be held annually within 120 days after the
end of the savings bank's fiscal year on the fourth Tuesday of April if not a
legal holiday, and if a legal holiday, then on the next day following which is
not a legal holiday at 10:00 a.m., or at such other date and time within such
120-day period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the savings bank entitled to vote at
the meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered to the home office of the savings bank addressed
to the chairman of the board, the president or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of
Order unless otherwise prescribed by regulations of the Office or these bylaws.
The board of directors shall designate, when present, either the chairman of
the board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
<PAGE> 22
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman
of the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the savings bank as of the record date prescribed in
section 6 of this article II with postage prepaid. When any shareholders'
meeting, either annual or special, is adjourned for 30 days or more, notice of
the adjourned meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend,
or in order to make a determination of shareholders for any other proper
purpose, the board of directors shall fix in advance a date as the record date
for any such determination of shareholders. Such date in any case shall be not
more than 60 days and, in case of a meeting of shareholders, not fewer than 10
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books
for shares of the savings bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the savings bank and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall
be subject to inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie
evidence of the shareholders entitled to examine such list or transfer books or
to vote at any meeting of shareholders. In lieu of making the shareholder list
available for inspection by shareholders as provided in the preceding
paragraph, the board of directors may elect to follow the procedures prescribed
in Sec. 552.6(d) of the Office's regulations as now or hereafter in effect.
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Section 8. Quorum. A majority of the outstanding shares of the savings
bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the outstanding
shares is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management
shall be voted as directed by the shareholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy
shall be valid more than eleven months from the date of its execution except
for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the savings bank to the contrary, at any meeting of the
shareholders of the savings bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
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<PAGE> 24
an appropriate order of the court or the public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the savings bank nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
savings bank, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Every shareholder entitled to vote at an
election for directors shall have the right to vote, in person or by proxy, the
number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such
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<PAGE> 25
acts as may be proper to conduct the election or vote with fairness to all
shareholders.
Section 14. Nominating Committee. The board or directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the savings bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the savings bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the association. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meting shall be stated in writing and filed with the secretary of the savings
bank at least five days before the date of the annual meeting, and all business
so stated, proposed, and filed shall be considered at the annual meeting; but
no other proposal shall be acted upon at the annual meeting. Any shareholder
may make any other proposal at the annual meeting and the same may be discussed
and considered, but unless stated in writing and filed with the secretary at
least five days before the meeting, such proposal shall be laid over for action
at an adjourned, special, or annual meeting of the shareholders taking place 30
days or more thereafter. This provision shall not prevent the consideration
and approval or disapproval at the annual meeting of reports of officers,
directors, and committees; but in connection with such reports, no new business
shall be acted upon at such annual meeting unless stated and filed as herein
provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
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Article III-Board of Directors
Section 1. General Powers. The business and affairs of the savings bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of 8
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at
the same place as, the annual meeting of shareholders. The board of directors
may provide, by resolution, the time and place, within the savings bank's
normal lending territory, for the holding of additional regular meetings
without other notice than such resolution.
Members of the board of directors may participate in regular meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to section 12 of this article.
Section 4. Qualifications. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the savings
bank unless the savings bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors, may fix any place, within the savings bank's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such
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<PAGE> 27
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
article.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or
by telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram.
Any director may waive notice of any meeting by a writing filed with the
secretary. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section
2 of this article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors; but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 5 of this article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of the directors, unless a greater number is prescribed by regulation of the
Office or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the savings bank
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board
of directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
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Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors
by the shareholders. Any directorship to be filled by reason of an increase in
the number of directors may be filled by election by the board of directors for
a term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the savings bank who is
present at a meeting of the board of directors at which action on any savings
bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the secretary of
the savings bank within five days after the date of copy of the minutes of the
meeting is received. Such right to dissent shall not apply to a director who
voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
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Article IV-Executive and Other Committees
Section 1. Appointment. The board of directors, by resolution adopted by
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the savings bank, or recommending to the stockholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the savings bank
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the association; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, had any material beneficial interests.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date, and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in
person. The notice of a meeting of the executive committee need not state the
business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by
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the affirmative vote of a majority of the members present at a meeting at which
a quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full board of directors. Any member of the
executive committee may resign from the executive committee at any time by
giving written notice to the president or secretary of the association. Unless
otherwise specified, such resignation shall take effect upon its receipt; the
acceptance of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings and report the same to the board of
directors for its information at the meeting held next after the proceedings
shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
savings bank and may prescribe the duties, constitution, and procedures
thereof.
Article V-Officers
Section 1. Position. The officers of the savings bank shall be a
president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The President shall be
the chief executive officer. The president shall be a director of the savings
bank. The offices of the secretary and treasurer may be held by the same
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person and a vice president may also be either the secretary or the treasurer.
The board of directors may designate one or more vice presidents as executive
vice president or senior vice president. The board of directors may also elect
or authorize the appointment of such other officers as the business of the
savings bank may require. The officers shall have such authority and perform
such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the savings bank
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the stockholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation, or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contractual rights. The board of
directors may authorize the savings bank to enter into an employment contract
with any officer in accordance with regulations of the Office; but no such
contract shall impair the right of the board of directors to remove any officer
at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the savings bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
Article VI-Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or
agent of the savings bank to enter into any contract or execute
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and deliver any instrument in the name of and on behalf of the savings bank.
Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the savings
bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or
confined to specific instances.
Section 3. Checks; Drafts; etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the savings bank shall be signed by one or more officers, employees or
agents of the savings bank in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the savings bank not otherwise employed
shall be deposited from time to time to the credit of the savings bank in any
duly authorized depositories as the board of directors may select.
Article VII-Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the savings bank shall be in such form as shall be determined
by the board of directors and approved by the Office. Such certificates shall
be signed by the chief executive officer or by any other officer of the savings
bank authorized by the board of directors, attested by the secretary or an
assistant secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the savings bank itself or one of its employees. Each certificate
for shares of capital stock shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares are issued,
with the number of shares and date of issue, shall be entered on the stock
transfer books of the savings bank. All certificates surrendered to the savings
bank for transfer shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the savings bank as
the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
savings bank shall be made only on its stock transfer books. Authority for
13
<PAGE> 33
such transfer shall be given only by the holder of record or by his or her
legal representative, who shall furnish proper evidence of such authority, or
by his or her attorney authorized by a duly executed power of attorney and
filed with the savings bank. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the savings bank shall be deemed
by the savings bank to be the owner for all purposes.
Article VIII-Fiscal Year; Annual Audit
The fiscal year of the savings bank shall end on the 31st day of December
of each year. The savings bank shall be subject to an annual audit as of the
end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors. The appointment of such accountants
shall be subject to annual ratification by the shareholders.
Article IX-Dividends
Subject to the terms of the savings bank's charter and the regulations and
order of the Office, the board of directors may, from time to time, declare,
and the savings bank may pay, dividends on its outstanding shares of capital
stock.
Article X-Corporate Seal
The board of directors shall provide a savings bank seal which shall be two
concentric circles between which shall be the name of the savings bank. The
year of incorporation or an emblem may appear in the center.
Article XI-Amendments
These bylaws may be amended in a manner consistent with regulations of the
Office at any time by a majority vote of the full board of directors or by a
majority vote of the votes cast by the stockholders of the savings bank at any
legal meeting.
14
<PAGE> 34
Article XII-Indemnification
The savings bank shall, to the extent specified herein, indemnify each
person made or threatened to be made a party to any civil or criminal action or
proceeding by reason of the fact that he, or his testator or intestate, is or
was a director, officer or employee of the savings bank or served any other
entity of any kind, domestic or foreign, in any capacity at the request of the
savings bank. Officers and directors of the savings bank shall be so
indemnified to the full extent permitted by law and persons other than officers
and directors of the savings bank shall be so indemnified to the same extent as
officers and directors of the savings bank.
15
<PAGE> 35
EXHIBIT 6
CONSENT
-------
Mellon Bank, F.S.B. hereby consents that reports by federal, state,
territorial, or district authorities regarding Mellon Bank, F.S.B., may be
furnished to the Securities and Exchange Commission upon request. This consent
is provided in compliance with the requirements of Section 321(b) of the Trust
Indenture Act of 1939
Mellon Bank, F.S.B.
<TABLE>
<S> <C> <C>
DATE: July 8, 1996 By: /s/William V. Healey
------------ ---------------------------------
William V. Healey
President and Chief Executive Officer
</TABLE>
<PAGE> 36
EXHIBIT 7
MELLON BANK, F.S.B.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1995 1994
----------- -----------
<S> <C> <C>
Assets:
Cash and due from banks $342,260 $437,050
Federal funds sold 6,571,060 13,074,495
Securities (Note 2)
Held-to-maturity, at amortized cost 9,299,676 7,740,001
Available-for-sale, at estimated fair value 3,975,391 2,703
Federal Home Loan Bank of New York stock, at cost 87,900 110,600
Mortgage loans held for sale 2,035,455 50,414
Loans:
Real estate mortgages 6,331,107 6,764,949
Consumer 336,622 492,906
----------- -----------
6,667,729 7,257,855
Less: allowance for loan losses (Note 3) (50,904) (87,155)
----------- -----------
Net loans 6,616,825 7,170,700
Accrued income receivable 233,615 185,085
Other assets 310,197 502,700
----------- -----------
TOTAL ASSETS $29,472,379 $29,273,748
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities
Deposits (Note 4):
Interest bearing:
Savings, time and money market accounts $20,849,872 $20,677,606
Noninterest bearing 64,659 383,679
----------- -----------
Total deposits 20,914,531 21,061,285
Due to related affiliates (Note 11) 426,271 143,695
Sundry liabilities and accrued expenses 98,454 115,374
----------- -----------
TOTAL LIABILITIES 21,439,256 21,320,354
----------- -----------
Stockholder's Equity:
Common stock, ($300 par value; 10,000 shares authorized,
issued and outstanding) 3,000,000 3,000,000
Capital surplus 4,832,382 4,832,382
Retained earnings 171,719 119,418
----------- -----------
8,004,101 7,951,800
Net unrealized gain on available-for-sale securities, net of tax 29,022 1,594
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 8,033,123 7,953,394
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 8)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $29,472,379 $29,273,748
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
ROYAL OAK MINES INC.
OFFER TO EXCHANGE
SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2006
FOR ANY AND ALL OF THE OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2006
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON , 1996
UNLESS THE OFFER IS EXTENDED
Mellon Bank, F.S.B
(the "Exchange Agent")
BY MAIL, HAND OR OVERNIGHT COURIER:
Mellon Bank, F.S.B.
c/o Mellon Bank, N.A.
Corporate Trust Operations
2 Mellon Bank Center, Room 335
Pittsburgh, PA 15259-0001
BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY):
(412) 236-2807
CONFIRM BY TELEPHONE:
(412) 234-2089
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the ones listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1996 (the "Prospectus") of Royal Oak Mines Inc. (the "Company")
and this Letter of Transmittal, which together constitute the Company's offer
(the "Exchange Offer") to exchange $1,000 principal amount of its Series B 11%
Senior Subordinated Notes due 2006 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for each
$1,000 principal amount of its outstanding 11% Senior Subordinated Notes due
2006 (the "Notes"), respectively. The term "Expiration Date" shall mean 5:00
p.m., New York City time, on , 1996, unless the Company, in its
reasonable judgment, extends the Exchange Offer, in which case the term shall
mean the latest date and time to which the Exchange Offer is extended.
Capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List on the next page the Notes to which this Letter of Transmittal
relates. If the space indicated is inadequate, the Certificate or Registration
Numbers and Principal Amounts should be listed on a separately signed schedule
affixed hereto.
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
DESCRIPTION OF SENIOR SUBORDINATED NOTES TENDERED HEREBY
- ------------------------------------------------------------------------------------------------
AGGREGATE
CERTIFICATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OR AMOUNT PRINCIPAL
OF REGISTERED OWNER(S) REGISTRATION REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S)* BY NOTES TENDERED**
- ------------------------------------------------------------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY BOOK-ENTRY HOLDERS.
** UNLESS OTHERWISE INDICATED, THE HOLDER WILL BE DEEMED TO HAVE TENDERED THE FULL AGGREGATE
PRINCIPAL AMOUNT REPRESENTED BY SUCH NOTES. ALL TENDERS MUST BE IN INTEGRAL MULTIPLES OF
$1,000.
- ------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used (i) if certificates of Notes are to
be forwarded herewith, (ii) if delivery of Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company (the "Depository"), pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering Notes" in the Prospectus or (iii)
tender of the Notes is to be made according to the guaranteed delivery
procedures described in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2. Delivery of
documents to a book-entry transfer facility does not constitute delivery to the
Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer. Holders who wish to tender their Notes must complete this letter in its
entirety.
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITORY
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution __
/ / The Depository Trust Company
Account Number __
Transaction Code Number __
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) __
Name of Eligible Institution that Guaranteed Delivery __
---------------------------------------------------------------------------
If delivery by book-entry transfer:
Account Number __
Transaction Code Number __
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name __
Address __
<PAGE> 3
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes tendered hereby, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Notes as are being tendered hereby, including all rights to accrued
and unpaid interest thereon as of the Expiration Date. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company in connection with the Exchange
Offer) to cause the Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. If the undersigned or the person
receiving the Exchange Notes covered hereby is a broker-dealer that is receiving
the Exchange Notes for its own account in exchange for Notes that were acquired
as a result of market-making activities or other trading activities, the
undersigned acknowledges that it or such other person will deliver a prospectus
in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned and any such other person acknowledge that, if they are
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes, (i) they cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in Exxon Capital Holdings Corporation (available
April 13, 1989), Morgan Stanley & Co., Inc. (available June 5, 1991) or similar
no-action letters and, in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with the resale transaction and (ii) failure to comply with such
requirements in such instance could result in the undersigned or any such other
person incurring liability under the Securities Act for which such persons are
not indemnified by the Company. If the undersigned or the person receiving the
Exchange Notes covered by this letter is an affiliate (as defined under Rule 405
of the Securities Act) of the Company, the undersigned represents to the Company
that the undersigned understands and acknowledges that such Exchange Notes may
not be offered for resale, resold or otherwise transferred by the undersigned or
such other person without registration under the Securities Act or an exemption
therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement and that the
Company shall have no further obligations or liabilities thereunder for the
registration of the Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Notes tendered hereby
and, in such event, the Notes not exchanged will be returned to the undersigned
at the address shown below the signature of the undersigned.
<PAGE> 4
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Notes may be withdrawn at any time
prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Notes delivered herewith but not exchanged, will be
registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 4).
<PAGE> 5
- ------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be issued in the name
of someone other than the undersigned.
Name:
Address:
Book-Entry Transfer Facility Account:
Employee Identification or Social Security Number:
-----------------------------------------------------
(Please print or type)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be sent to someone
other than the undersigned, or to the undersigned at an address other than
that shown under "Description of Notes Tendered Hereby."
Name:
Address:
-----------------------------------------------------
(Please print or type)
- ------------------------------------------------------
REGISTERED HOLDER(S) OF NOTES SIGN HERE
(In addition, complete Substitute Form W-9 Below)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(Signature(s) of Registered Holder(s))
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Notes or on a security position listing as the owner of the Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information.
(Please print or type):
Name and Capacity (full title):
- --------------------------------------------------------------------------
Address (including zip code):
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number:
- ---------------------------------------------------------------------
Taxpayer Identification or Social Security No.:
- ----------------------------------------------------------
Dated:
- --------------------------------------------------
SIGNATURE GUARANTEE
(If Required -- See Instruction 4)
Authorized Signature:
- --------------------------------------------------------------------------------
(Signature of Representative of Signature Guarantor)
Name and Title:
- --------------------------------------------------------------------------------
Name of Plan:
- --------------------------------------------------------------------------------
Area Code and Telephone Number:
- --------------------------------------------------------------------
(Please print or type)
Dated:
- --------------------------------------------
<PAGE> 6
PAYOR'S NAME: ROYAL OAK MINES INC.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION
NUMBER ON THE FOLLOWING SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING.
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE
BOX ------------------------
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DAT- SOCIAL SECURITY
ING BELOW NUMBER OR EMPLOYER
DEPARTMENT OF THE IDENTIFICATION
TREASURY INTERNAL PART 2 -- CHECK THE BOX IF YOU ARE NOT SUB- NUMBER
REVENUE SERVICE JECT TO BACKUP WITHHOLDING UNDER THE
PROVISIONS OF SECTION 3406(A)(1)(C) OF THE
PAYOR'S REQUEST INTERNAL REVENUE CODE BECAUSE (1) YOU ARE
FOR TAXPAYER EXEMPT FROM BACKUP WITHHOLDING, (2) YOU
IDENTIFICATION HAVE NOT BEEN NOTIFIED THAT YOU ARE SUBJECT
NUMBER ("TIN") TO BACKUP WITHOLDING AS A RESULT OF FAILURE
TO REPORT ALL INTEREST OR DIVIDENDS OR (3)
THE INTERNAL REVENUE SERVICE HAS NOTIFIED
YOU THAT YOU ARE NO LONGER SUBJECT TO
BACKUP WITHHOLDING. / /
---------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PART 3 --
PERJURY, I CERTIFY THAT THE INFORMATION AWAITING TIN / /
PROVIDED ON THIS FORM IS TRUE, CORRECT
AND COMPLETE.
SIGNATURE ____ DATE
- ----------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY CASH PAYMENTS IN EXCESS OF $10.00 MADE TO YOU.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
- ----------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT BEEN
ISSUED TO ME, AND EITHER (A) I HAVE MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER
IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY
ADMINISTRATION OFFICE, OR (B) I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE.
I UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN SIXTY (60)
DAYS, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD UNTIL I PROVIDE A
NUMBER.
---------------------------------------------------
---------------------------------------------------
SIGNATURE DATE
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Notes or confirmations of any book-entry transfer
to the Exchange Agent's account at a book-entry transfer facility of Notes
tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date (as defined in the Prospectus). The method of delivery of this
Letter of Transmittal, the Notes and any other required documents is at the
election and risk of the Holder, and except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
If such delivery is by mail, it is suggested that registered mail with return
receipt requested, properly insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Notes, but whose Notes are not immediately
available and thus cannot deliver their Notes, the Letter of Transmittal or any
other required documents to the Exchange Agent (or comply with the procedures
for book-entry transfer) prior to the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the registration
number(s) of such Notes and the principal amount of Notes tendered,
stating that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with
the Notes (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at the Depository) and any other
documents required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at the Depository) and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above. Any Holder who wishes to tender Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
Notes prior to the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
a Holder who attempted to use the guaranteed delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Notes evidenced by a submitted
certificate is tendered, the tendering Holder should fill in the principal
amount tendered in the column entitled "Principal Amount Tendered" of the box
entitled "Description of Notes Tendered Hereby." A newly issued Note for the
principal amount of Notes submitted but not tendered will be sent to such Holder
as soon as practicable after the Expiration Date. All Notes delivered to the
Exchange Agent will be deemed to have been tendered in full unless otherwise
indicated.
<PAGE> 8
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date, after which tenders of Notes are irrevocable. To
be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Notes to
be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the registration number(s) and principal amount of such Notes, or, in
the case of Notes transferred by book-entry transfer, the name and number of the
account at the Depository to be credited), (iii) be signed by the Holder in the
same manner as the original signature on this Letter of Transmittal (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Notes register the transfer
of such Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange, will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of the
Notes tendered hereby, the signature must correspond with the name(s) as written
on the face of the certificates without alteration or enlargement or any change
whatsoever. If this Letter of Transmittal is signed by a participant in the
Depository, the signature must correspond with the name as it appears on the
security position listing as the owner of the Notes.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Notes registered in different names is tendered, it will be
necessary to complete, sign and submit as many separate copies of this Letter of
Transmittal as there are different registrations of Notes.
Signatures on this Letter of Transmittal or on a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution unless the Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Notes (which term, for the purposes described herein, shall include a
participant in the Depository whose name appears on a security listing as the
owner of the Notes) listed and tendered hereby, no endorsements of the tendered
Notes or separate written instruments of transfer or exchange are required. In
any other case, the registered Holder (or acting Holder) must either properly
endorse the Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the Notes, and, with respect to a participant in the
Depository whose name appears on a security position listing as the owner of
Notes, exactly as the name of the participant appears on such security position
listing), with the signature on the Notes or bond power guaranteed by an
Eligible Institution (except where the Notes are tendered for the account of an
Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Depository) in which the Exchange Notes or substitute
Notes for principal amounts not tendered or not accepted for exchange are to be
issued (or deposited), if different from the names and addresses or accounts of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification number or social security number of
the person named must also be indicated and the tendering Holder should complete
the applicable box.
<PAGE> 9
If no instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Notes or deposited at such Holder's account at the Depository.
6. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Notes to it or its order pursuant to the Exchange
Offer. If a transfer tax is imposed for any other reason other than the transfer
and exchange of Notes to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
Holder or any other person) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith, the amount of such transfer taxes will be collected from the
tendering Holder by the Exchange Agent.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Notes listed in this Letter of Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any Holder whose Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to Royal Oak Mines Inc., 5501 Lakeview Drive,
Kirkland, Washington, 98033, telephone (206) 822-8992.
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right, in its reasonable judgment, to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Notes must be cured within such time as the Company shall determine. Although
the Company intends to notify Holders of defects or irregularities with respect
to tenders of Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification. Tenders
of Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holder as soon as practicable following the Expiration
Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the tendering Holder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future. If the Exchange
Agent is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Holder with respect to tendered Notes may be subject to backup
withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the
<PAGE> 10
certification following such Part 2. In order for a foreign Holder to qualify as
an exempt recipient, that Holder must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-9, signed under penalties of perjury,
attesting to that Holder's exempt status. Such forms can be obtained from the
Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to Notes tendered for exchange, the Holder is required to notify the
Exchange Agent of his or her correct TIN by completing the form herein
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
Holder is awaiting a TIN) and that (i) each Holder is exempt, (ii) such Holder
has not been notified by the Internal Revenue Service that he or she is subject
to backup withholding as a result of failure to report all interest or dividends
or (iii) the Internal Revenue Service has notified such Holder that he or she is
no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the Notes.
If Notes are in more than one name or are not in the name of the actual Holder,
consult the instructions on Internal Revenue Service Form W-9, which may be
obtained from the Exchange Agent, for additional guidance on which number to
report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, check the box in
Part 3 of Substitute Form W-9, sign and date the form and the Certificate of
Awaiting Taxpayer Identification Number and return them to the Exchange Agent.
If such certificate is completed and the Exchange Agent is not provided with the
TIN within 60 days, the Exchange Agent will withhold 31% of all payments made
thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS)
OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
<PAGE> 1
Exhibit 99.2
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
IRS INSTRUCTIONS
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.)
PURPOSE OF FORM. -- A person who is required to file an information return
with the Internal Revenue Service (the IRS) must obtain your correct taxpayer
identification number (TIN) to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an individual retirement account
(IRA). Use Form W-9 to furnish your correct TIN to the requester (the person
asking you to furnish your TIN), and, when applicable, (1) to certify that the
TIN you are furnishing is correct (or that you are waiting for a number to be
issued), (2) to certify that you are not subject to backup withholding, and (3)
to claim exemption from backup withholding if you are an exempt payee.
Furnishing your correct TIN and making the appropriate certifications will
prevent certain payments from being subject to backup withholding.
NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN A W-9 TO REQUEST YOUR TIN,
YOU MUST USE THE REQUESTER'S FORM.
HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately.
To apply, get FORM SS-5, Application for a Social Security Card (SSN) (for
individuals), from your local office of the Social Security Administration, or
FORM SS-4, Application for Employer Identification Number (EIN) (for businesses
and all other entities), from your local IRS office.
To complete Form W-9, if you do not have a TIN, check the box in Part 3 of the
substitute Form W-9, sign and date the form, and give it to the requester.
Generally, you will then have 60 days to obtain a TIN and furnish it to the
requester. If the requester does not receive your TIN within 60 days, backup
withholding, if applicable, will begin and continue until you furnish your TIN
to the requester. For reportable interest or dividend payments, the payer must
exercise one of the following options concerning backup withholding during this
60-day period. Under option (1), a payer must backup withhold on any withdrawals
you make from your account after 7 business days after the requester receives
this form back from you. Under option (2), the payer must backup withhold on any
reportable interest or dividend payments made to your account, regardless of
whether you make any withdrawals. The backup withholding under option (2) must
begin no later than 7 business days after the requester receives this form back.
Under option (2), the payer is required to refund the amounts withheld if your
certified TIN is received within the 60-day period and you were not subject to
backup withholding during the period.
NOTE: CHECKING THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9 MEANS THAT YOU
HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR
FUTURE.
As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date this form, and give it to the requester.
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you after
1992 are required to withhold and pay to the IRS 31% of such payments under
certain conditions. This is called "backup withholding." Payments that could be
subject to backup withholding include interest, dividends, broker and barter
exchange transactions, rents, royalties, nonemployee compensation, and certain
payments from fishing boat operators, but do not include real estate
transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) The IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax return
(for reportable interest and dividends only), or
(4) You fail to certify to the requester that you are not subject to backup
withholding under (3) above (for reportable interest and dividend accounts
opened after 1983 only), or
(5) You fail to certify your TIN. This applies only to reportable interest,
dividend, broker or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies. Certain payees and payments
are exempt from backup withholding and information reporting. See PAYEES AND
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING, below, and EXEMPT PAYEES AND PAYMENTS
under SPECIFIC INSTRUCTIONS, on page 2, if you are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a
list of payees exempt from backup withholding and for which no information
reporting is required. For interest and dividends, all listed payees are exempt
except item (9). For broker transactions, payees listed in (1) through (13) and
a person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in Items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under Section 501(a), or an IRA, or a
custodial account under section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporation Secretaries,
Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in trade or business in the U.S. and
that have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE
AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT
PROVIDED YOUR CORRECT TIN TO THE PAYER.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
<PAGE> 2
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, you must generally provide the name shown
on your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card and your new last name.
If you are a sole proprietor, you must furnish your individual name and either
your SSN or EIN. You may also enter your business name. Enter your name(s) as
shown on your social security card and/or as it was used to apply for your EIN
on Form SS-4.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. -- You are required to furnish
your correct TIN, but you are not required to sign the certification.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. -- You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item (2) in the certification before signing the form.
(3) REAL ESTATE TRANSACTIONS. -- You must sign the certification. You may
cross out item (2) of the certification.
(4) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. -- You are requested to furnish your correct
TIN, but you are not required to sign the certification.
(6) EXEMPT PAYEES AND PAYMENTS. -- If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup withholding.
Enter your correct TIN in Part 1, write "EXEMPT" in the block in Part 2, and
sign and date the form. If you are a nonresident alien or foreign entity not
subject to backup withholding, give the requester a completed Form W-8,
Certificate of Foreign Status.
(7) "AWAITING TIN". -- Follow the instructions under HOW TO OBTAIN A TIN, on
page 1, check the box in Part 3 of the Substitute Form W-9 and sign and date the
form.
SIGNATURE. -- For a joint account, only the person whose TIN is shown in Part
1 should sign the form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
IRA. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 31% of taxable
interest, dividends, and certain other payments to a payee who does not furnish
a TIN to a payer. Certain penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<C> <S> <C>
---------------------------------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF:
- ---------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint account) The actual owner of
the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
4. a. The usual revocable savings trust The
(grantor is also trustee) grantor-trustee(1)
b. So-called trust account that is not The actual owner(1)
a legal or valid trust under state law
5. Sole proprietorship The owner(3)
---------------------------------------------------------------
GIVE THE NAME AND
EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER
OF:
- ---------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate or pension trust Legal entity(4)
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a state or local
government, school district, or prison)
that receives agricultural program
payments
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the individual's name. You may also enter your business name. You may
use your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE
CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
