<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HOMESTAKE MINING COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $1.00 par value
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(2) Aggregate number of securities to which transaction applies:
37,582,838
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $7.875 per
share based on the average of the high and low prices of the Prime
Resources Group Inc. Common Shares without par value on the American
Stock Exchange on September 23, 1998.
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$295,964,848
-----------------------------------------------------------------------
(5) Total fee paid:
$59,195
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary material:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
- , 1998
Dear Homestake Stockholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Stockholders of Homestake Mining Company to be held at 10:00 a.m. local time, on
- , 1998, at - , San Francisco, California.
At the Special Meeting, you will be asked to adopt a Restated Certificate of
Incorporation of Homestake ("Restated Certificate"), which will (i) increase the
number of authorized shares of Homestake Common Stock from 250,000,000 to
450,000,000 shares, (ii) increase the number of authorized shares of Series A
Preferred Stock (which may be issued under the Homestake Rights Agreement) from
2,500,000 to 4,500,000 shares, (iii) create one share of "Special Voting Stock"
and (iv) make certain technical changes, primarily to reflect the existence of
the Special Voting Stock.
A principal reason for adopting the Restated Certificate is to provide
Homestake with additional authorized shares to permit Homestake, through
wholly-owned subsidiaries, to acquire the 49.4% interest in Prime Resources
Group Inc. that is not now owned by Homestake Canada Inc., one of our wholly-
owned subsidiaries.
Acquisition of the minority interest in Prime will give Homestake additional
low cash cost reserves at the Eskay Creek mine, an outstanding mine that
Homestake knows very well as a result of having managed Prime. The Eskay Creek
area also has good exploration potential.
The acquisition will be effected by means of an Arrangement under British
Columbia law. Homestake Stockholders will not vote separately on the
Arrangement. If the Arrangement is completed, holders of Prime Common Shares,
other than HCI, will have the option of exchanging each of their Prime Common
Shares for either (i) 0.74 of a share of Homestake Common Stock or (ii) 0.74 of
an "exchangeable share" issued by HCI.
Each HCI Exchangeable Share will be exchangeable for one share of Homestake
Common Stock at any time at the option of the holder, and will have essentially
the same voting, dividend and other rights as one share of Homestake Common
Stock. The HCI Exchangeable Share structure is designed to permit a Canadian
shareholder of Prime to defer Canadian income taxes on the exchange until the
sale or exchange of HCI Exchangeable Shares and to facilitate investment in
Homestake by certain Canadian investors. The Special Voting Stock to be issued
by Homestake will provide the mechanism for holders of HCI Exchangeable Shares
to receive voting rights.
The Prime transaction is described in more detail in the Supplement to the
accompanying Proxy Statement.
At - , 1998, there were - shares of Homestake Common Stock
outstanding. In the transaction, Homestake expects to issue, or reserve for
issuance on exchange of HCI Exchangeable Shares, approximately 27,811,300
additional shares of Homestake Common Stock.
Completion of the transaction is conditioned on (i) the Homestake
Stockholders adopting the Restated Certificate, (ii) approval of the Arrangement
by the holders of Prime Common Shares, and (iii) approval of the Arrangement by
the British Columbia Supreme Court. IF THE HOMESTAKE STOCKHOLDERS ADOPT THE
RESTATED CERTIFICATE, THE RESTATED CERTIFICATE WILL TAKE EFFECT, REGARDLESS OF
WHETHER THE ARRANGEMENT IS COMPLETED.
At the Special Meeting, you also will be asked to approve the 1998 Outside
Directors' Stock Compensation Plan, which provides for a substantial part of the
compensation of the Homestake Board of Directors to be paid in Homestake Common
Stock. The purpose of the Plan is to more clearly align the interests of outside
directors with those of stockholders by increasing the outside directors'
ownership of Homestake Common Stock.
Your Board of Directors believes that these proposals are in the best
interests of the Company, and unanimously recommends that you vote FOR the
proposal to adopt the Restated Certificate and FOR the proposal to approve the
1998 Outside Directors' Stock Compensation Plan.
/s/ Jack E. Thompson
Jack E. Thompson
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
HOMESTAKE MINING COMPANY
650 CALIFORNIA STREET - SAN FRANCISCO - CA 94108-2788 (415) 981-8150
<PAGE>
[LOGO]
HOMESTAKE MINING COMPANY
650 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94108-2788
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON - , 1998
------------------------
To the Stockholders of Homestake Mining Company:
Notice is hereby given that a Special Meeting of Stockholders of Homestake
Mining Company, a Delaware corporation, will be held at 10:00 a.m. local time,
on - , 1998, at - San Francisco, California, for the following purposes:
1. To consider a proposal to adopt a Restated Certificate of Incorporation
of Homestake, which will (i) increase the number of authorized shares of
Homestake Common Stock from 250,000,000 to 450,000,000 shares, (ii)
increase the number of authorized shares of Series A Preferred Stock
(which may be issued under the Homestake Rights Agreement) from 2,500,000
to 4,500,000 shares, (iii) create one share of Special Voting Stock, and
(iv) make certain technical changes, primarily to reflect the existence
of the share of Special Voting Stock. A copy of the Restated Certificate,
marked to show the proposed amendments to be effected thereby, is
attached to this Proxy Statement as Exhibit I.
2. To consider a proposal to approve the 1998 Outside Directors' Stock
Compensation Plan, a copy of which is attached to this Proxy Statement as
Exhibit II.
3. To attend to any other business properly presented at the Homestake
Special Meeting.
The Homestake Board has fixed the close of business on - , 1998 as the
Homestake Record Date for determining the holders of Homestake Common Stock
entitled to receive notice of, and to vote at, the Homestake Special Meeting and
any adjournments or postponements thereof. Only the record holders of Homestake
Common Stock as of the Homestake Record Date are entitled to vote at the
Homestake Special Meeting or any adjournments or postponements thereof.
All Homestake Stockholders are cordially invited to attend the Homestake
Special Meeting in person. It is important that your shares of Homestake Common
Stock be represented at the meeting regardless of the number of shares you hold.
TO ENSURE THAT YOU ARE REPRESENTED AT THE HOMESTAKE SPECIAL MEETING, PLEASE FILL
IN, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, using the return
envelope which requires no postage if mailed in the United States. Your early
attention to the enclosed proxy will be greatly appreciated because it will
reduce the cost Homestake incurs in obtaining voting instructions from its
stockholders.
<TABLE>
<S> <C>
By Order of the Board of Directors,
/s/ WAYNE KIRK
Wayne Kirk
SECRETARY
</TABLE>
- , 1998
------------------------
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
SOLICITING PROXIES IN ANY JURISDICTION WHERE SOLICITING PROXIES IS NOT
PERMITTED.
<PAGE>
HOMESTAKE MINING COMPANY
650 CALIFORNIA STREET
SAN FRANCISCO, CA 94108-2788
(415) 981-8150
- , 1998
------------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON - , 1998
------------------------
This Proxy Statement is being furnished to holders of Homestake Common Stock
in connection with the solicitation of proxies by the Homestake Board for use at
the Homestake Special Meeting to be held on - , 1998 and any adjournment or
postponement thereof. This Proxy Statement and the accompanying form of proxy
are first being mailed to Homestake Stockholders on or about - , 1998.
This Proxy Statement consists of certain information, Exhibits I and II, a
Supplement, and the Appendices to the Supplement. CAPITALIZED TERMS ARE DEFINED
IN THE GLOSSARY, WHICH IS ATTACHED AS APPENDIX A TO THE SUPPLEMENT.
MEETING AND VOTING INFORMATION
MATTERS TO BE CONSIDERED
At the Homestake Special Meeting, Homestake Stockholders will be asked to
consider the following matters:
1. To consider a proposal to adopt a Restated Certificate of Incorporation of
Homestake, which will (i) increase the number of authorized shares of
Homestake Common Stock from 250,000,000 to 450,000,000 shares, (ii) increase
the number of authorized shares of Series A Preferred Stock (which may be
issued under the Homestake Rights Agreement), from 2,500,000 to 4,500,000
shares, (iii) create one share of Special Voting Stock, and (iv) make
certain technical changes, primarily to reflect the existence of the share
of Special Voting Stock. A copy of the Restated Certificate, marked to show
the proposed amendments to be effected thereby, is attached to this Proxy
Statement as Exhibit I.
A principal reason for adopting the Restated Certificate is to provide
Homestake with additional authorized shares to permit Homestake, through
wholly-owned subsidiaries, to acquire the 49.4% interest in Prime Resources
Group Inc. that is not now owned by Homestake Canada Inc., a wholly-owned
subsidiary of Homestake ("HCI"). The acquisition will be effected by means
of an Arrangement under British Columbia law. Homestake Stockholders will
not vote on the Arrangement. If the Arrangement is completed, holders of
Prime Common Shares, other than HCI, will have the option of exchanging each
of their Prime Common Shares for either (i) 0.74 of a share of Homestake
Common Stock or (ii) 0.74 of an HCI Exchangeable Share. Each HCI
Exchangeable Share will be exchangeable for one share of Homestake Common
Stock at any time and will have essentially the same voting, dividend and
other rights as one share of Homestake Common Stock. The Prime transaction
is described in more detail in the Supplement.
At - , 1998, Homestake had - shares of Homestake Common Stock
outstanding and another - shares of Homestake Common Stock reserved for
issuance under stock option and share rights plans and on conversion of
Homestake's Convertible Subordinated Notes. In the transaction, Homestake
expects to issue, or reserve for issuance on exchange of HCI Exchangeable
Shares, approximately 27,811,300 additional shares of Homestake Common
Stock.
<PAGE>
Although completion of the Arrangement is conditioned on the Homestake
Stockholders adopting the Restated Certificate, IF THE HOMESTAKE
STOCKHOLDERS ADOPT THE RESTATED CERTIFICATE, THE RESTATED CERTIFICATE WILL
TAKE EFFECT, REGARDLESS OF WHETHER THE ARRANGEMENT IS COMPLETED.
2. To consider a proposal to approve the 1998 Outside Directors' Stock
Compensation Plan. The Plan provides that a substantial part of the
compensation of the Outside Directors will be paid in Homestake Common
Stock. The purpose of the Plan is to more clearly align the interests of
Outside Directors with those of stockholders by increasing the Outside
Directors' ownership of Homestake Common Stock.
3. To attend to any other business properly presented at the Homestake Special
Meeting.
VOTING RIGHTS; VOTE REQUIRED
A majority of the shares of Homestake Common Stock outstanding on
, 1998, the Homestake Record Date, must be represented in person or by
proxy at the Homestake Special Meeting for a quorum to be present. In the event
a quorum is not present at the Homestake Special Meeting, the meeting will be
adjourned to solicit additional proxies. Only the record holders of Homestake
Common Stock on the Homestake Record Date are entitled to receive notice of and
to vote at the Homestake Special Meeting. On the Homestake Record Date, there
were - shares of Homestake Common Stock outstanding held by - record
holders.
Record holders are entitled to one vote per share of Homestake Common Stock
on each matter to be considered at the Homestake Special Meeting. Adoption of
the Restated Certificate will require the approval of a majority of the shares
of Homestake Common Stock outstanding on the Homestake Record Date. Approval of
the 1998 Outside Directors' Stock Compensation Plan will require the approval of
a majority of the shares present in person or by proxy, provided that the total
votes cast on the proposal must represent more than 50% of all shares of
Homestake Common Stock that are entitled to vote on the proposal.
At - , 1998, directors and executive officers of Homestake and their
affiliates beneficially owned and were entitled to vote - shares of Homestake
Common Stock, which represented approximately - % of the shares of Homestake
Common Stock outstanding on such date. Each director and executive officer of
Homestake has indicated his or her present intention to vote the Homestake
Common Stock owned by him or her FOR the proposal to adopt the Restated
Certificate and FOR the proposal to approve the 1998 Outside Directors' Stock
Compensation Plan.
BOARD RECOMMENDATION
THE HOMESTAKE BOARD UNANIMOUSLY RECOMMENDS THAT THE HOMESTAKE STOCKHOLDERS
VOTE FOR THE PROPOSAL TO ADOPT THE RESTATED CERTIFICATE AND FOR THE PROPOSAL TO
APPROVE THE 1998 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN.
NO DISSENTERS' APPRAISAL RIGHTS
The Homestake Stockholders are not entitled to dissenters' appraisal rights
in respect of the Arrangement or the proposal to adopt the Restated Certificate
(see "The Arrangement--Dissenters' Rights" in the Supplement), or in respect of
the proposal to adopt the 1998 Outside Directors' Stock Compensation Plan.
VOTING OF PROXIES
Shares represented by properly executed proxies received in time for the
Homestake Special Meeting will be voted as instructed or, if there are no voting
instructions, will be voted in favor of the proposal to
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<PAGE>
adopt the Restated Certificate and in favor of the proposal to approve the 1998
Outside Directors' Stock Compensation Plan.
Shares of Homestake Common Stock represented at the Homestake Special
Meeting but not voted, including shares with respect to which the holders
thereof have abstained on any matter, will be treated as present for purposes of
determining the presence or absence of a quorum for the transaction of business.
Under the applicable rules of the NYSE, brokers who hold shares in street
name for customers are prohibited from giving a proxy to vote customers' shares
with respect to certain proposals in the absence of specific instructions from
such customers ("broker nonvotes"). WITH RESPECT TO THE PROPOSAL TO ADOPT THE
RESTATED CERTIFICATE, BROKER NONVOTES AND ABSTENTIONS WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST THE PROPOSAL. WITH RESPECT TO THE PROPOSAL TO APPROVE THE 1998
OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN, BROKER NONVOTES WILL HAVE NO EFFECT
AND ABSTENTIONS WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL
ASSUMING THAT THE TOTAL VOTES CAST ON THE PROPOSAL REPRESENT MORE THAN 50% OF
ALL SHARES ENTITLED TO VOTE ON THE PROPOSAL. THE NYSE TREATS ABSTENTIONS, BUT
NOT BROKER NONVOTES, AS VOTES CAST.
The persons named as proxies by a Homestake Stockholder may propose and vote
for one or more adjournments of the Homestake Special Meeting, including,
without limitation, adjournments to permit further solicitations of proxies in
favor of the proposals. However, no proxy that is voted against the proposals
will be voted in favor of any adjournment to permit further solicitations.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
Homestake Stockholder from voting in person. A Homestake Stockholder may revoke
a proxy at any time prior to its exercise by filing with the Secretary of
Homestake a duly executed revocation of proxy, by submitting a duly executed
proxy bearing a later date or by appearing at the Homestake Special Meeting and
voting in person. Attendance at the Homestake Special Meeting will not, in and
of itself, constitute revocation of a proxy.
SOLICITATION OF PROXIES
Homestake will bear the cost of the solicitation of proxies from the
Homestake Stockholders. In addition to solicitation by mail, the directors,
officers and employees of Homestake may solicit proxies from Homestake
Stockholders by telephone or telegram or in person. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of Homestake
Common Stock, and Homestake will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection therewith.
D.F. King & Co., Inc. will assist in the solicitation of proxies by Homestake
and will receive $12,000 plus reimbursement of its expenses.
PROPOSAL TO ADOPT THE RESTATED CERTIFICATE OF INCORPORATION
THE PROPOSED RESTATED CERTIFICATE
On September 24, 1998, the Homestake Board voted, subject to approval of the
Homestake Stockholders, to adopt a Restated Certificate of Incorporation that
will amend the existing Homestake Certificate in the following respects:
1. Increase the number of authorized shares of Homestake Common Stock from
250,000,000 to 450,000,000 shares;
2. Increase the number of authorized shares of Series A Preferred Stock
(which may be issued under the Homestake Rights Agreement) from 2,500,000
to 4,500,000 shares;
3. Create one share of Special Voting Stock; and
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4. Make certain technical changes to the Homestake Certificate, primarily
to reflect the existence of the Special Voting Stock.
A copy of the Restated Certificate, marked to show the proposed amendments
to be effected thereby, is attached to this Proxy Statement as Exhibit I.
A principal reason, but not the only reason, for adoption of the Restated
Certificate is to provide additional shares of Homestake Common Stock to acquire
the 49.4% interest in Prime that is not now owned by HCI. The acquisition will
be effected by means of an Arrangement under British Columbia law. Homestake
Stockholders will not vote on the Arrangement. If the Arrangement is completed,
holders of Prime Common Shares, other than HCI, will have the option of
exchanging each of their Prime Common Shares for either (i) 0.74 of a share of
Homestake Common Stock or (ii) 0.74 of an HCI Exchangeable Share. Each HCI
Exchangeable Share will be exchangeable for one share of Homestake Common Stock
at any time and will have essentially the same voting, dividend and other rights
as one share of Homestake Common Stock.
The voting rights of the holders of HCI Exchangeable Shares in respect of
Homestake are created through the mechanism of the Special Voting Stock. At the
time the Arrangement becomes effective, the Special Voting Stock will be issued
to Montreal Trust Company, as trustee under the Trust Agreement. The Special
Voting Stock will entitle the Trustee to a number of votes on all matters on
which Homestake Stockholders are entitled to vote that is equal to the number of
HCI Exchangeable Shares outstanding from time to time (excluding HCI
Exchangeable Shares held by Homestake and its subsidiaries). The Trustee will
vote the Special Voting Stock as and to the extent instructed by those holders
of HCI Exchangeable Shares.
At - , 1998, there were - shares of Homestake Common Stock
outstanding and another - shares of Homestake Common Stock reserved for
issuance under stock option and share rights plans and on conversion of
Homestake's Convertible Subordinated Notes. In the transaction, Homestake
expects to issue, or reserve for issuance on exchange of HCI Exchangeable
Shares, approximately 27,811,300 additional shares of Homestake Common Stock.
Completion of the Arrangement is conditioned on (i) the Homestake
Stockholders adopting the Restated Certificate, (ii) approval of the Arrangement
by 75% of all Prime Common Shares (including the shares owned by HCI)
represented at the Prime Special Meeting and by not less than two-thirds of the
Prime Common Shares held by the Prime Minority Shareholders represented at the
Prime Special Meeting, and (iii) approval of the Arrangement by the British
Columbia Supreme Court. However, completion of the Arrangement is not a
condition to adoption of the Restated Certificate. Consequently, if the holders
of Homestake Common Stock adopt the Restated Certificate, the Restated
Certificate will take effect, regardless of whether the Arrangement is
completed.
FUTURE ISSUANCE OF AUTHORIZED SHARES
Although a principal purpose of the adoption of the Restated Certificate is
to create the shares needed to complete the Arrangement, another important
purpose is to provide additional authorized capital stock that may be issued in
future acquisitions and for other corporate purposes, including but not limited
to equity financings, convertible security financings, stock dividends and stock
splits. In addition, the creation of the Special Voting Stock will give
Homestake a mechanism to complete acquisitions and other transactions in Canada
that can provide favorable tax and other characteristics for Canadian residents.
The Homestake Board will have the ability to authorize the issuance of the
additional shares of Homestake Common Stock in acquisitions and other
transactions in its sole discretion and without the delay and expense associated
with obtaining stockholder approval, except where stockholder approval for such
issuance is required by applicable stock exchanges. The NYSE, on which Homestake
Common Stock is listed, currently requires stockholder approval for the issuance
of shares in certain circumstances, including (i) where the issuance could
increase the number of outstanding shares by more than 20 percent,
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<PAGE>
or (ii) transactions, or the adoption of certain plans and programs, involving
the issuance of common stock to officers or directors.
Homestake has reserved shares of Homestake Common Stock for issuance under
stock option and share rights plans and on conversion of Homestake's Convertible
Subordinated Notes. In addition, Homestake is considering refinancing its
existing Convertible Subordinated Notes in the principal amount of $149,995,000
with a new issue of convertible notes, including the possibility of increasing
the total amount thereof. With these exceptions and except for the shares to be
issued pursuant to the Arrangement and the 1998 Outside Directors' Stock
Compensation Plan, Homestake does not currently have any plans, commitments or
undertakings to issue additional shares of Homestake Common Stock or HCI
Exchangeable Shares. However, Homestake continues to actively evaluate possible
acquisitions and will effect one or more such transactions if the Homestake
Board determines that such transactions are in the best interests of the
Homestake Stockholders.
DESCRIPTION OF HOMESTAKE STOCK
Holders of Homestake Common Stock are entitled to one vote per share on all
matters requiring their vote, except for matters exclusively reserved for the
vote of holders of Homestake Preferred Stock. No Homestake Preferred Stock
currently is outstanding. Holders of HCI Exchangeable Shares will be entitled to
one vote per share on all matters as to which holders of Homestake Common Stock
are entitled to vote. Voting by holders of HCI Exchangeable Shares will be
effected through instructions given to the Trustee, as the holder of the Special
Voting Stock, under the Trust Agreement. Homestake Common Stock and the Special
Voting Stock will vote as a single class of stock, unless a separate class vote
is required by applicable law or the Restated Certificate. Directors will be
elected by a plurality of the votes cast by the record holders of Homestake
Common Stock and the Trustee, as the holder of the Special Voting Stock (as
directed by the holders of the HCI Exchangeable Shares under the Trust
Agreement), and a majority of the votes entitled to be cast will be able to
elect all directors.
Holders of Homestake Common Stock are entitled to receive dividends if, when
and as declared by the Homestake Board from funds legally available. Under the
Trust Agreement, Homestake may not declare dividends on Homestake Common Stock
unless an equivalent per share dividend (which will be paid in Canadian dollars)
is paid by HCI on the HCI Exchangeable Shares. Any such dividend rights are
subject to the dividend rights of holders of any Homestake Preferred Stock that
may be issued in the future.
Homestake Common Stock is not redeemable and does not have conversion or
pre-emptive rights. HCI Exchangeable Shares will only be retractable and
redeemable for shares of Homestake Common Stock. HCI Exchangeable Shares will
not have pre-emptive rights.
Under the Homestake Rights Agreement, each share of Homestake Common Stock
trades with a Homestake Right. Homestake Rights are not exercisable currently.
Homestake Rights will become exercisable on a date designated by the Homestake
Board following the commencement of, or an announcement of an intent to
commence, a tender offer by any person, entity or group for 15% or more of the
Homestake Common Stock and the HCI Exchangeable Shares, considered as a single
class. When so exercisable, each Homestake Right initially entitles the owner to
purchase from Homestake one one-hundredth of a share of Series A Preferred
Stock, at a price of $75 (the "Purchase Price"). Each one one-hundredth of a
share of Series A Preferred Stock is equivalent to one share of Homestake Common
Stock with respect to voting and liquidation rights and dividends or
distributions. In addition, if any person, entity or group (an "Acquiring
Person") acquires 15% or more of the Homestake Common Stock and the HCI
Exchangeable Shares, considered as a single class, each Homestake Right (whether
or not previously exercisable) thereafter entitles the owner (other than an
Acquiring Person or its affiliates and associates) to purchase for the Purchase
Price the number of one one-hundredths of a share of Series A Preferred Stock
equal to the Purchase Price divided by one-half of the market price of the
Homestake Common Stock. In lieu of permitting Homestake Rights to be exercised,
the Homestake Board has the option to
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issue, in exchange for each Homestake Right, one-half of the number of shares of
Series A Preferred Stock that would be issuable on exercise of the Homestake
Right (or Homestake Common Stock having a value equal to the Purchase Price). If
the Homestake Board has not exchanged shares for the Homestake Rights and
Homestake engages in a business combination with an Acquiring Person (or
affiliate or associate thereof), the holder of Homestake Rights will be entitled
to purchase for the Purchase Price (i) common stock of the surviving company or
its publicly held affiliate having a market value equal to twice the Purchase
Price, or (ii) common stock of the surviving company having a book value equal
to twice the Purchase Price if the surviving company and its affiliates are not
publicly held. The number of shares and the Purchase Price are subject to
adjustment for stock dividends, stock splits and other changes in
capitalization. The Homestake Rights expire on October 15, 2007.
Each HCI Exchangeable Share will trade with an HCI Right issued under an HCI
Rights Agreement. The HCI Rights will entitle their holders to acquire
additional HCI Exchangeable Shares at the same price and in the same amounts and
circumstances in which holders of Homestake Rights are entitled to acquire
Homestake shares.
The Homestake Certificate currently authorizes the Homestake Board to issue
up to 10,000,000 shares of Homestake Preferred Stock in one or more series and
to fix the number, voting power, designations, preferences and relative,
participating, optional and other rights of each series. To date, the Homestake
Board has established the Series A Preferred Stock, with 2,500,000 shares
authorized, none of which have been issued. The Series A Preferred Stock may be
issued if the Homestake Rights become exercisable. The Restated Certificate will
increase the authorized number of shares of Series A Preferred Stock to
4,500,000 shares.
If the Homestake Stockholders adopt the Restated Certificate (and regardless
of whether the Arrangement is completed), the Restated Certificate will become
effective upon its filing with the Delaware Secretary of State, which is
expected to take place promptly after the Homestake Special Meeting.
POSSIBLE EFFECT OF INCREASE IN AUTHORIZED SHARES
One result of the proposed increase in the number of shares of Homestake
Common Stock authorized for future issuance is that it may help discourage or
make more difficult a change in control of Homestake. The additional shares
could be used under certain circumstances to dilute the voting power of, create
voting impediments for or otherwise frustrate the efforts of persons seeking to
effect a takeover or gain control of Homestake, whether or not the change of
control is favored by a majority of unaffiliated stockholders. For example, such
shares could be privately placed with purchasers who might side with the
Homestake Board in opposing a hostile takeover bid. Homestake has other defenses
available against acts of third parties that are designed to effect a change in
control of Homestake.
Any issuance of Homestake Common Stock or HCI Exchangeable Shares would
have, and any issuance of Homestake Preferred Stock could have, the effect of
reducing the percentage voting interests of previously outstanding Homestake
Common Stock. It is not possible to predict in advance whether the issuance of
additional shares will have a dilutive effect on earnings per share as it
depends on the specific circumstances of a particular transaction.
VOTE REQUIRED
Approval of the proposal to adopt the Restated Certificate will require the
approval of a majority of the shares of Homestake Common Stock outstanding on
the Homestake Record Date. THE HOMESTAKE BOARD UNANIMOUSLY RECOMMENDS THAT THE
HOMESTAKE STOCKHOLDERS VOTE FOR THE PROPOSAL TO ADOPT THE RESTATED CERTIFICATE.
6
<PAGE>
PROPOSAL TO APPROVE THE 1998 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN
Subject to approval of the Homestake Stockholders, the Homestake Board has
adopted the 1998 Outside Directors' Stock Compensation Plan ("Plan"), which
provides for a substantial part of the compensation of the Outside Directors to
be paid in Homestake Common Stock. The purpose of the Plan is to more clearly
align the interests of Outside Directors with those of Homestake Stockholders by
increasing the amount of Outside Directors' compensation that is paid in
Homestake Common Stock, thereby encouraging increased director ownership of
Homestake Common Stock. Twelve of the thirteen Homestake directors are Outside
Directors. Senior executive officers of Homestake are subject to separate stock
ownership guidelines that are significantly in excess of the targets
contemplated by the Plan. Those guidelines will continue to apply to them should
any of them serve as directors.
The Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974 nor is it qualified under Section 401(a) of the Internal
Revenue Code of 1986. A copy of the Plan is attached to this Proxy Statement as
Exhibit II.
EXISTING OUTSIDE DIRECTORS' COMPENSATION PROGRAM
An Outside Director currently receives an annual cash retainer of $16,000,
and each Outside Director who is chairman of a committee of the Homestake Board
receives an additional annual cash retainer of $2,000. The Homestake Board
recently amended the directors' compensation program to increase meeting
attendance fees to $1,000 for each Homestake Board and committee meeting.
(Attendance fees are payable to Outside Directors and also to employee
directors.) The Homestake Board recently also approved an additional fee of
$1,500 payable each time an Outside Director who is resident on another
continent travels to North America to attend Homestake Board or committee
meetings.
Outside Directors are entitled to defer compensation under Homestake's
Deferred Compensation Plan in an amount not less than $2,000 per year nor more
than 100% of compensation for the year. Amounts deferred are credited with
interest in an amount equivalent to (i) 120% of the monthly Moody's Corporate
Bond Yield Average as published by Moody's Investors Service, Inc. and (ii) such
additional amount as the Compensation Committee of the Homestake Board
determines to be appropriate.
Under the Homestake Stock Option and Share Rights Plan--1996 (the "1996
Plan"), Share Rights automatically are granted to Outside Directors. For each
year that the 1996 Plan is in effect, on the eighth business day after
Homestake's annual earnings for the preceding year are released, each Outside
Director in office on that date is granted Share Rights entitling him or her to
receive Homestake Common Stock for no consideration, which stock is
distributable on the date he or she ceases to serve as a director. The number of
shares covered by each annual Share Rights grant is calculated by dividing 10
percent of the compensation received for services as a director of Homestake for
the preceding calendar year by the average fair market value of one share of
Homestake Common Stock for the third through seventh business days following
release of Homestake's earnings for the preceding calendar year. Share Rights
are canceled if an individual ceases to serve as a director within three years
of the date of grant other than by reason of death, disability, retirement at
mandatory retirement age for directors, or termination within one year following
a Change of Control as defined in the 1996 Plan.
Homestake has a retirement plan for qualifying Outside Directors
("Directors' Retirement Plan"). Under the Directors' Retirement Plan, Outside
Directors who do not have a fully vested interest under any tax-qualified
Homestake retirement plan are eligible to receive benefits. The retirement
benefit payable is an amount equal to the annual retainer payable to Outside
Directors at the date of retirement (presently $16,000 per year) multiplied by
the number of years such retiring director was a qualifying Outside Director.
The retirement benefit is payable in monthly installments over the number of
months the retiring Outside Director served as a qualifying Outside Director,
beginning on the later of retirement or attaining age 70 (later of retirement or
age 65 in the case of a qualifying Outside Director who has served at least 10
years). Benefits payable to a participant who dies prior to completion of payout
are payable to the participant's spouse.
7
<PAGE>
PROPOSED 1998 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN
The proposed Plan applies to all Outside Directors. The Plan provides for
the issuance of a maximum of 250,000 shares of Homestake Common Stock (subject
to certain adjustments as described below). Each share of Homestake Common Stock
subject to the Plan will include one Homestake Right. The Plan provides as
follows:
1. Outside Directors are expected to own Homestake Common Stock equal in value
to approximately three times the annual retainer for Outside Directors
(currently $16,000), with the ownership amount to be achieved over a period
of not in excess of five years. Shares subject to vested Share Rights
described below are considered in determining whether an Outside Director
has achieved the targeted level of stock ownership (Article 1).
2. Under the Plan, the annual retainer for Outside Directors, as determined
from time to time by the Homestake Board ("Annual Retainer"), will be paid
50% in cash and 50% in Homestake Common Stock that will be immediately
transferable. Under the Deferred Compensation Plan described above, Outside
Directors also will be permitted to defer receipt of any part of the cash
and stock portion of the Annual Retainer. The cash component of the deferred
compensation will earn interest at the rate described above. The stock
component will be credited to a deferred stock account under the Deferred
Compensation Plan, and the deferred stock account will be credited from time
to time with amounts equal to dividends and other distributions paid on
outstanding Homestake Common Stock. At the time benefits are paid under the
Deferred Compensation Plan, the cash component of the deferred compensation
will be payable in cash and the stock component of the deferred compensation
will be payable in cash or stock at the election of the Outside Director
(Article 6). The Plan does not apply to the annual retainer for committee
chairmen, or to meeting fees, which will continue to be paid in cash.
3. Outside Directors also will have the option to take any part of the 50% cash
component of the Annual Retainer in unrestricted Homestake Common Stock. To
the extent the amount otherwise payable in cash is taken in Homestake Common
Stock, there will be an additional 25% increase in the amount of Homestake
Common Stock payable in lieu of cash (the "Additional Stock"). The
Additional Stock will be "restricted stock" (Article 6). Except as hereafter
provided, restrictions will lapse with respect to 50% of the Additional
Stock after one year, restrictions will lapse with respect to another 25% of
the Additional Stock after two years, and restrictions will lapse with
respect to the remaining 25% of the Additional Stock after three years.
Additional Stock will accrue dividends, which will be payable at the time
the Additional Stock vests. The Outside Director must continue to be a
director at the time of vesting in order to receive the Additional Stock and
accrued dividends thereon. However, the three year vesting requirement will
lapse, and the Additional Stock will vest and (with accrued dividends) be
payable immediately, if the director ceases to serve as a director by reason
of death, disability, retirement at mandatory retirement age for directors
(currently 70), or if the director ceases to serve as a director within one
year following a "Change of Control." Under the Plan, "Change of Control" is
defined as any of the following events: (i) Homestake is a party to a merger
or combination under the terms of which less than 75% of the shares of the
continuing publicly held company are owned by shareholders of Homestake
immediately preceding such event; (ii) at least 75% of fair market value of
Homestake's assets are sold; or (iii) at least 25% in voting power in
election of directors of Homestake capital stock is acquired by any one
person or "group" as that term is used in Rule 13d-5 under the Exchange Act.
4. New directors will receive a one-time Share Rights grant entitling them to
receive 2,000 shares of Homestake Common Stock, with such shares to be
distributed upon retirement. The one-time grant will be made retroactively
to any Outside Director who joined the Homestake Board after January 1,
1997. Accordingly, if the Plan is adopted, one-time Share Rights for 2,000
shares will be granted to each of the following directors as of the
following grant dates: Gerhard Ammann (September 25, 1998), Richard R. Burt
(July 23, 1997), Jeffrey L. Zelms (July 23, 1997), Peter J. Neff (January
30,
8
<PAGE>
1998) and Paul McClintock (July 24, 1998). The right to receive the shares
subject to the one-time Share Rights grant will vest on the third
anniversary of appointment to the Homestake Board. However, the three year
vesting requirement will lapse and the shares subject to the one-time Share
Rights grant will vest immediately if the director ceases to serve as a
director by reason of death, disability, retirement at mandatory retirement
age for directors, or if the director ceases to serve as a director within
one year following a Change of Control.
5. The Directors' Share Rights program under the 1996 Plan will be terminated
(Article 1). In lieu thereof, under the Plan each director in office at the
end of each calendar year will receive an annual Share Rights grant of 1,000
shares of Homestake Common Stock on the following January 1st, with such
shares to be distributed upon retirement. Shares subject to the annual Share
Rights grant for any year will be pro-rated if the director served less than
the full year. The right to receive the shares subject to the annual Share
Rights grant will vest on the third anniversary of grant. However, the three
year vesting requirement will lapse and the shares subject to the annual
Share Rights grant will vest immediately if the director ceases to serve as
a director by reason of death, disability, retirement at mandatory
retirement age for directors, or if the director ceases to serve as a
director within one year following a Change of Control (Article 8).
6. If any change is made to the outstanding shares of Homestake Common Stock,
whether by reason of a merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, combination of shares,
exchange of shares or other changes in corporate structure, the shares of
Homestake Common Stock subject to the Plan and the related Share Rights will
be adjusted to reflect the effect of such change on Homestake's capital
structure to prevent the dilution of benefits thereunder (Article 3).
7. The Homestake Board may terminate the Plan at any time. In addition, the
Homestake Board may amend the Plan to correct ambiguities or to clarify
uncertainties, but the Homestake Board may not amend the Plan without
stockholder approval if the amendment would (i) increase the maximum number
of shares issuable under the Plan, (ii) modify the class of eligible
participants, or (iii) increase the benefits accruing to participants under
the Plan (Article 9).
No participant will have any rights as a stockholder with respect to any
shares subject to Share Rights until stock certificates with respect to such
shares have been issued and delivered. Rights to receive shares under the Plan
are not assignable or transferable other than by will or by the laws of descent
and distribution or to a trust established for the benefit of the participant or
in connection with the participant's estate planning or to the participant's
family or household members (Article 11).
UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a general description of the United States federal income
tax consequences to Outside Directors under the Plan. It does not purport to be
complete. In addition, this general description does not discuss the
applicability of the income tax laws of any state or foreign country.
Except to the extent that an Outside Director elects to defer receipt of
Homestake Common Stock, the Outside Director generally will recognize ordinary
income on the date unrestricted Homestake Common Stock is granted. Such ordinary
income will be in an amount equal to the fair market value of the Homestake
Common Stock on the date of grant. Any gain or loss recognized upon the
subsequent disposition of such stock will normally be a capital gain or loss,
with the tax treatment being dependent on the amount of time the stock is held.
Homestake will be entitled to a business expense deduction equal to the fair
market value of the Homestake Common Stock on the dates of grant.
To the extent that an Outside Director elects, in accordance with the
Deferred Compensation Plan, to defer receipt of unrestricted Homestake Common
Stock, the Outside Director generally will recognize ordinary income at the time
benefits are paid from the Deferred Compensation Plan. The amount of the income
at the time the benefits are paid generally will equal the fair market value of
the cash or Homestake Common Stock (plus any accrued, but previously unpaid
dividends). Any gain or loss
9
<PAGE>
recognized upon the subsequent disposition of such stock will normally be a
capital gain or loss, with the tax treatment thereof being dependent on the
amount of time the stock is held. Homestake will be entitled to a business
expense deduction at the same time that the Outside Director recognizes the
income, and in the same amount.
Outside Directors who are granted Additional Stock or Share Rights generally
recognize no taxable income by reason of the grant. Outside Directors generally
will recognize ordinary income on the date Additional Stock or Share Rights
vest. Such ordinary income will be in an amount equal to the fair market value
of the Homestake Common Stock on the date of vesting (and the amount of
dividends paid in cash). Any gain or loss recognized upon the subsequent
disposition of such stock will normally be a capital gain or loss, with the tax
treatment being dependent on the amount of time the stock is held. Homestake
will be entitled to a business expense deduction equal to the fair market value
of the Homestake Common Stock on the vesting date.
RESTRICTIONS ON RESALE
Unless the Homestake Common Stock subject to the Plan has been registered or
qualified under applicable securities laws, grants under the Plan may be subject
to the requirement that the participants agree to acquire Homestake Common Stock
under the Plan for investment and not with a view to resale or distribution, and
otherwise in compliance with applicable laws.
Under Section 16(b) of the Exchange Act, any "profit" deemed realized by a
director of Homestake from any purchase and sale, or sale and purchase, of
Homestake Common Stock within any period of less than six months (without regard
to whether the purchase and sale involved the same shares) is recoverable by
Homestake. Under applicable SEC rules, where a plan such as the Plan is approved
by stockholders, any grant, award or other acquisition from the issuer is exempt
from the application of Section 16(b). In addition, the acquisition of Homestake
Common Stock is exempt from the application of Section 16(b) if six months have
elapsed from the date of acquisition to the date of disposition, and the
acquisition of Share Rights is so exempt if six months have elapsed from the
date of acquisition to the date of disposition of the Share Rights or the
underlying Homestake Common Stock.
OTHER OUTSIDE DIRECTORS' COMPENSATION
If the Plan is approved by stockholders, the Homestake Board will continue
to have the authority to determine the total amount of the Annual Retainer, the
annual retainer for committee chairmen, the amount of meeting fees, and other
non-stock compensation payable to directors. In addition, the Outside Directors'
Retirement Plan will continue in effect, with the Homestake Board continuing to
have the authority to determine any non-stock element thereof.
VOTE REQUIRED
Approval of the 1998 Outside Directors' Stock Compensation Plan will require
the affirmative vote of a majority of the shares present in person or by proxy,
provided that the total votes cast on the proposal must represent more than 50%
of all shares of Homestake Common Stock that are entitled to vote on the
proposal. THE HOMESTAKE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
1998 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN. PROXIES SOLICITED BY THE
HOMESTAKE BOARD WILL BE VOTED FOR THIS PROPOSAL UNLESS A VOTE AGAINST THE
PROPOSAL OR ABSTENTION IS SPECIFICALLY INDICATED ON THE FORM OF PROXY.
10
<PAGE>
STOCKHOLDER PROPOSALS
The 1999 annual meeting of stockholders will be held on May 11, 1999 unless
the date is subsequently changed by the Homestake Board. To be considered for
inclusion in the proxy statement for the 1999 annual meeting, proposals of
stockholders should be received by Homestake no later than November 24, 1998.
Such proposals should be directed to the Secretary of Homestake.
Under Homestake's By-laws, any stockholder who intends to present any matter
of business to be considered and voted upon at the 1999 annual meeting must give
timely notice thereof, in writing, to the Secretary of Homestake. To be timely,
such notice must be given on or after November 12, 1998 and on or before
February 26, 1999.
<TABLE>
<S> <C>
By Order of the Homestake Board of
Directors
/s/ WAYNE KIRK
Wayne Kirk
SECRETARY
</TABLE>
San Francisco, California
- , 1998
11
<PAGE>
EXHIBIT I
HOMESTAKE MINING COMPANY
PROPOSED
RESTATED CERTIFICATE OF INCORPORATION
<PAGE>
- --------------------------------------------------------------------------------
FOR EDGAR FILING, LANGUAGE THAT WILL BE ADDED IS PRECEDED BY A "{" AND FOLLOWED
BY A "}". LANGUAGE THAT WILL BE ELIMINATED IS PRECEDED BY A "<#>" AND FOLLOWED
BY A "</#>".
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
(MATERIAL PRESENTED IN BOLD ITALICS TYPE REFLECTS A PROPOSED ADDITION TO BE
EFFECTED BY THE RESTATED CERTIFICATE. MATERIAL THROUGH WHICH A LINE HAS BEEN
DRAWN REFLECTS A PROPOSED DELETION.)
RESTATED CERTIFICATE OF INCORPORATION
OF
HOMESTAKE MINING COMPANY
In accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, HOMESTAKE MINING COMPANY does hereby
amend and restate its RESTATED Certificate of Incorporation. HOMESTAKE MINING
COMPANY was incorporated under the name HOMESTAKE MINING CORPORATION, and the
original Certificate of Incorporation was filed with the Secretary of State on
November 28, 1983. This Restated Certificate of Incorporation was duly adopted
by the Stockholders and the Board of Directors of the Company in accordance with
Sections 242 and 245 of the Delaware General Corporation Law, as amended.
The text of the Restated Certificate of Incorporation is hereby amended and
restated so as to read in its entirety as follows:
ONE: The name of this corporation is
HOMESTAKE MINING COMPANY.
TWO: The address of the registered office of the Company in the State of
Delaware is <#>100 West Tenth</#> {1209 ORANGE Street}, in the City of
Wilmington, County of New Castle, and the name of its registered agent at that
address is The Corporation Trust Company.
THREE: The purpose of the Company is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOUR: The total number of shares of all classes of stock which the Company
is authorized to issue is <#>260,000,000</#> {460,000,001} shares. Of these,
250,000,000 450,000,000 shares shall be shares of common stock and the par value
of each such share shall be $1.00 ("Common Stock"), <#>and</#> 10,000,000 shares
shall be shares of preferred stock and the par value of each such share shall be
$1.00 ("Preferred Stock"), {AND ONE SHARE SHALL BE A SHARE OF SPECIAL VOTING
STOCK WITH CERTAIN VOTING RIGHTS AND THE PAR VALUE OF SUCH SHARE SHALL BE $1.00
("SPECIAL VOTING STOCK").} The aggregate par value of all shares is
<#>260,000,000</#> {$460,000,001}.
The number of shares of Preferred Stock authorized by this Article FOUR may
be increased or decreased (but not below the number of shares then outstanding)
by the affirmative vote of the holders of a majority of the <#>Common</#> {TOTAL
VOTING POWER OF ALL OUTSTANDING SHARES OF THE COMMON STOCK AND SPECIAL VOTING}
Stock of the Company and, subject to any limitation imposed in any resolution
adopted by the Board of Directors providing for the issue of any particular
series of Preferred Stock, the holders of Preferred Stock shall not be entitled
to vote upon any such increase or decrease.
{THE RECORD HOLDER OF THE SPECIAL VOTING STOCK SHALL NOT BE ENTITLED TO
RECEIVE ANY DIVIDENDS OR OTHER DISTRIBUTIONS OR TO RECEIVE OR PARTICIPATE IN ANY
DISTRIBUTION OF ASSETS UPON ANY VOLUNTARY OR INVOLUNTARY LIQUIDATION,
DISSOLUTION OR WINDING UP OF THE COMPANY. EXCEPT AS OTHERWISE REQUIRED BY
APPLICABLE LAW, AT EACH ANNUAL OR SPECIAL MEETING OF STOCKHOLDERS OF THE COMPANY
THE RECORD HOLDER OF THE SPECIAL VOTING STOCK SHALL BE ENTITLED TO VOTE ON ALL
MATTERS SUBMITTED TO A VOTE OF THE HOLDERS OF THE COMMON STOCK, VOTING TOGETHER
WITH THE HOLDERS OF THE COMMON STOCK AS A SINGLE CLASS (EXCEPT AS OTHERWISE
PROVIDED HEREIN OR BY APPLICABLE LAW), AND THE RECORD HOLDER OF THE SPECIAL
VOTING STOCK SHALL BE ENTITLED TO CAST ON ANY SUCH MATTER A NUMBER OF VOTES
EQUAL TO THE NUMBER OF EXCHANGEABLE SHARES ("EXCHANGEABLE SHARES") OF HOMESTAKE
CANADA INC. AND ITS SUCCESSORS AT LAW, WHETHER BY MERGER, AMALGAMATION OR
OTHERWISE, OUTSTANDING AS OF THE RECORD DATE FOR SUCH ANNUAL OR SPECIAL MEETING
OF STOCKHOLDERS, WHICH ARE NOT OWNED BY THE COMPANY OR ANY SUBSIDIARY OF THE
COMPANY. AT SUCH TIME AS NO
I-1
<PAGE>
EXCHANGEABLE SHARES (OTHER THAN EXCHANGEABLE SHARES OWNED BY THE COMPANY OR ANY
SUBSIDIARY OF THE COMPANY) SHALL BE OUTSTANDING AND THERE ARE NO SHARES OF
STOCK, DEBT, OPTIONS OR OTHER AGREEMENTS WHICH COULD GIVE RISE TO THE ISSUANCE
OF ANY EXCHANGEABLE SHARES TO ANY PERSON (OTHER THAN THE COMPANY OR ANY
SUBSIDIARY OF THE COMPANY), THE SHARE OF SPECIAL VOTING STOCK SHALL
AUTOMATICALLY BE REDEEMED FOR $1.00, AND UPON ANY SUCH REDEMPTION OR OTHER
PURCHASE OR ACQUISITION OF THE SPECIAL VOTING STOCK BY THE COMPANY THE SHARE OF
SPECIAL VOTING STOCK SHALL BE DEEMED RETIRED AND CANCELED AND MAY NOT BE
REISSUED.}
FIVE: The Board of Directors shall have the authority, subject to
limitations prescribed by law and the provisions of this Article FIVE, to
determine and provide for the issuance of Preferred Stock in one or more series
and to establish or alter the number of shares to be included in each such
series, and to fix the voting powers, designations, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions of the shares of each such series of Preferred
Stock.
The Board of Directors shall have the authority, subject to the limitations
stated in any resolution or resolutions originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any such series
subsequent to the issuance of shares of that series. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status of authorized but unissued shares of Preferred
Stock.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, the authority to determine, by resolution or
resolutions providing for the issue of shares of each series, the following: (1)
the number of shares in and distinctive designation of each series; (2) the
dividend rate on each series and whether dividends shall be cumulative; (3) the
voting rights, if any, of the shares of each series in addition to those
required by law, including the number of votes per share and any rights of the
shares of each series to vote as a separate class in connection with any
specified transaction or item of business; (4) whether each series shall have
conversion privileges and, if so, the terms and conditions of such conversion;
(5) whether the shares of each series shall be redeemable and, if so, the terms
and conditions of such redemption; (6) the rights of each series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company;
(7) whether each series shall be subject to the operation of a purchase,
retirement or sinking fund and, if so, the terms and conditions thereof; and (8)
any other preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions of each series.
DESIGNATION OF SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK SETTING
FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF SUCH SERIES OF PREFERED STOCK.
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
Section 1. DESIGNATION AND NUMBER OF SHARES. The shares of such series
shall be designated as "Series A Participating Cumulative Preferred Stock" (the
"Series A Preferred Stock"). The par value of each share of the Series A
Preferred Stock shall be $1.00. The number of shares <#>initially</#>
constituting the Series A Preferred Stock shall be <#>2,500,000</#> {4,500,000};
PROVIDED HOWEVER, that if more than a total of <#>2,500,000</#> {4,500,000}
shares of Series A Preferred Stock shall be issuable upon the exercise of Rights
issued pursuant to the Rights Agreement dated as of October 16, 1987, as
amended, (the "Rights Agreement"), the Board of Directors of the
<#>Corporation</#> {COMPANY}, pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware, shall direct by resolution or
resolutions that a certificate be properly executed, acknowledged, filed and
recorded, in accordance with the provisions of Section 103 thereof, providing
for the total number of shares of Series A Preferred Stock authorized to be
issued be increased (to the extent that <#>the</#> {THIS RESTATED} Certificate
of Incorporation then permits) to the largest number of whole shares (rounded up
to the nearest whole number) issuable upon exercise of such Rights.
I-2
<PAGE>
Section 2. DIVIDENDS OR DISTRIBUTIONS.
(a) Subject to the prior and superior rights of the holders of shares of any
other series of Preferred Stock or other class of capital stock not by its terms
ranking on a parity with, or junior to, the shares of Series A Preferred Stock
with respect to dividends, the holders of shares of the Series A Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors,
out of the assets of the <#>Corporation</#> {COMPANY} legally available
therefor, (1) quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or a
fraction of a share of Series A Preferred Stock, of $10 per whole share (rounded
to the nearest cent) less the amount of all cash dividends declared on the
Series A Preferred Stock pursuant to the following clause (2) since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock, and (2) dividends payable in
cash on the payment date for each cash dividend declared on the Common Stock in
an amount per whole share (rounded to the nearest cent) equal to the Formula
Number then in effect times the cash dividends then to be paid on each share of
Common Stock. In addition, if the <#>Corporation</#> {COMPANY} shall pay any
dividend or make any distribution on the Common Stock payable in assets,
securities or other forms of noncash consideration (other than dividends or
distributions solely in shares of Common Stock), then, in each such case, the
<#>Corporation</#> {COMPANY} shall simultaneously pay or make on each
outstanding share of Series A Preferred Stock a dividend or distribution in like
kind of the Formula Number then in effect times such dividend or distribution on
each share of the Common Stock. As used herein, the "Formula Number" shall be
100; PROVIDED, HOWEVER, that if at any time after November 2, 1987, the
<#>Corporation</#> {COMPANY} shall (i) declare or pay any dividend on the Common
Stock payable in shares of Common Stock or make any distribution on the Common
Stock in shares of Common Stock, (ii) subdivide (by a stock split or otherwise)
the outstanding shares of Common Stock into a larger number of shares of Common
Stock or (iii) combine (by a reverse stock split or otherwise) the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, then in
each such event the Formula Number shall be adjusted to a number determined by
multiplying the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of shares of Common Stock that
are outstanding immediately after such event and the denominator of which is the
number of shares that are outstanding immediately prior to such event (and
rounding the result to the nearest whole number); and PROVIDED FURTHER, that if
at any time after November 2, 1987, the <#>Corporation</#> {COMPANY} shall issue
any shares of its capital stock in a reclassification or change of the
outstanding shares of Common Stock (including any such reclassification or
change in connection with a merger in which the <#>Corporation</#> {COMPANY} is
the surviving corporation), then in each such event the Formula Number shall be
appropriately adjusted to reflect such reclassification or change.
(b) The <#>Corporation</#> {COMPANY} shall declare a dividend or
distribution on the Series A Preferred Stock as provided in Section 2(a)
immediately prior to or at the same time it declares a dividend or distribution
on the Common Stock (other than a dividend or distribution solely in shares of
Common Stock); PROVIDED, HOWEVER, that, in the event no dividend or distribution
(other than a dividend or distribution in shares of Common Stock) shall have
been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $10 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a dividend or distribution declared
thereon, which record date shall be the same as the record date for any
corresponding dividend or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from and after the Quarterly Dividend Payment Date
next preceding the date of original issue of
I-3
<PAGE>
such shares of Series A Preferred Stock; PROVIDED, HOWEVER, that dividends on
such shares which are originally issued after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and on or prior to the next succeeding Quarterly
Dividend Payment Date shall begin to accrue and be cumulative from and after
such Quarterly Dividend Payment Date. Notwithstanding the foregoing, dividends
on shares of Series A Preferred Stock which are originally issued prior to the
record date for the first Quarterly Dividend Payment, shall be calculated as if
cumulative from and after the March 1, June 1, September 1 or December 1, as the
case may be, next preceding the date of original issuance of such shares.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding.
(d) So long as any shares of the Series A Preferred Stock are outstanding,
no dividends or other distributions shall be declared, paid or distributed, or
set aside for payment or distribution, on the Common Stock unless, in each case,
the dividend required by this Section 2 to be declared on the Series A Preferred
Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a number of
votes equal to the Formula Number then in effect, for each share of Series A
Preferred Stock held of record on each matter on which holders of the Common
Stock or stockholders generally are entitled to vote, multiplied by the maximum
number of votes which the holders of the Common Stock or stockholders generally
then have with respect to such matter.
(b) Except as otherwise provided herein or by applicable law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class for the election of directors of the
<#>Corporation</#> {COMPANY} and on all other matters submitted to a vote of
stockholders of the <#>Corporation</#> {COMPANY}.
(c) If at the time of any annual meeting of stockholders for the election of
directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Stock are in
default, the number of directors constituting the Board of Directors of the
<#>Corporation</#> {COMPANY} shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of
the <#>Corporation</#> {COMPANY}, the holders of record of the Series A
Preferred Stock, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears have
been paid or declared and set apart for payment prior thereto, to vote for the
election of two directors of the <#>Corporation</#> {COMPANY}, the holders of
any Series A Preferred Stock being entitled to cast a number of votes per share
of Series A Preferred Stock equal to the Formula Number. Until the default in
payments of all dividends which permitted the election of said directors shall
cease to exist any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or without cause,
only by the affirmative vote of the holders of the shares at the time entitled
to cast a majority of the votes entitled to be cast for the election of any such
director at a special meeting of such holders called for that purpose, and any
vacancy thereby created may be filled by the vote of such holders. If and when
such default shall cease to exist, the holders of the Series A Preferred Stock
shall be divested of the foregoing special voting rights, subject to revesting
in the event of each and every subsequent like default in payments of dividends.
Upon the termination of the foregoing special voting rights, the terms of office
of all persons who may have been elected directors pursuant to said special
voting rights shall forthwith terminate, and the number of directors
constituting the Board of
I-4
<PAGE>
Directors shall be reduced by two. The voting rights granted by this Section
3(c) shall be in addition to any other voting rights granted to the holders of
the Series A Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for authorizing or taking any
corporate action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions payable
on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the <#>Corporation</#> {COMPANY} shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
provided that the Corporation {COMPANY} may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the <#>Corporation</#> {COMPANY} ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock: or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(b) The <#>Corporation</#> {COMPANY} shall not permit any subsidiary of the
<#>Corporation</#> {COMPANY} to purchase or otherwise acquire for consideration
any shares of stock of the <#>Corporation</#> {COMPANY} unless the
<#>Corporation</#> {COMPANY} could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the <#>Corporation</#> {COMPANY}, whether voluntary or
involuntary, no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution, or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received an amount equal to the
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, plus an amount equal to the greater of (x) $75 per
share or (y) an aggregate amount per share equal to the Formula Number then in
effect times the aggregate amount to be distributed per share to holders of
Common Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all other such parity stock in proportion to
I-5
<PAGE>
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
Section 6. CONSOLIDATION, MERGER, ETC. In case the <#>Corporation</#>
{COMPANY} shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash or any other property, then in any such
case the then outstanding shares of Series A Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share equal to the
Formula Number then in effect times the aggregate amount of stock, securities,
cash or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is exchanged or changed.
Section 7. NO REDEMPTION; NO SINKING FUND.
(a) The shares of Series A Preferred Stock shall not be subject to
redemption by the <#>Corporation</#> {COMPANY} or at the option of any holder of
Series A Preferred Stock; {PROVIDED, HOWEVER}, that the <#>Corporation</#>
{COMPANY} may purchase or otherwise acquire outstanding shares of Series A
Preferred Stock in the open market or by offer to any holder or holders of
shares of Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
Section 8. RANKING. The Series A Preferred Stock shall rank junior to all
other series of Preferred Stock of the <#>Corporation</#> {COMPANY}, unless the
Board of Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
Section 9. FRACTIONAL SHARES. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is not smaller than one
one-hundredth (l/l00th) of a share or any integral multiple of such fraction. In
lieu of fractional shares, the <#>Corporation</#> {COMPANY}, prior to the first
issuance of a share or a fraction of a share of Series A Preferred Stock, may
elect (1) to issue certificates evidencing such authorized fraction of a share
of Series A Preferred Stock or (2) to issue depository receipts evidencing such
authorized fraction of a share of Series A Preferred Stock pursuant to an
appropriate agreement between the <#>Corporation</#> {COMPANY} and a depository
selected by the <#>Corporation</#> {COMPANY}, provided that such agreement shall
provide that the holders of such depository receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Series A Preferred Stock.
Section 10. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the <#>Corporation</#> {COMPANY} in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors pursuant to the provisions of Article FIVE <#>of the Certificate of
Incorporation</#> {HEREOF}.
Section 11. AMENDMENT. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred Stock
as provided herein shall be amended in any manner which would alter or change
the powers, preferences, rights or privileges of the holders of Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least 66 2/3% of the outstanding shares of Series A Preferred
Stock, voting as a separate class.
SIX: No holder of shares of stock of any class of the Company shall be
entitled as of right to purchase or subscribe for any part of any unissued stock
of the Company or of any new or additional authorized stock of the Company of
any class whatsoever, or of any issue of securities of the Company convertible
into stock, whether such stock or securities be issued for money or for a
consideration other than money or by way of dividend, but any such unissued
stock or such new or additional authorized stock or such securities
I-6
<PAGE>
convertible into stock may be issued and disposed of to such persons, firms,
corporations and associations, and upon such terms as may be deemed advisable by
the Board of Directors without offering to stockholders then of record or any
class of stockholders any thereof upon any terms.
SEVEN: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the by-laws of the Company.
EIGHT: The number of directors of the Company shall be fixed from time to
time by a by-law or amendment thereof duly adopted by the Board of Directors or
by the stockholders, or except as may be set forth in a certificate filed under
Section 151(g) of the General Corporation Law of the State of Delaware pursuant
to Article FIVE hereof.
NINE: The Board of Directors shall be and is divided into three classes,
Class I, Class II and Class III, as nearly equal in number of directors as
possible, with the term of office of the directors of one class expiring each
year. Each director shall be elected to serve for a term ending on the date of
the third annual meeting of stockholders following the annual meeting of
stockholders at which such director was elected.
In the event of any change in the authorized number of directors, the Board
of Directors shall apportion any newly created directorships to, or reduce the
number of directorships in, such class or classes as shall, so far as possible,
equalize the number of directors in each class. If, consistently with the rule
that the three classes shall be as nearly equal in number of directors as
possible, any newly created directorships may be allocated to more than one
class, the Board of Directors shall allocate them to the classes the terms of
office of which are due to expire at the latest date following such allocation.
Notwithstanding any of the foregoing, each director shall serve for a term
continuing until the annual meeting of stockholders at which the term of the
class to which he was elected expires and until his successor is elected and
qualified or until his earlier death, resignation or removal.
Any vacancies in the Board of Directors for any reason, including any newly
created directorships resulting from any increase in the number of directors,
may be filled by the Board of Directors, acting by a majority of the directors
then in office, although less than a quorum; and any directors so chosen shall
hold office until the next election of the class for which such directors shall
have been chosen, and until their successors shall be elected and qualified.
The provisions of this Article NINE shall be subject to the provisions of a
certificate filed under Section 151(g) of the General Corporation Law of the
State of Delaware pursuant to Article FIVE hereof.
TEN: Except as may be set forth in a certificate filed under Section 151(g)
of the General Corporation Law of the State of Delaware pursuant to Article FIVE
hereof, a director may be removed from office only for cause, and only by the
affirmative vote of the holders of a majority of <#>shares</#> {THE TOTAL VOTING
POWER OF ALL OUTSTANDING SHARES OF STOCK OF THE COMPANY} entitled to vote at an
election of directors and who would be entitled to vote for the election of a
director to fill the vacancy created by such removal.
ELEVEN: Elections of directors shall be by written ballot unless the by-laws
of the Company shall otherwise provide.
TWELVE: No action shall be taken by the stockholders except at an annual or
special meeting of stockholders.
THIRTEEN: Special meetings of the stockholders of the Company for any
purpose or purposes may be called at any time only by the Board of Directors,
the Chairman of the Board of Directors, the President, a committee of the Board
of Directors which has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of Directors or
in the by-laws of the Company, include the power to call such meeting, or by
stockholders having not less than seventy-five percent (75%) of the total voting
power of all outstanding shares of stock of the Company, and such special
meetings may not be called by any other person or persons; provided, however,
that if and to the extent that any special meeting of stockholders may be called
by any other person or persons specified in any provisions of the Restated
Certificate of Incorporation or any amendment thereto, or any certificate
I-7
<PAGE>
filed under Section 151(g) of the General Corporation Law of the State of
Delaware pursuant to Article FIVE hereof, then such special meeting may also be
called by such person or persons in the manner, at the times and for the
purposes so specified.
FOURTEEN: Except as may be set forth in a certificate filed under Section
151(g) of the General Corporation Law of the State of Delaware pursuant to
Article FIVE hereof requiring a specified percentage of the voting power of any
series of Preferred Stock created pursuant thereto, the approval or
authorization of any "Business Combination" (as defined in Article FIFTEEN
hereof) of the Company with any "Related Person" (as defined in Article FIFTEEN
hereof) (i) shall require the affirmative vote of the holders of not less than
eighty percent (80%) of the total voting power of all outstanding shares of
stock of the Company having the right to vote in respect of such Business
Combination, and (ii) also shall require the affirmative vote of the holders of
not less than a majority of the voting power of all outstanding shares of stock
so entitled to vote held by stockholders other than such Related Person and its
Affiliates and Associates (as defined in Article FIFTEEN hereof); provided,
however, that the voting requirements provided by clauses (i) and (ii) above
shall not be applicable if:
(A) The Business Combination was approved by the Board of Directors of
the Company prior to the time the Related Person in question first became a
Related Person; or
(B) The Business Combination was approved by the Board of Directors of
the Company after the time the Related Person in question first became a
Related Person, but only if such Related Person obtained the unanimous
approval of the Board of Directors of the Company to his becoming a Related
Person, which approval was obtained prior to his becoming a Related Person;
or
(C) The Business Combination is solely between the Company and another
corporation, fifty percent (50%) or more of the voting stock of which is
owned by the Company and none of which is owned by a Related Person,
provided that each stockholder of the Company receives the same type of
consideration in such transaction as every other stockholder of the same
class in proportion to his stockholdings and each holder of Common Stock of
the Company receives or retains Common Stock in the surviving corporation or
in any other corporation which is a party to such Business Combination; or
(D) All of the following conditions are satisfied:
(1) The cash or fair market value of the property, securities or
"Other Consideration To Be Received" (as defined in Article FIFTEEN
hereof) per share by holders of Common Stock of the Company in the
Business Combination is not less than the higher of (i) the highest per
share price (including brokerage commissions, soliciting dealers' fees,
dealer-management compensation, and other expenses, including, but not
limited to, costs of newspaper advertisements, printing expenses and
attorneys' fees) paid by such Related Person in acquiring any of its
holdings of Common Stock of the Company or (ii) an amount which bears the
same or a greater percentage relationship to the market price of the
Common Stock of the Company immediately prior to the announcement of such
Business Combination as the highest per share price determined in (i)
above bears to the market price of the Common Stock of the Company
immediately prior to the commencement of acquisition of the Common Stock
of the Company by such Related Person, but in no event in excess of two
times the highest per share price determined in (i) above;
(2) After becoming a Related Person and prior to the consummation of
such Business Combination, (i) such Related Person shall not have
acquired any newly issued shares of capital stock, directly or
indirectly, from the Company (except upon conversion of convertible
securities acquired by it prior to becoming a Related Person or upon
compliance with the provisions of this Article FOURTEEN or as a result of
a pro rata stock dividend or stock split or other recapitalization) and
(ii) such Related Person shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder) of any loans,
advances, guarantees, pledges or other
I-8
<PAGE>
financial assistance or tax credits provided by the Company, or made any
major changes in the business or equity capital structure of the Company;
and
(3) A proxy statement meeting the requirements of the Securities
Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, whether or not the Company is then subject to
such requirements, shall be mailed to the stockholders of the Company for
the purpose of soliciting stockholder approval of such Business
Combination and shall contain, prominently displayed (i) any
recommendations as to the advisability (or inadvisability) of the
Business Combination which the Continuing Directors, or any Outside
Directors, may choose to state, and (ii) the opinion of a reputable
national investment banking firm as to the fairness (or not) of the terms
of such Business Combination, from the point of view of the stockholders
of the Company who are not Related Persons or their Affiliates or
Associates (such investment banking firm to be engaged solely on behalf
of the stockholders who are not Related Persons or their Affiliates or
Associates, to be paid a reasonable fee for its services by the Company
upon receipt of such opinion, to be an investment banking firm which has
not previously been associated with any such Related Person and, if there
are then any such directors, to be elected by a majority of the
Continuing Directors and Outside Directors (as defined in Article FIFTEEN
hereof).
FIFTEEN: As used in this Restated Certificate of Incorporation, the terms
hereafter defined shall have the following meanings:
(A) The terms "Affiliate" and "Affiliated with" shall mean, with respect
to a specific Person, a Person that, directly or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the Person specified.
(B) The term "Associate" shall mean, when used to indicate a
relationship with any Person, (1) any corporation, partnership, association
or other organization (other than the Company or a majority-owned subsidiary
of the Company) of which such Person is an officer, partner or, directly or
indirectly, Beneficial Owner of ten percent (10%) or more of any class of
equity securities or other beneficial or voting interest, (2) any trust or
other estate in which such Person has a substantial beneficial interest or
as to which such Person serves as trustee or in a similar fiduciary
capacity, (3) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person, or (4) any investment company
registered under the Investment Company Act of 1940 for which such Person or
any Affiliate of such Person serves as investment adviser.
(C) A Person shall be considered the "Beneficial Owner" of any shares or
other beneficial or voting interest (whether or not owned of record):
(1) With respect to which such Person or any Affiliate or Associate
of such Person directly or indirectly has or shares (i) voting power,
including the power to vote or to direct the voting of such shares or
interests and/or (ii) investment power, including the power to dispose of
or to direct the disposition of such shares or interests;
(2) Which such Person or Affiliate or Associate of such Person has
(i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, and/or (ii) the right to vote
pursuant to any agreement, arrangement or understanding (whether such
right is exercisable immediately or only after the passage of time); or
(3) Which are Beneficially Owned within the meaning of (1) or (2) of
this definition by any other Person with which such first-mentioned
Person or any of its Affiliates or Associates has any agreement,
arrangement or understanding, written or oral, with respect to acquiring,
holding, voting or disposing of any shares of stock of the Company or any
subsidiary of the Company or acquiring, holding or disposing of all or
any Substantial Part of the assets or business of the Company or a
subsidiary of the Company.
I-9
<PAGE>
For the purpose only of determining whether a Person is the Beneficial
Owner of a percentage of outstanding shares of the Company specified in this
Restated Certificate of Incorporation, such shares shall be deemed to
include any shares which may be issuable pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants, options or otherwise and which are deemed to be
Beneficially Owned by such Person pursuant to the foregoing provisions of
this definition.
(D) The term "Business Combination" shall mean (1) any merger or
consolidation of the Company or a subsidiary of the Company with or into a
Related Person, (2) any sale, lease, exchange, transfer or other
disposition, including, without limitation, a mortgage or any other security
device, in a single transaction or series of related transactions, of all or
any Substantial Part of the assets of the Company (including, without
limitation, any voting securities of a subsidiary) or of a subsidiary of the
Company to a Related Person, (3) any merger or consolidation of a Related
Person with or into the Company or a subsidiary of the Company, (4) any
sale, lease, exchange, transfer or other disposition, including without
limitation, a mortgage or other security device, in a single transaction or
series of related transactions, of all or any Substantial Part of the assets
of a Related Person to the Company or a subsidiary of the Company, (5) the
issuance of any securities of the Company or a subsidiary of the Company to
a Related Person, (6) the acquisition by the Company or a subsidiary of the
Company of any securities of a Related Person, (7) any reclassification of
Common Stock of the Company, or any recapitalization involving Common Stock
of the Company, consummated within five (5) years after a Related Person
becomes a Related Person, (8) any liquidation or dissolution of the Company
proposed, directly or indirectly, by or on behalf of a Related Person, (9)
any merger or consolidation of the Company proposed, directly or indirectly,
by or on behalf of Related Person, unless the surviving or consolidated
corporation, as the case may be, has provisions in its certificate of
incorporation substantially identical to Articles FOURTEEN, FIFTEEN and
SIXTEEN hereof, or (10) any agreement, contract or other arrangement
providing for any of the transactions described in this definition of
Business Combination. A Business Combination with a Person shall be deemed
to be a Business Combination with a Related Person if such Person is a
Related Person at any of the following times: (i) the date any definitive
agreement relating to a Business Combination is entered into or amended;
(ii) the record date for the determination of stockholders entitled to
notice of and to vote on a Business Combination; and (iii) immediately prior
to the consummation of a Business Combination.
(E) The term "Continuing Director" shall mean a director who was a
member of the Board of Directors of the Company immediately prior to the
time that any Related Person involved in the proposed Business Combination
first became a Related Person.
(F) The term "Other Consideration To Be Received" shall include, without
limitation, shares of stock of the Company retained by any of its
stockholders other than a Related Person or its Affiliates or Associates in
the event of a Business Combination with such Related Person in which the
Company is the surviving entity.
(G) The term "Outside Director" shall mean a director who is not (1) an
officer or employee of the Company or any relative of an officer or
employee, (2) a Related Person or an officer, director, employee, Associate
or Affiliate of a Related Person, or a relative of any of the foregoing, or
(3) a Person having a direct or indirect material business relationship with
the Company.
(H) The term "Person" shall mean any person, partnership, corporation,
group or other entity (other than the Company, any subsidiary of the
Company, or a trustee holding stock for the benefit of any of the employees
of the Company or its subsidiaries, pursuant to one or more employee benefit
plans or arrangements, but only in such capacity). When two or more persons
act as a partnership, limited partnership, syndicate, joint venture,
association or other group for the purpose of acquiring, holding or
disposing of shares of stock, such partnership, syndicate, joint venture,
association or group shall be deemed a "Person."
I-10
<PAGE>
(I) The term "Related Person" shall mean any Person which, together with
any Affiliate or Associate, is the Beneficial Owner of ten percent (10%) or
more of the outstanding Common Stock of the Company or of the outstanding
voting stock of the Company or any Person which, together with any Affiliate
or Associate, was at any time within the five (5) years preceding the date
for such determination the Beneficial Owner of ten percent (10%) or more of
the then outstanding Common Stock of the Company or of the outstanding
voting stock of the Company.
(J) The term "Substantial Part" shall mean more than ten percent (10%)
of the total assets of the individual, corporation, partnership or other
person or entity in question, as of the end of its most recent fiscal year
ending prior to the time the determination is being made.
SIXTEEN: The Company reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereinafter prescribed by statute, and all rights conferred by
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in Articles FOURTEEN, FIFTEEN and this
SIXTEEN may not be amended, altered, changed or repealed in any respect if there
is then a Related Person unless such amendment, alteration, change or repeal is
approved (i) by the affirmative vote of the holders of not less than eighty
percent (80%) of the total voting power of the Company and (ii) also by the
affirmative vote of the holders of not less than a majority of the total voting
power of the Company other than a Related Person and any Affiliates and
Associates of such a Related Person.
SEVENTEEN: No director shall have any personal liability to the Company or
its stockholders for any monetary damages for breach of fiduciary duty as a
director, except that this Article shall not eliminate or limit the liability of
each director (i) for any breach of such director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of a dividend or unlawful stock purchase or redemption under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which such director derived an improper personal benefit. Any repeal or
modification of the preceding sentence by the stockholders of the Company shall
not adversely affect any right or protection of a director of the Company
existing at the time of such repeal or modification.
IN WITNESS WHEREOF, HOMESTAKE MINING COMPANY has caused this Restated
Certificate of Incorporation to be signed by <#>Harry M. Conger</#>, {JACK E.
THOMPSON, ITS CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER}, and attested by
<#>Howard C. Harvey</#> {WAYNE KIRK}, its Secretary, this <#>8th day of May,
1984</#> { DAY OF , 1998}.
<TABLE>
<S> <C> <C>
HOMESTAKE MINING COMPANY
By
-----------------------------------------
<#>Harry M. Conger</#> {JACK E. THOMPSON}
<#>Chairman of the Board and President</#>
{CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER}
</TABLE>
<TABLE>
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By ATTEST:
-----------------------------------------
<#>Howard C. Harvey</#> {WAYNE KIRK}
Secretary
By
</TABLE>
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<PAGE>
EXHIBIT II
HOMESTAKE MINING COMPANY
1998 OUTSIDE DIRECTORS'
STOCK COMPENSATION PLAN
<PAGE>
HOMESTAKE MINING COMPANY
1998 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN
The Plan was adopted by the Board on September 24, 1998, and will be
submitted for approval by Homestake's stockholders at the next meeting of
stockholders held after Board Approval. Contingent upon stockholder approval,
the Plan is generally effective as of January 1, 1999, except as specified below
in Article 8, relating to initial grants of Share Rights. Capitalized terms used
herein shall have the meanings provided in Article 12.
ARTICLE 1. SHARE OWNERSHIP POLICY; PLAN PURPOSE.
It is hereby declared to be the policy of Homestake that Outside Directors
are expected to own Shares equal in value to three times the amount of the
Annual Retainer. Outside Directors are expected to achieve that level of
ownership within five years from the later of (i) the effective date of the Plan
or (ii) the date of election as a Director.
The purpose of the Plan is to facilitate compliance with that share
ownership policy and to promote the interests of Homestake by attracting and
retaining qualified individuals who are neither employees nor officers of
Homestake or a subsidiary to serve as directors of Homestake. The Plan is
intended to further align the interests of outside directors with the interests
of stockholders of Homestake, thereby promoting long-term growth and performance
of Homestake. The Plan is intended to supersede Article 7 of the Homestake
Mining Company Stock Option and Share Rights Plan--1996 and, on the date the
Plan becomes effective, no further grants shall be made to Eligible Directors
under that plan.
ARTICLE 2. ADMINISTRATION.
The Plan shall be administered by the Board. The Board shall administer the
Plan in accordance with the Plan and shall have all powers and discretion
necessary or appropriate to administer the Plan, including but not limited to,
the power to (a) interpret the Plan and (b) make all other decisions relating to
the operation of the Plan. The Board may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Board's determinations under the
Plan shall be final and binding on all persons. No member of the Board shall be
liable for any action or decision made in good faith in connection with the
exercise of the Board's duties under the Plan.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Shares issued pursuant to the Plan shall be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares that may be issued under the Plan shall not exceed 250,000. The
limitations of this Section 3.1 shall be subject to adjustment pursuant to
Section 3.3.
3.2 ADDITIONAL SHARES. If Restricted Shares or Share Rights are forfeited
or terminate for any other reason before being exercised, then such Restricted
Shares and Shares subject to such Share Rights shall again become available for
Awards under the Plan. If cash is paid in lieu of the issuance of Shares, the
number of Shares with respect to which such payment is made shall not again be
available under the Plan.
3.3 ADJUSTMENTS. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of Shares, merger, consolidation, rights
offering, or any other change in the corporate structure or Shares of Homestake,
the Board shall make such adjustment, if any, as it may deem appropriate in the
number and kind of Shares authorized by the Plan, and in the number and value of
Shares covered by Awards.
ARTICLE 4. PARTICIPATION IN THE PLAN.
Only Eligible Directors are eligible to participate in the Plan.
II-1
<PAGE>
ARTICLE 5. AGREEMENTS.
All Awards shall be evidenced by an Agreement signed by the Eligible
Directors and Homestake. Each Award shall be subject to the terms and conditions
of the Plan and to such other terms and conditions as may be established by the
Board.
ARTICLE 6. ANNUAL RETAINER.
6.1 PAYABLE IN SHARES. With respect to each Annual Service Period, each
Eligible Director shall receive, in lieu of cash, unrestricted Shares having a
Fair Market Value equal to 50% of his or her Annual Retainer. The number of
Shares to be issued pursuant to Section 6.1 on each date that a part of the
Annual Retainer is payable shall be determined by dividing 50% of the Annual
Retainer that would otherwise have been paid in cash on each payment date (but
for this Section 6.1) by the Fair Market Value of a Share on that date. The
Shares shall be issued as soon as is reasonably possible after the dates on
which the cash portion of the Annual Retainer is to be paid.
6.2 ELECTION TO RECEIVE ADDITIONAL SHARES. Not later than ten Business
Days prior to the first day of an Annual Service Period or, if later, the date
on which an individual first becomes an Eligible Director, an Eligible Director
may, by filing a written Annual Election with Homestake, direct Homestake to pay
to such Eligible Director, in the form of unrestricted Shares, some or all of
the cash portion of the Annual Retainer payable to such Eligible Director for
the related Annual Service Period. Any Annual Election shall be effective for
the entire Annual Service Period to which the Annual Election relates. The
number of Shares to be issued pursuant to an Annual Election shall be determined
by dividing the amount of the Annual Retainer that would otherwise have been
paid in cash on each payment date (but for this Section 6.2) by the Fair Market
Value of a Share on that date. Such Shares shall be issued as soon as is
reasonably possible after the dates on which that portion of the Annual Retainer
would have been paid in cash. If the Annual Retainer is increased during the
Annual Service Period, Eligible Directors shall receive such increase in cash
and not Shares, regardless of whether an Annual Election has been made.
6.3 BONUS RESTRICTED SHARES. Each Eligible Director who has made an Annual
Election pursuant to Section 6.2, shall also receive one Restricted Share for
each four Shares issued pursuant to Section 6.2. The Restricted Shares shall be
subject to the provisions of Article 7.
6.4 ELECTION TO DEFER. Not later than ten Business Days prior to the first
day of an Annual Service Period or, if later, the date on which an individual
first becomes an Eligible Director, an Eligible Director may elect to defer, in
accordance with the Homestake Deferred Compensation Plan, receipt of Shares to
be issued pursuant to Sections 6.1 and 6.2 during the Annual Service Period to
which the election relates. To the extent that any Eligible Director elects to
defer the receipt of Shares, such number of deferred stock units shall be
credited to the Eligible Director's Deferred Compensation Plan account, and such
Deferred Compensation Plan account shall be credited with all dividends and
distributions payable with respect to the number of Shares equal to that number
of deferred stock units.
ARTICLE 7. TERMS OF RESTRICTED SHARES.
7.1 RESTRICTIONS. The Restricted Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as otherwise specifically
provided, prior to the lapse of the restrictions.
7.2 ISSUANCE OF SHARES; LEGENDS. Homestake shall cause each certificate
representing Restricted Shares awarded hereunder to be deposited by Homestake
with a custodian (which may be Homestake) to be designated by Homestake. In such
event, Homestake shall cause such custodian to issue to the Eligible Director a
receipt evidencing any stock certificates and accrued dividends thereon held or
to be held by the custodian for the benefit of such Eligible Director. Upon
lapse of the restrictions, Homestake shall cause the certificates and accrued
dividends paid in respect of such Shares to be issued and paid to the Eligible
Director.
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<PAGE>
7.3 FORFEITURE. Restricted Shares shall be forfeited and shall be returned
to Homestake and all rights of the Eligible Director to the Restricted Shares
shall terminate without any payment of consideration by Homestake if the
Eligible Director ceases to be a Director prior to the lapse of the
restrictions.
7.4 LAPSE OF RESTRICTIONS. The restrictions shall lapse in accordance with
this section.
(a) Restrictions shall lapse with respect to the first 50% of the
Restricted Shares comprising an Award of Restricted Shares to an Eligible
Director on the first anniversary of the Grant Date.
(b) Restrictions shall lapse with respect to an additional 25% of such
Restricted Shares on the second anniversary of the Grant Date.
(c) Restrictions shall lapse with respect to the final 25% of such
Restricted Shares on the third anniversary of the Grant Date.
(d) In the event that an Eligible Director ceases to be a Director prior
to the lapse of restrictions as described above within one year following a
Change of Control, or by reason of death, disability, or retirement at
mandatory retirement age for Directors, the restrictions on all Restricted
Shares (and accrued dividends thereon) awarded to such Eligible Director
shall lapse on the date the Eligible Director ceases to be an Director.
(e) The Board shall have the authority to accelerate the time at which
the restrictions will lapse or to remove any of such restrictions whenever
it decides, in its sole discretion, that, by reason of changes in applicable
law or other material changes in circumstances arising after the date of the
Award, such action is in the best interests of Homestake and equitable to
the Eligible Director.
7.5 VOTING RIGHTS. Prior to lapse of the restrictions on Restricted
Shares, Eligible Directors shall not have any right to vote with respect to
those Restricted Shares, unless otherwise provided in the Agreement.
7.6 DIVIDENDS. Prior to lapse of the restrictions, dividends and other
distributions shall be credited to Restricted Shares, but not paid to Eligible
Directors, unless otherwise provided in the Agreement. After lapse of the
restrictions, Eligible Directors shall be entitled to receive all dividends and
other distributions accrued since the Grant Date with respect to such Restricted
Shares, unless otherwise provided in the Agreement.
ARTICLE 8. INITIAL GRANTS OF SHARE RIGHTS; ANNUAL GRANTS OF SHARE RIGHTS
8.1 INITIAL GRANT OF SHARE RIGHTS. Effective January 1, 1997, upon first
being elected to the Board, each Eligible Director shall be granted Share Rights
providing for the issuance of 2,000 Shares. For purposes of Section 8.4, the
date of election to the Board shall be the Grant Date for Eligible Directors
elected between January 1, 1997 and the effective date of the Plan.
8.2 ANNUAL GRANT OF SHARE RIGHTS. Effective January 1, 1999, on the first
day of each Annual Service Period, each Eligible Director shall be granted Share
Rights providing for the issuance of 1,000 Shares attributable to services
performed during the preceding Annual Service Period. Annual Grants to Eligible
Directors who were not Eligible Directors for the entire preceding Annual
Service Period shall be prorated and rounded to the nearest whole Share) based
on the number of days actually served as an Eligible Director during such Annual
Service Period.
8.3 RESTRICTIONS. Share Rights shall be canceled if the Eligible Director
ceases to be a Director before the lapse of the restrictions.
8.4 LAPSE OF RESTRICTIONS. The restrictions imposed on Share Rights shall
lapse upon the earlier of: (i) the third anniversary of the Grant Date, (ii) the
date the Eligible Director ceases to be a Director within one year following a
Change of Control, or (iii) the date the Eligible Director ceases to be a
Director by reason of death, disability, or retirement at mandatory retirement
age for Directors.
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8.5 PAYMENT OF SHARE RIGHTS. If the restrictions imposed on an Eligible
Director Share Right lapse, the Shares to which such Share Right relates shall
be issued to the Eligible Director as soon as reasonably possible after the date
the Eligible Director ceases to be a Director.
ARTICLE 9. PLAN TERM; AMENDMENT; TERMINATION.
9.1 PLAN TERM. The Plan shall be effective upon approval at the next
meeting of stockholders held after Board Approval. Unless terminated sooner in
accordance with Section 9.2, no Award may be granted after the earlier of (i)
December 31, 2008, or (ii) the date on which all Shares (or Share Rights in
respect thereof) available for issuance under the Plan have been issued or
canceled pursuant to the exercise or surrender of Awards under the Plan.
9.2 AMENDMENT OR TERMINATION. Except as hereafter provided, the Board may,
at any time and for any reason, amend or terminate the Plan. The foregoing
notwithstanding, any amendment of the Plan shall be subject to the approval of
Homestake's stockholders to the extent required by applicable laws, regulations
or rules, or to the extent any such amendment shall (i) increase the maximum
number of Shares issuable under the Plan (except in accordance with Section
3.3), (ii) increase the benefits accruing to Eligible Directors, or (iii) modify
the eligibility requirements for Awards. No Awards shall be granted under the
Plan after the termination of the Plan. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 10. REGULATORY APPROVAL, REGISTRATION, AND
INVESTMENT PURPOSE.
10.1 REGULATORY APPROVAL. The implementation of the Plan, the issuance of
Restricted Shares and the granting of any Share Rights shall be subject to
Homestake's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, and the Shares issued pursuant to
it.
10.2 REGISTRATION. The Plan, the Shares subject thereto, and the Share
Rights granted thereunder may, in the discretion of the Board, be registered
under the Securities Act and under the securities laws of any state, province or
country. Unless the Share Rights or the Shares shall have been registered under
the Securities Act, each grant of Share Rights and each grant of Shares shall be
for investment and not with a view to resale or distribution of such Shares
contrary to any applicable securities laws. As a condition to the issuance of
any Shares which are not registered under such Act, the Eligible Director and
his or her legal representative, executor, administrator, heir or legatee, as
the case may be, receiving such Shares shall deliver to Homestake a writing, in
form and substance satisfactory to Homestake and its counsel, implementing such
agreement.
ARTICLE 11. MISCELLANEOUS.
11.1 EMPLOYMENT RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain a Director of
Homestake, an Affiliate or any other person. Homestake reserves the right to
terminate the service of any Director in accordance with Homestake's Certificate
of Incorporation, its By-laws or applicable law.
11.2 SHAREHOLDERS' RIGHTS. Except as otherwise provided in an Agreement,
an Eligible Director shall have no dividend rights, voting rights or other
rights as a shareholder with respect to any Shares covered by an Award prior to
the issuance of a stock certificate for such Shares and delivery thereof to such
Director.
11.3 RULE 16B-3. Homestake intends that, with respect to persons subject
to Section 16 of the Exchange Act, this Plan and the issuance of Restricted
Shares, Share Rights and Shares issued on account of Share Rights will qualify
under Rule 16b-3 promulgated thereunder. So long as Homestake has any class of
equity securities registered under the Exchange Act, to the extent required to
avoid application of Section 16(b) of the Exchange Act to an acquisition of
Shares, any equity security, as defined in the
II-4
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Exchange Act or the rules and regulations thereunder, granted pursuant to the
Plan, must be held for six months from the Grant Date, and in the case of any
derivative security (as defined in the rules and regulations promulgated under
Section 16) offered pursuant to the Plan, at least six months must elapse from
the date of acquisition of the derivative security to the date of disposition of
the derivative security (other than upon exercise or conversion) or its
underlying equity security, except in the event of the death or disability of
the holder thereof. If any provision of the Plan or an Agreement requires
modification to comply with the requirements of Section 16 and the rules
thereunder, the Board may waive, amend or modify the Plan or the Agreement
accordingly. To the extent that any provision of this Plan or action by the
Board fails to comply with the Section 16 rules, it shall be null and void to
the extent permitted by law and deemed advisable by the Board.
11.4 TRANSFERABILITY. Restricted Shares and rights to dividends thereon
(prior to lapse of restrictions thereon) and Share Rights granted under the Plan
shall not be transferable other than by will or the laws of descent or
distribution; provided, however, to the extent permitted by Rule 16b-3 or any
successor, an Agreement with respect to Restricted Shares and Share Rights may
permit transfers, (i) in connection with an Eligible Director's estate plan, to
(a) an Eligible Director's family members, (b) a trust for the benefit of the
Eligible Director or the Eligible Director's family members, or (c) other
members of the Eligible Director's household, or (ii) pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income Security Act, or the rules
thereunder.
11.5 GOVERNING LAW. The Plan and all Agreements shall be construed in
accordance with and governed by the laws of the State of Delaware.
11.6 PAYMENT OF TAXES. Homestake shall have the right to require, prior to
the issuance or delivery of any Shares or dividends thereon, payment by an
Eligible Director of any taxes required by law with respect to the issuance or
delivery of such Shares or dividends. With respect to tax withholding required
upon the exercise of Options, upon the lapse of restrictions on Restricted
Shares, or upon any other taxable event arising out of or as a result of any
grant or Award made hereunder, Eligible Directors may elect to satisfy the
withholding requirement, in whole or in part, by tendering previously-owned
Shares or by having Homestake withhold Shares having a Fair Market Value on the
date the tax is to be determined equal to the minimum statutory total tax which
could be imposed on the transaction. All elections shall be irrevocable, made in
writing, and signed by the Eligible Director.
11.7 COSTS. Homestake shall bear all expenses incurred in administering
the Plan, including expenses related to the award and issuance of Shares,
Restricted Shares and Share Rights.
11.8 FRACTIONAL SHARES. In all instances, cash shall be paid in lieu of
fractional Shares in an amount equal to the Fair Market Value of the fractional
Shares on the date the fractional Shares would otherwise be payable.
ARTICLE 12. DEFINITIONS.
12.1 GENERAL DEFINITIONS. The following words and phrases, when used in
the Plan, unless otherwise specifically defined or unless the context clearly
otherwise requires, shall have the following meanings:
"Agreement" means the written agreement setting forth the terms and
provisions applicable to each Award granted under the Plan.
"Annual Election" means an irrevocable election made in accordance with
Section 6.2.
"Annual Retainer" means the annual retainer to be paid by Homestake to an
Eligible Director with respect to an Annual Service Period, at the rates
determined by the Board in advance of such period.
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"Annual Service Period" means an annual period determined by the Board,
which annual period shall be January 1 through December 31 or such other annual
period as may be designated from time to time by the Board of Directors.
"Award" means any award of Shares, Restricted Shares or Share Rights under
the Plan.
"Board" means Homestake's Board of Directors, as constituted from time to
time.
"Change in Control" means the occurrence of any of the following events:
(a) Homestake is a party to a merger or combination under the terms of
which less than 75% of the shares in the resulting or continuing
publicly-held company are owned by the shareholders of Homestake immediately
preceding such event; or
(b) At least 75% in fair market value of Homestake's assets are sold; or
(c) At least 25% in voting power in election of Directors of Homestake's
capital stock is acquired by any one person or group as that term is used in
Rule 13d-5 under the Exchange Act.
"Code" means the Internal Revenue Code of 1986, as amended.
"Director" means a member of the Board.
"Eligible Director" means a Director who is not an employee of Homestake or
any of its subsidiaries or affiliates. Directors emeritus shall not be eligible
to participate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the fair market value of Shares, determined by the
Board, in its sole discretion.
"Grant Date" means, with respect to an Award, the date that the Award is
deemed granted under the Plan. Within a reasonable time thereafter, Homestake
will execute and deliver an Agreement to the Eligible Director.
"Homestake" means Homestake Mining Company, a Delaware Corporation.
"Plan" means this Homestake Mining Company 1998 Outside Directors' Stock
Compensation Plan, as it may be amended from time to time.
"Restricted Share" means a Share which is subject to the restrictions set
forth in Section 7.
"Securities Act" means the Securities Act of 1933, as amended.
"Share" means one share of the common stock of Homestake.
"Share Right" means the right to acquire a Share for no consideration.
12.2 OTHER DEFINITIONS. In addition to the above definitions, certain
words and phrases used in the Plan and any Agreement may be defined in other
portions of the Plan or in an Agreement.
IN WITNESS WHEREOF, HOMESTAKE MINING COMPANY has executed this Plan as of
.
HOMESTAKE MINING COMPANY
By:
Its:
II-6
<PAGE>
SUPPLEMENT
TO
HOMESTAKE MINING COMPANY
PROXY STATEMENT
AND
PRIME RESOURCES GROUP INC.
MANAGEMENT INFORMATION CIRCULAR
The information concerning Homestake contained in this Supplement has been
provided by Homestake and its affiliates and advisors. Prime has no employees.
HCI, a wholly-owned subsidiary of Homestake, provides all management and
administrative services for Prime. Consequently, historical information about
Prime has been prepared by Homestake. Such information has been reviewed by
independent advisors to the Prime Special Committee. Information set out under
the headings "The Arrangement--Prime Special Committee," "--Recommendation of
the Prime Board," "--RBCDS Valuation and Fairness Opinion" and "--Reports of
Prime Special Committee Technical Advisor" has been provided by Prime, the Prime
Special Committee and its advisors. Information concerning Homestake after the
completion of the Arrangement, including pro forma financial information, has
been prepared by Homestake.
In this Supplement, unless otherwise indicated, Homestake financial
information (including pro forma information) is presented in United States
dollars ("US$") and Prime financial information is presented in Canadian dollars
("C$"). The Homestake Consolidated Financial Statements and the Unaudited Pro
Forma Condensed Consolidated Financial Statements have been prepared in
accordance with U.S. GAAP. The Prime Financial Statements have been prepared in
accordance with Canadian GAAP which, as applied to Prime, conforms in all
material respects with U.S. GAAP, except as described in the Notes to the Prime
Financial Statements.
In April 1998, Homestake acquired Plutonic Resources Limited, the third
largest gold mining company in Australia. The information in this Supplement
reflects the completion of that transaction.
Capitalized terms are defined in the Glossary, which is attached as Appendix
A to this Supplement.
<PAGE>
TABLE OF CONTENTS
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SUMMARY................................................................... S-5
The Arrangement......................................................... S-5
Comparative Stock Prices and Premium to Prime Shareholders.............. S-7
The Companies........................................................... S-8
Prime Special Committee................................................. S-11
Recommendation of the Prime Board....................................... S-11
RBCDS Valuation and Fairness Opinion.................................... S-11
Reports of Prime Special Committee Technical Advisor.................... S-12
Homestake's Reasons for the Arrangement; Recommendation of the Homestake
Board................................................................. S-12
Homestake After the Arrangement......................................... S-13
Risk Factors............................................................ S-13
Canadian Federal Income Tax and United States Federal Income Tax
Considerations........................................................ S-13
Eligibility for Investment in Canada of HCI Exchangeable Shares and
Homestake Common Stock................................................ S-14
Accounting Treatment.................................................... S-14
Interests of Certain Persons in the Arrangement......................... S-15
Conditions to the Arrangement........................................... S-15
Termination............................................................. S-15
SELECTED FINANCIAL AND OTHER DATA......................................... S-16
Prime Selected Historical Financial Data (Canadian GAAP)................ S-16
Prime Selected Operating Data........................................... S-17
Prime Selected Historical Financial Data (U.S. GAAP).................... S-18
Homestake Selected Consolidated Historical Financial Data............... S-19
Homestake Selected Operating Data....................................... S-21
Unaudited Pro Forma Selected Financial Data............................. S-22
COMPARATIVE PER SHARE DATA................................................ S-23
RISK FACTORS.............................................................. S-24
Risks Inherent in Gold Exploration, Development and Production.......... S-24
Risks of Gold and Silver Price Fluctuations and Hedging Activities...... S-24
Risks Associated with Reserve Realization............................... S-25
Risks of Government Regulation of Mining................................ S-26
Risks of Currency Fluctuations.......................................... S-26
Risks of Native Title Claims............................................ S-26
Dilution; Absence of Shareholder Approval with Respect to Future
Issuances............................................................. S-28
CAUTIONARY STATEMENTS..................................................... S-29
Reserves................................................................ S-29
Estimates of Production................................................. S-30
Estimates of Operating Costs and Capital Costs; Capital Projects........ S-30
Taxes................................................................... S-31
EXCHANGE RATE OF CANADIAN AND US DOLLARS.................................. S-31
</TABLE>
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PRICE RANGE AND TRADING VOLUME OF PRIME COMMON SHARES AND HOMESTAKE COMMON
STOCK; DIVIDENDS........................................................ S-33
Price Ranges and Trading Volumes........................................ S-33
Comparative Stock Prices and Premium to Prime Shareholders.............. S-34
Dividends............................................................... S-34
THE ARRANGEMENT........................................................... S-37
General................................................................. S-37
Background of the Combination........................................... S-38
Prime Special Committee................................................. S-40
Recommendation of the Prime Board....................................... S-44
RBCDS Valuation and Fairness Opinion.................................... S-44
Reports of Prime Special Committee Technical Advisor.................... S-46
Homestake's Reasons for the Transaction; Recommendation of the Homestake
Board................................................................. S-48
Homestake After the Arrangement......................................... S-51
Interests of Certain Persons in the Arrangement......................... S-51
Agreements with Homestake............................................... S-52
The Special Meetings.................................................... S-53
Dissenters' Rights...................................................... S-53
Court Approval of the Arrangement and Completion of the Arrangement..... S-55
Accounting Treatment.................................................... S-55
Stock Exchange Listings................................................. S-56
Future Issuance of Authorized Shares.................................... S-56
Description of Homestake Common Stock................................... S-57
Possible Effect of Increase in Authorized Shares........................ S-58
THE ARRANGEMENT AGREEMENT................................................. S-59
Completion of the Arrangement........................................... S-59
Representations and Warranties.......................................... S-59
Covenants............................................................... S-59
Conditions.............................................................. S-60
Termination............................................................. S-61
MECHANICS OF THE ARRANGEMENT.............................................. S-61
Plan of Arrangement..................................................... S-61
HCI Exchangeable Shares................................................. S-62
Retraction, Redemption and Call Rights.................................. S-63
Trust Agreement......................................................... S-65
PRIME RESOURCES GROUP INC................................................. S-66
Background.............................................................. S-66
Business and Property Description....................................... S-66
Ore Reserves and Mineralized Material................................... S-70
Exploration and Investment.............................................. S-71
Credit Facilities....................................................... S-72
Hedging and Currency Management......................................... S-72
Environment and Permits................................................. S-72
</TABLE>
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Employees............................................................... S-73
Legal Proceedings....................................................... S-73
HOMESTAKE MINING COMPANY.................................................. S-74
Background.............................................................. S-74
Significant 1998 Developments........................................... S-75
Statistical Summary..................................................... S-76
Business and Property Description....................................... S-80
Mineral Exploration and Development..................................... S-111
Information on Reserves................................................. S-113
Environmental Matters................................................... S-114
Employees............................................................... S-119
Legal Proceedings....................................................... S-120
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........... S-121
COMPARATIVE PER SHARE DATA................................................ S-128
HOMESTAKE MANAGEMENT...................................................... S-129
Directors............................................................... S-129
Executive Officers...................................................... S-132
HOMESTAKE EXECUTIVE COMPENSATION.......................................... S-134
Compensation of Directors............................................... S-134
Compensation of Executive Officers...................................... S-135
Stock Options Plans..................................................... S-137
Retirement Programs..................................................... S-138
Severance Agreements.................................................... S-140
Performance Graph....................................................... S-141
Compensation Committee Report........................................... S-142
DESCRIPTION OF HOMESTAKE CAPITAL STOCK.................................... S-147
Homestake Common Stock.................................................. S-147
Homestake Preferred Stock............................................... S-147
Special Voting Stock.................................................... S-147
"Fair Price" Charter Provision.......................................... S-147
Homestake Rights Agreement.............................................. S-149
DESCRIPTION OF HCI SHARE CAPITAL.......................................... S-150
HCI Exchangeable Shares................................................. S-150
HCI Common Shares....................................................... S-150
HCI Preference Shares................................................... S-150
HCI Rights Agreement.................................................... S-151
RESALE OF HCI EXCHANGEABLE SHARES AND HOMESTAKE COMMON STOCK RECEIVED IN
THE ARRANGEMENT......................................................... S-152
United States........................................................... S-152
Canada.................................................................. S-152
Ongoing HCI Obligations................................................. S-152
TAX CONSIDERATIONS TO PRIME SHAREHOLDERS.................................. S-153
</TABLE>
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<S> <C>
Canadian Federal Income Tax Considerations to Prime Shareholders........ S-153
Certain United States Federal Tax Considerations to Prime
Shareholders.......................................................... S-161
PRINCIPAL HOLDERS OF HOMESTAKE COMMON STOCK............................... S-167
Ownership of Common Stock by Homestake's Management..................... S-167
Security Ownership of Certain Beneficial Owners of Homestake............ S-168
PRINCIPAL HOLDERS OF PRIME COMMON SHARES.................................. S-169
COMPARISON OF SHAREHOLDERS' RIGHTS........................................ S-170
Vote Required for Ordinary Transactions; Quorum......................... S-170
Vote Required for Extraordinary Transactions............................ S-171
Transactions Involving Shareholders, Officers or Directors.............. S-172
Dissenters' Rights...................................................... S-174
Director Liability...................................................... S-175
Indemnification and Insurance........................................... S-176
Examination of Corporate Records........................................ S-177
Director Qualifications ................................................ S-177
Removal of Directors; Filling Vacancies on the Board of Directors....... S-178
Special Meeting of Stockholders......................................... S-178
Amendments to Charter Documents......................................... S-179
Oppression Remedy....................................................... S-179
Fiduciary Duties of Directors........................................... S-180
Derivative Actions...................................................... S-181
INDEPENDENT ACCOUNTANTS................................................... S-181
LEGAL MATTERS............................................................. S-181
AVAILABLE INFORMATION..................................................... S-182
</TABLE>
<TABLE>
<S> <C> <C>
APPENDICES
Appendix A -- Glossary and Certain Measurements................................... A-1
Appendix B -- Arrangement Agreement............................................... B-1
Appendix C -- Plan of Arrangement................................................. C-1
Appendix D -- HCI Exchangeable Share Provisions................................... D-1
Appendix E -- Voting, Support and Exchange Trust Agreement........................ E-1
Appendix F -- Arrangement Resolution.............................................. F-1
Appendix G -- Interim Order and Notice of Application for Final Order............. G-1
Appendix H -- Valuation and Fairness Opinion...................................... H-1
Appendix I -- Prime Financial Statements and Supplementary Data................... I-1
Appendix J -- Homestake Consolidated Financial Statements and Supplementary
Data.............................................................. J-1
Appendix K -- Maps Showing Locations of Homestake and Prime Mines................. K-1
</TABLE>
S-4
<PAGE>
SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU.
FOR A MORE COMPLETE UNDERSTANDING OF THE ARRANGEMENT, YOU SHOULD READ THIS
ENTIRE SUPPLEMENT, INCLUDING THE APPENDICES. CAPITALIZED TERMS ARE DEFINED IN
THE GLOSSARY CONTAINED IN APPENDIX A TO THIS SUPPLEMENT.
THE ARRANGEMENT
Through its wholly-owned subsidiary HCI, Homestake owns 50.6% of the Prime
Common Shares outstanding. If the Arrangement is completed, Homestake will
acquire the remaining 49.4% of the Prime Common Shares. Pursuant to the
Arrangement, Prime Shareholders (other than HCI and those Prime Shareholders who
validly dissent) will have the option of exchanging each of their Prime Common
Shares for either (i) 0.74 of a share of Homestake Common Stock or (ii) 0.74 of
an HCI Exchangeable Share. Any Prime Shareholder that does not properly and
timely elect to receive Homestake Common Stock will receive HCI Exchangeable
Shares.
No fractional HCI Exchangeable Shares and no fractional shares of Homestake
Common Stock will be issued. In lieu of fractional shares, payment will be made
in Canadian dollars to Prime Shareholders who receive HCI Exchangeable Shares
and payment will be made in US dollars to Prime Shareholders who receive
Homestake Common Stock.
See "The Arrangement," "The Arrangement Agreement" and "Mechanics of the
Arrangement--Plan of Arrangement." The Arrangement Agreement is attached as
Appendix B and the Plan of Arrangement is attached as Appendix C to this
Supplement.
HCI EXCHANGEABLE SHARES
Each HCI Exchangeable Share will entitle the holder to essentially the same
economic rights and, indirectly, the same voting rights as one share of
Homestake Common Stock.
Holders of HCI Exchangeable Shares will receive from HCI dividends in
Canadian dollars that are equivalent to the dividends paid on Homestake Common
Stock but will not be entitled to share in any other dividends payable by HCI.
Pursuant to the Trust Agreement, holders of HCI Exchangeable Shares will be
entitled to direct the exercise of voting rights with respect to Homestake as if
they held an equivalent number of shares of Homestake Common Stock. They
generally will not be entitled to vote on matters related to HCI.
Holders of HCI Exchangeable Shares will be entitled to receive all reports
and correspondence distributed by Homestake to Homestake Stockholders generally.
See "Mechanics of the Arrangement--HCI Exchangeable Shares" and "--Trust
Agreement--Voting Rights." The HCI Exchangeable Share Provisions are attached as
Appendix D and the Trust Agreement is attached as Appendix E to this Supplement.
EXCHANGE OF HCI EXCHANGEABLE SHARES FOR HOMESTAKE COMMON STOCK
Holders of HCI Exchangeable Shares will have the right at any time to
exchange each HCI Exchangeable Share for one share of Homestake Common Stock,
plus the Additional Amount, if any. At any time on or after December 31, 2008
(subject to acceleration under certain circumstances), HCI will have the right,
but not the obligation, to redeem all HCI Exchangeable Shares then outstanding
(other than those held by Homestake and its subsidiaries) for an equivalent
number of shares of Homestake Common Stock, plus the Additional Amount, if any,
in respect of each HCI Exchangeable Share. Homestake and HCH have the overriding
right to purchase, for the same price, HCI Exchangeable Shares proposed to be
exchanged by their holders or redeemed by HCI.
See "Mechanics of the Arrangement--HCI Exchangeable Shares" and
"--Retraction, Redemption and Call Rights."
S-5
<PAGE>
SHARES OUTSTANDING; SHARES TO BE ISSUED
At - , 1998, there were a total of 76,073,913 Prime Common Shares
outstanding, of which 38,491,008 shares were owned by HCI. At - , there were
- shares of Homestake Common Stock outstanding. As a result of the
Arrangement, it is expected that Homestake will issue, or reserve for issuance
on exchange of HCI Exchangeable Shares, a total of approximately 27,811,300
additional shares of Homestake Common Stock, representing approximately - %
of the Homestake Common Stock outstanding after the Arrangement (approximately
- % on a fully-diluted basis).
See "The Arrangement" and "Description of Homestake Capital Stock."
STOCK EXCHANGE LISTINGS
Homestake Common Stock is listed on the NYSE, the Australian Stock Exchange
and the Swiss Stock Exchanges (Basel, Geneva and Zurich), and Homestake has made
application to list the additional shares of Homestake Common Stock that will be
issued in connection with the Arrangement on the NYSE. The TSE has conditionally
approved the listing of the HCI Exchangeable Shares, subject to the satisfaction
of the customary requirements of the TSE, including minimum distribution
requirements. If the distribution requirements of the TSE are not met, HCI will
attempt to obtain a listing for the HCI Exchangeable Shares on another stock
exchange in Canada.
See "The Arrangement--Stock Exchange Listings."
PRIME SHAREHOLDER APPROVAL
The Arrangement Resolution must be approved by 75% of the votes cast by the
holders of Prime Common Shares present and voting in person or by proxy at the
Prime Special Meeting. Prime Common Shares held by HCI will be voted in favor of
the Arrangement Resolution and will be considered in determining whether the
Arrangement Resolution has been so approved.
The Arrangement Resolution also must be approved by not less than two-thirds
of the votes cast at the Prime Special Meeting by the Prime Minority
Shareholders.
The Prime Special Meeting will be held on - , 1998.
See "The Arrangement--The Special Meetings--Prime" and "--Court Approval of
the Arrangement and Completion of the Arrangement." The Arrangement Resolution
is attached as Appendix F to this Supplement.
HOMESTAKE STOCKHOLDER APPROVAL
A majority of the shares of Homestake Common Stock outstanding on the
Homestake Record Date must approve the adoption of the Restated Certificate. The
Restated Certificate will (i) increase the authorized number of shares of
Homestake Common Stock, (ii) increase the authorized number of shares of Series
A Preferred Stock, (iii) create one share of Special Voting Stock and (iv) make
certain technical changes, primarily relating to the Special Voting Stock.
The Homestake Special Meeting will be held on - , 1998.
See "The Arrangement--The Special Meetings--Homestake."
COURT APPROVAL
The Arrangement must be approved by the British Columbia Supreme Court.
Prior to the mailing of the Prime Information Circular, Prime obtained the
Interim Order providing for the calling and holding of the Prime Special Meeting
and other procedural matters. Prime intends to make application to the British
Columbia Supreme Court for the Final Order at 9:45 a.m. (Vancouver time) on the
first Business Day after the requisite approvals have been obtained from both
the Homestake Stockholders and the Prime Shareholders. Issuance of the Final
Order constitutes the British Columbia Supreme Court's approval of the
Arrangement.
S-6
<PAGE>
See "The Arrangement--Court Approval of the Arrangement and Completion of
the Arrangement." The Interim Order and the Notice of Application for Final
Order are attached as Appendix G to this Supplement.
EFFECTIVE DATE OF THE ARRANGEMENT
The Arrangement will be effective upon the filing of the Final Order with
the Registrar of Companies for British Columbia, which will occur as soon as
practicable after the Final Order has been issued by the British Columbia
Supreme Court.
See "The Arrangement--Court Approval of the Arrangement and Completion of
the Arrangement."
DISSENTERS' RIGHTS
The Company Act does not contain a provision requiring Prime to purchase
Prime Common Shares from Prime Shareholders who dissent to the Arrangement
Resolution. However, pursuant to the terms of the Interim Order and the Plan of
Arrangement, Prime has granted a Dissent Right to Prime Shareholders who object
to the Arrangement Resolution. The terms of the Dissent Right are set out in
Article 4 of the Plan of Arrangement.
Homestake Stockholders have no right to dissent in respect of the
Arrangement.
See "The Arrangement--Dissenters' Rights."
COMPARATIVE STOCK PRICES AND PREMIUM TO PRIME SHAREHOLDERS
Homestake publicly announced on May 25, 1998 its proposal to acquire each
Prime Common Share not held by HCI for 0.675 of a share of Homestake Common
Stock or 0.675 of an HCI Exchangeable Share. On September 11, 1998, Prime and
Homestake announced that Homestake and the Prime Board had agreed on an
increased Exchange Ratio of 0.74. The following table shows the closing prices
for Homestake Common Stock on the NYSE and for Prime Common Shares on the TSE
and Amex on May 22, 1998 (the last trading day before May 25, 1998, when the
initial proposal was announced), on September 10, 1998 (the last trading day
before the increase was announced) and on - , 1998.
<TABLE>
<CAPTION>
HOMESTAKE
COMMON
STOCK PRIME COMMON SHARES
----------- ---------------------
NYSE TSE AMEX
----------- --------- ----------
<S> <C> <C> <C>
May 22, 1998.............................................. US$ 12.06 C$ 10.50 US$ 7.50
September 10, 1998........................................ US$ 11.88 C$ 11.80 US$ 7.88
- - , 1998.................................................. US$ - C$ - US$ -
</TABLE>
The following table shows the equivalent market price, in both US and
Canadian dollars, on May 22, 1998 and - , 1998 for 0.74 of a share of
Homestake Common Stock, being the Exchange Ratio of HCI Exchangeable Shares and
Homestake Common Stock for each Prime Common Share, based on the closing prices
of Homestake Common Stock on the NYSE on those days.
<TABLE>
<S> <C> <C>
May 22, 1998............................................. C$ 12.93 US$ 8.92
- - , 1998................................................. C$ - US$ -
</TABLE>
Canadian dollar amounts are calculated by multiplying the actual US dollar
amounts by the Exchange Rate on the applicable date.
Based on the closing prices of Prime Common Shares and Homestake Common
Stock at May 22, 1998 and - , 1998, the Arrangement offers a premium of 23.2%
at May 22, 1998 and a premium of - % at - , 1998 to the holders of Prime
Common Shares.
See "Price Range and Trading Volume of Prime Common Shares and Homestake
Common Stock; Dividends."
S-7
<PAGE>
THE COMPANIES
PRIME RESOURCES GROUP INC.
Prime engages in precious metals mining and related activities, including
exploration, development, extraction and processing. Homestake has a 50.6%
interest in Prime. Prime has no employees. HCI provides all management and
administrative services in carrying on Prime's business and operating its mines.
Prime's only operating properties are the Eskay Creek gold and silver mine and
the Snip gold mine, both located in northwestern British Columbia. Prime is
incorporated in British Columbia. Prime Common Shares are listed on the TSE, the
VSE and Amex under the symbol "PRU." Prime's principal executive offices are
located at 1100-1055 West Georgia Street, Vancouver, British Columbia, Canada
V6E 3P3 (telephone number: (604) 684-2345).
The following table presents certain information regarding the Eskay Creek
and Snip mines. Through its ownership of Prime, Homestake has a 50.6% interest
in these mines.
<TABLE>
<CAPTION>
MINERALIZED
RESERVES AT MATERIAL AT
DECEMBER 31, DECEMBER 31,
1997 1997
------------- ------------------------
WEIGHTED
OWNERSHIP 1997 CONTAINED AVERAGE
INTEREST PRODUCTION OUNCES TONS(1) GRADE
---------- -------------
GOLD MINES PERCENTAGE OUNCES (THOUSANDS) (MILLIONS) (OZ/TON)
- ---------------------------------------- ---------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
The ESKAY CREEK MINE is located 100 417,303(2)(3) GOLD 0.4 GOLD
approximately 51 air miles north of 2,532 0.587
Stewart, British Columbia. This SILVER SILVER
underground mine is one of Canada's 117,011 11.97
highest-grade and lowest-cost
operations. Direct-shipped ore at Eskay
Creek is crushed and blended prior to
the sale to third-party smelters for
final processing. Construction of a new
gravity/flotation mill was completed in
November 1997. The mill improves profit
margins on some ore that otherwise would
have been direct-shipped to third-party
smelters, and allows for the treatment
of some lower grade ores that otherwise
could not be processed economically.
The SNIP MINE is an underground mine 100 115,644(2) 157 -- 0.751
located approximately 56 air miles north
of Stewart, British Columbia. The Snip
mine is expected to close on or about
April 1, 1999.
</TABLE>
- ------------------------
(1) All tons are presented in short tons of 2,000 pounds.
(2) Includes equivalent ounces of gold contained in ore and concentrates sold to
smelters.
(3) Includes silver converted into equivalent ounces of gold at a ratio of 68.2
ounces of silver to one ounce of gold.
See "Prime Resources Group Inc."
HOMESTAKE MINING COMPANY
Homestake engages principally in gold mining and related activities,
including exploration, extraction, processing, refining and reclamation.
Homestake produces gold bullion, its principal product, in the United States,
Canada, Australia and Chile. Homestake is actively engaged in exploration in the
United States, Canada, Australia, Eastern Europe, Argentina, Brazil, Chile and
the Andean region of South America. In April 1998, Homestake completed the
acquisition of Plutonic Resources Limited, the third largest gold mining company
in Australia. Homestake is incorporated under Delaware law. Homestake Common
Stock is listed on the NYSE under the symbol "HM," on the Australian Stock
Exchange and on the Swiss Stock Exchanges (Basel, Geneva and Zurich).
Homestake's principal executive offices are located at 650 California Street,
San Francisco, California 94108-2788 (telephone number: (415) 981-8150).
S-8
<PAGE>
The following table presents certain information regarding Homestake's
significant operating properties. The ownership interests and production amounts
shown are Homestake's consolidated interests without reduction for minority
interests. Reserves and mineralized material are Homestake's interests after
reduction for minority interests.
<TABLE>
<CAPTION>
MINERALIZED
RESERVES AT MATERIAL AT
DECEMBER 31, DECEMBER 31,
1997 1997
------------- ------------------------
WEIGHTED
OWNERSHIP 1997 CONTAINED AVERAGE
INTEREST PRODUCTION OUNCES TONS(1) GRADE
---------- -------------
GOLD MINES PERCENTAGE OUNCES (THOUSANDS) (MILLIONS) (OZ/TON)
- ---------------------------------------- ---------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
UNITED STATES
The HOMESTAKE MINE, located in Lead, 100 397,299 2,786 18.5 0.170
South Dakota, has operated for over 122
years and produced more than 39 million
ounces of gold. Operations consist of an
8,000 foot deep underground mine, a mill
and a refinery. Homestake is engaged in
a major restructuring that will
substantially reduce production and
total cash costs per ounce at the
underground mine. The open-pit mine
closed in September 1998.
The ROUND MOUNTAIN MINE is located in 25 119,959 1,759 35.6 0.016
central Nevada, about 60 miles north of
Tonopah. The operation is one of the
largest heap leach gold mines in the
world. An 8,000 TPD gravity mill to
process higher-grade sulfide ores was
completed in October 1997.
The RUBY HILL MINE is located near 100 16,629 687 7.2 0.073
Eureka in central Nevada. Production
commenced in the fourth quarter of 1997.
Ore from this open-pit mine is heap
leached. Production for 1998 is
estimated to be 110,000 ounces.
The MCLAUGHLIN MINE is located near 100 118,491 845 -- --
Clear Lake in northern California.
Mining ceased in 1996 and processing of
stockpiled ore is expected to continue
until 2002.
The MARIGOLD MINE is located about 40 33.3 24,547 168 -- --
miles southeast of Winnemucca, Nevada.
Mining is conducted by conventional
open-pit methods. The mine is primarily
a heap leach operation with intermittent
milling operations.
The PINSON MINE is located about 30 50 25,829 65 -- --
miles northeast of Winnemucca, Nevada.
Mining is conducted by conventional
open-pit methods in several different
areas. Milling was suspended in February
1998, and all ore currently is processed
by heap leaching.
CANADA
The ESKAY CREEK MINE is located 100 417,303(3)(4) GOLD 0.2 GOLD
approximately 51 air miles north of 1,281 0.587
Stewart, British Columbia. This SILVER SILVER
underground mine is one of Canada's 59,208 11.97
highest-grade and lowest-cost
operations. Direct-shipped ore at Eskay
Creek is crushed and blended prior to
the sale to third-party smelters for
final processing. Construction of a new
gravity/flotation mill was completed in
November 1997. The mill improves profit
margins on some ore that otherwise would
have been direct-shipped to third-party
smelters, and allows for the treatment
of some lower grade ores that otherwise
could not be processed economically.(2)
The SNIP MINE is an underground mine 100 115,644(3) 80 -- 0.751
located approximately 56 air miles north
of Stewart, British Columbia. The Snip
mine is expected to close on or about
April 1, 1999.(2)
The WILLIAMS MINE, Canada's largest 50 201,098 2,465 4.1 0.119
underground gold mine, is a modern,
low-cost mine located in the Hemlo Gold
Camp, immediately north of Lake Superior
near Marathon, Ontario.
The DAVID BELL MINE, which is adjacent 50 101,313 804 -- --
to the Williams mine, is a smaller,
higher-grade underground mine. Included
with the David Bell mine is a Quarter
Claim royalty interest in a neighboring
mine. The David Bell mine is a modern
and low-cost operation.
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
MINERALIZED
RESERVES AT MATERIAL AT
DECEMBER 31, DECEMBER 31,
1997 1997
------------- ------------------------
WEIGHTED
OWNERSHIP 1997 CONTAINED AVERAGE
INTEREST PRODUCTION OUNCES TONS(1) GRADE
---------- -------------
GOLD MINES PERCENTAGE OUNCES (THOUSANDS) (MILLIONS) (OZ/TON)
- ---------------------------------------- ---------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
AUSTRALIA
The consolidated surface and underground 50 425,914 5,924 102.6 0.071
operations at KALGOORLIE comprise
Australia's largest gold mining complex.
During 1995, a US$90 million (100%
basis) mill expansion increased the
milling capacity at Kalgoorlie to 35,000
TPD and will allow for further expansion
of the Super Pit. In 1997, a 1.6 mile
long decline was completed from the
Super Pit to the Mt Charlotte
underground mine. In September 1998,
operations at the Mt Charlotte mine were
restructured to substantially reduce the
level of production due to economic
factors and unstable ground conditions.
Performance of the mine will be
monitored during the year to assess
continuation of operations. Super Pit
production will be increased to offset
the reduction.
The PLUTONIC MINE, located 110 miles 100 274,608 567 26.7 0.222
from Meekatharra, is one of the largest
underground mines in Australia.
The DARLOT/CENTENARY MINE, located 70 100 65,153 1,556 4.0 0.123
miles from Leonora, is an underground
mine. A decline has been driven from the
Darlot mine to access the recently
discovered Centenary orebody, where
development commenced in October 1997.
The LAWLERS MINE, located 75 miles from 100 87,481 252 3.8 0.117
Leonora, is an open-pit mine, with
additional underground development
underway. Current mining operations will
continue until the year 2000. Recent
exploration results are very
encouraging.
The MT MORGANS MINE, located 80 73,588 91 -- --
approximately 30 miles from Laverton,
has ceased mining and is scheduled to
continue to process stockpiled ore until
the last quarter of 1998. Active
exploration continues on the Mt Morgan
tenements with encouraging results.
The PEAK HILL MINE, located 80 miles 66.7 33,104 24 -- --
from Meekatharra, has ceased mining and
is scheduled to continue to process
stockpiled ore until June 1999. Active
exploration continues in the vicinity of
the mine.
CHILE
The AGUA DE LA FALDA MINE is located 100 31,417 110 7.7 0.160
approximately 600 miles north of
Santiago. Ore from this underground mine
is heap leached. Mining commenced in
January 1997 and the first gold was
poured in April 1997. Annualized
production is currently at a rate of
approximately 40,000 ounces per year.(5)
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST RESERVES AT
----------- DECEMBER 31,
SULFUR MINE PERCENTAGE 1997 PRODUCTION 1997
----------- --------------- ---------------
<S> <C> <C> <C>
The MAIN PASS 299 sulfur mine is located 16.7 SULFUR SULFUR
in the Gulf of Mexico off the coast of 315,964 10.7 million
Louisiana. In September 1997 Homestake tons(1) tons(1)(6)
wrote off its entire remaining OIL OIL
investment in the sulfur property. An 458,078 1.5 million
oil reserve overlies the sulfur deposit. barrels barrels(6)
</TABLE>
- ----------------------------------
(1) All tons are presented in short tons of 2,000 pounds, except tons of sulfur,
which are presented in long tons of 2,240 pounds.
(2) Homestake owns 50.6% of the Prime Common Shares outstanding. Homestake
reports 100% of Eskay Creek and Snip production. Reserves and mineralized
material amounts shown are Homestake's interest after reduction for the
49.4% minority interest.
(3) Includes equivalent ounces of gold contained in ore and concentrates sold to
smelters.
(4) Includes silver converted into equivalent ounces of gold at a ratio of 68.2
ounces of silver to one ounce of gold.
(5) Homestake owns 51% of Agua de la Falda, S.A. Homestake reports 100% of Agua
de la Falda production. Reserves and mineralized material amounts shown are
Homestake's interest after reduction for the 49% minority interest.
(6) Reserve amounts are before royalties.
See "Homestake Mining Company."
S-10
<PAGE>
PRIME SPECIAL COMMITTEE
The Prime Board appointed the Prime Special Committee to review, consider
and report to the Prime Board on the terms of the proposed Arrangement. None of
the members of the Prime Special Committee is an employee, insider, associate or
affiliate of Prime or Homestake or of any of their respective associates or
affiliates (other than by reason of being a director of Prime) nor has any
member of the Prime Special Committee held any such position during the previous
five years. Two of the members of the Prime Special Committee, Graham H. Scott
and Alan J. Lenczner, and the respective law firms of which they are partners,
have provided legal services to both Prime and Homestake during the previous
five years.
The Prime Special Committee undertook deliberate and full consideration of
the Arrangement and retained RBCDS, a major Canadian investment dealer, to
prepare a formal independent valuation and to provide an opinion as to whether
the terms of the Arrangement are fair from a financial point of view to the
Prime Minority Shareholders, both in accordance with Policy 9.1 and Policy Q-27,
and to provide financial advice to the Prime Special Committee. See "The
Arrangement--RBCDS Valuation and Fairness Opinion." Because all management and
technical functions of Prime are carried out by Homestake or HCI, the Prime
Special Committee also retained Roscoe Postle as its technical advisor to assess
Prime's mineral properties. See "The Arrangement--Reports of Prime Special
Committee Technical Advisor."
Based upon the Valuation and Fairness Opinion, the Roscoe Postle Reports and
certain other considerations, the Prime Special Committee concluded that the
Arrangement is fair to the Prime Minority Shareholders and recommended to the
Prime Board that it recommend that Prime Minority Shareholders vote in favor of
the Arrangement Resolution.
See "The Arrangement--Prime Special Committee."
RECOMMENDATION OF THE PRIME BOARD
The Prime Board has determined that the Arrangement is fair to the Prime
Minority Shareholders and recommends that Prime Minority Shareholders vote in
favor of the Arrangement Resolution.
See "The Arrangement--Recommendation of the Prime Board."
RBCDS VALUATION AND FAIRNESS OPINION
RBCDS was instructed by the Prime Special Committee to (i) prepare a
valuation of Prime and of the Homestake Common Stock and HCI Exchangeable Shares
to be issued as consideration in exchange for Prime Common Shares under the
Arrangement and (ii) provide an opinion as to whether the terms of the
Arrangement are fair from a financial point of view to the Prime Minority
Shareholders, both in accordance with Policy 9.1 and Policy Q-27. The Valuation
and Fairness Opinion are attached as Appendix H. In its Valuation, RBCDS
determined that the fair market value of Prime, as at September 4, 1998, was in
the range of C$11.00 to C$13.25 per Prime Common Share and that the fair market
value of the share consideration to be issued under the Arrangement, as at
September 4, 1998, was approximately C$11.96 per Prime Common Share based on a
fair market value of US$10.56 per share of Homestake Common Stock (the 30-day
average to September 4, 1998). RBCDS also determined that the fair market value
of the Homestake Common Stock would be the most appropriate indicator of the
fair market value of the HCI Exchangeable Shares. Accordingly, the range of
implied exchange ratios based on the fair market values of the Prime Common
Shares and the shares of Homestake Common Stock and HCI Exchangeable Shares, as
determined by RBCDS, is 0.680 to 0.820. RBCDS also advised the Prime Special
Committee in the Fairness Opinion that the terms of the Arrangement are fair
from a financial point of view to the Prime Minority Shareholders.
See "The Arrangement--RBCDS Valuation and Fairness Opinion."
S-11
<PAGE>
REPORTS OF PRIME SPECIAL COMMITTEE TECHNICAL ADVISOR
Roscoe Postle was engaged by the Prime Special Committee to review the
methodology of ore reserve and resource estimates at the Eskay Creek mine and
conduct an audit of such reserves and resources, report on the exploration
potential and fair market value of Prime's exploration properties, and provide
additional review and evaluation services.
Roscoe Postle reported to the Prime Special Committee in the Roscoe Postle
Reports that the ore reserve and resource estimates at the Eskay Creek mine as
estimated by the Eskay Creek mine staff are reasonable. Roscoe Postle also
reported that its audit checks yielded results that agreed well with the
reported reserves. Roscoe Postle estimated that the total value of Prime's
interests in the areas of the Eskay Creek property (other than the immediate
mine area) and in Prime's other exploration properties was C$6,698,000.
See "The Arrangement--Reports of Prime Special Committee Technical Advisor."
HOMESTAKE'S REASONS FOR THE ARRANGEMENT; RECOMMENDATION OF THE HOMESTAKE BOARD
Homestake believes that the Arrangement will result in a number of benefits
to Homestake and its stockholders, including the following:
- The Arrangement will give Homestake 100% ownership of the Eskay Creek
mine, a low-cost, high-quality mine.
- It will add 2 million gold equivalent ounces of proven and probable
reserves in a country with low political risk, increasing existing
Homestake reserves at December 31, 1997 by approximately 10%.
- It will give Homestake additional future equity production of
approximately 200,000 gold equivalent ounces annually and reduce total
cash cost per ounce of equity production. After taking the Arrangement
into account, Homestake's total equity production is expected to be
approximately 2.3 million equivalent ounces of gold at a total cash cost
of US$206 per ounce for 1999 (based on current exchange rates of
approximately A$1.00=US$.60 and C$1.00=US$.67).
- It will unify Homestake's presence in Canada, simplify Homestake's
corporate structure, and reduce administrative expenses.
- Exploration potential in the Eskay Creek area is believed to be good, and
Homestake will own 100% of the exploration properties now owned by Prime.
- It will broaden and diversify Homestake's Canadian stockholder base.
The Homestake Board has approved the Arrangement and has determined
unanimously that the Arrangement is fair to and in the best interests of the
Homestake Stockholders. Accordingly, the Homestake Board has approved and
recommends that the Homestake Stockholders adopt the proposed Restated
Certificate to, among other things, give Homestake sufficient authorized shares
to effect the Arrangement.
M. Norman Anderson, a director of Homestake, is also a director of Prime.
Mr. Anderson fully disclosed his relationship with Prime, including his
ownership of options to acquire Prime Common Shares, before the Homestake Board
voted to approve the Arrangement, to adopt the Restated Certificate and to
recommend that the Homestake Stockholders adopt the Restated Certificate.
See "The Arrangement--Homestake's Reasons for the Transaction;
Recommendation of the Homestake Board."
S-12
<PAGE>
HOMESTAKE AFTER THE ARRANGEMENT
Following the Arrangement, Homestake plans to continue its existing
substantial exploration program. Homestake will continue to focus on its best
prospects, particularly the Australian properties recently acquired by Homestake
through its acquisition of Plutonic and the area in the vicinity of the Eskay
Creek mine. In addition, Homestake expects to continue evaluating prospects for
acquisitions and mergers with a view to continued acquisition of attractive
companies and properties that will enhance value for the Homestake Stockholders.
That may include additional acquisitions in Canada which, in appropriate
circumstances, may involve the issuance of additional HCI Exchangeable Shares.
Because Homestake (through HCI) already manages Prime's business and
management activities, Homestake is not anticipating any significant changes in
management activities, except for changes resulting from Prime ceasing to be a
separate publicly held corporation. The existing officers and directors of
Homestake will continue to hold their respective positions following the
Arrangement. See "Homestake Management."
See "The Arrangement--Homestake After the Arrangement."
RISK FACTORS
An investment in HCI Exchangeable Shares and Homestake Common Stock involves
certain risks. See "Risk Factors" beginning on page S-24 and "Cautionary
Statements" beginning on page S-29.
CANADIAN FEDERAL INCOME TAX AND UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The Arrangement has been structured to enable Canadian resident Prime
Shareholders who receive HCI Exchangeable Shares to obtain, in certain
circumstances, a deferral of some or all of the taxable capital gain they would
otherwise realize.
IN ORDER TO OBTAIN THE DEFERRAL, PRIME SHAREHOLDERS WHO RECEIVE HCI
EXCHANGEABLE SHARES IN EXCHANGE FOR THEIR PRIME COMMON SHARES MUST MAKE AN
INCOME TAX ELECTION PURSUANT TO SUBSECTION 85(1) OR SUBSECTION 85(2) OF THE
CANADIAN TAX ACT, AS APPLICABLE, BY PROVIDING TO HCI A COMPLETED TAX ELECTION
FILING PACKAGE, INCLUDING TWO DULY COMPLETED AND SIGNED COPIES OF THE NECESSARY
ELECTION FORMS, WITHIN 90 DAYS FOLLOWING THE EFFECTIVE DATE. HCI WILL SIGN THE
ELECTION FORMS WITHIN 30 DAYS OF RECEIPT AND, AT THE DIRECTION OF THE PRIME
SHAREHOLDER, WILL RETURN THE ELECTION FORMS TO THE PRIME SHAREHOLDER OR FILE
THEM ON BEHALF OF THE PRIME SHAREHOLDER WITH REVENUE CANADA.
In the opinion of Lawson Lundell Lawson & McIntosh, counsel for Prime, and
Osler, Hoskin & Harcourt, counsel for HCI, the exchange of Prime Common Shares
for HCI Exchangeable Shares will be tax deferred for Canadian residents for
Canadian federal income tax purposes for so long as the holder continues to hold
the HCI Exchangeable Shares, provided that the necessary election forms are
filed. The exchange of Prime Common Shares for Homestake Common Stock and the
exchange of HCI Exchangeable Shares for Homestake Common Stock will be taxable
transactions for Canadian residents for Canadian federal income tax purposes.
In the opinion of Thelen Reid & Priest LLP, counsel for Homestake, the
exchange of Prime Common Shares for Homestake Common Stock or for HCI
Exchangeable Shares will be a taxable transaction for United States citizens and
residents for United States federal income tax purposes. The exchange of HCI
Exchangeable Shares for Homestake Common Stock also will be a taxable
transaction for United States citizens and residents for United States federal
income tax purposes.
HOLDERS OF PRIME COMMON SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
TO DETERMINE THE TAX CONSEQUENCES TO THEM OF THE ARRANGEMENT. IN AN EXCHANGE OF
PRIME COMMON SHARES FOR HCI EXCHANGEABLE SHARES, A DEFERRAL OF CANADIAN FEDERAL
INCOME TAX WILL BE AVAILABLE ONLY IF THE HOLDER MAKES AND FILES A VALID ELECTION
UNDER SUBSECTION 85(1) OR SUBSECTION 85(2) OF THE CANADIAN TAX ACT.
S-13
<PAGE>
See "Tax Considerations to Prime Shareholders."
ELIGIBILITY FOR INVESTMENT IN CANADA OF HCI EXCHANGEABLE SHARES AND HOMESTAKE
COMMON STOCK
On date of issue, the HCI Exchangeable Shares and shares of Homestake Common
Stock will be eligible investments under certain Canadian federal and provincial
statutes. So long as they are listed on a prescribed stock exchange in Canada
(which currently includes the TSE) and subject to the assumption that HCI will
maintain a "substantial presence" in Canada for purposes of the Canadian Tax
Act, the HCI Exchangeable Shares will not be foreign property under the Canadian
Tax Act for trusts governed by registered pension plans, registered retirement
savings plans, registered retirement income funds and deferred profit sharing
plans or for certain other tax-exempt persons. The Homestake Common Stock will
be foreign property under the Canadian Tax Act.
See "Tax Considerations to Prime Shareholders."
ACCOUNTING TREATMENT
Homestake will account for the Arrangement as a purchase in accordance with
U.S. GAAP. Under this method of accounting, Homestake's cost of acquiring the
49.4% of Prime not already owned by Homestake is determined by the value of the
Homestake Common Stock and HCI Exchangeable Shares issued (plus cash for
fractional shares), plus the direct costs associated with the Arrangement, which
are estimated at approximately US$5 million. The value of an HCI Exchangeable
Share is expected to be equivalent to the value of a share of Homestake Common
Stock. See "The Arrangement--RBCDS Valuation and Fairness Opinion" and
"Unaudited Pro Forma Condensed Consolidated Financial Statements."
Based on Homestake's experience at Eskay Creek, Homestake expects to
allocate the excess of the purchase price paid over the net book value of the
assets acquired ("excess purchase price") to the Eskay Creek mineral properties,
with related increases in deferred taxes and in the carrying value of mineral
properties in accordance with U.S. GAAP. Based on the estimated purchase price
of US$335 million and an excess purchase price of US$235.1 million, Homestake
expects to allocate US$185.1 million of excess purchase price to proven and
probable reserves at Eskay Creek (which, including a related increase in
deferred taxes of US$91 million, results in an increase of US$276.1 million in
the carrying value of mineral properties), and US$50 million of excess purchase
price to unproven mineral properties at Eskay Creek (which, including a related
increase in deferred taxes of US$24.6 million, results in an increase of US$74.6
million in the carrying value of mineral properties). The final allocation of
the purchase price will be made when the acquisition is completed.
Homestake will amortize excess purchase price allocated to proven and
probable reserves on a units-of-production basis. The amortization rate for that
portion of excess purchase price currently is estimated at US$145 per gold
equivalent ounce with an offsetting credit to income tax expense of US$48 per
gold equivalent ounce, computed on the minority interests' 49.4% share of Eskay
Creek's future production. This additional amortization, computed on 100% of
Eskay Creek's future production, will increase Homestake's reported Eskay Creek
noncash costs by approximately US$48 per gold equivalent ounce and will increase
Homestake's consolidated reported noncash costs by approximately US$8 per gold
equivalent ounce. Since Homestake already consolidates Prime and historically
has reported cash costs including minority interests' share of production, the
acquisition of the Prime minority interests will have no impact on Homestake's
reported cash costs per gold equivalent ounce.
Homestake will amortize excess purchase price allocated to unproven mineral
properties on a units-of-production basis to the extent proven and probable
reserves are identified, or will expense the excess purchase price if and when
and to the extent the carrying value of the unproven properties is determined to
be impaired.
S-14
<PAGE>
See "The Arrangement--Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENT
In addition to Homestake's 50.6% ownership interest in Prime, certain
persons have interests in the Arrangement that are different from, or in
addition to, the interests of the Prime Shareholders. Specifically: (i) all
Prime officers are officers or employees of Homestake and certain of its
subsidiaries, and some of those officers and employees own Homestake Common
Stock and/or hold options and other rights to acquire Homestake Common Stock;
(ii) M. Norman Anderson, a director of Prime, is also a director of Homestake;
(iii) Gene G. Elam, Wayne Kirk, Gillyeard J. Leathley, and Walter T. Segsworth,
directors of Prime, and, in the case of Messrs. Kirk and Segsworth, officers of
Prime, are officers and employees of Homestake and its subsidiaries and own
Homestake Common Stock and/or hold options and other rights to acquire Homestake
Common Stock; and (iv) each of M. Norman Anderson, Alan J. Lenczner, J. Douglas
Little and Graham H. Scott is a director of Prime and holds options to acquire
10,000 Prime Common Shares, of which 5,000 are exercisable at a price of C$8.50
per share and 5,000 are exercisable at a price of C$9.55 per share, and all of
which are vested or will vest as a result of the Arrangement.
See "The Arrangement--Interests of Certain Persons in the Arrangement."
CONDITIONS TO THE ARRANGEMENT
The obligations of Prime and Homestake to consummate the Arrangement are
subject to various conditions, including: (i) approval of the Arrangement
Resolution by (A) at least 75% of the votes cast by the holders of Prime Common
Shares present and voting in person or by proxy at the Prime Special Meeting
(Prime Common Shares held by HCI will be voted in favor of the Arrangement
Resolution and will be considered in determining whether the Arrangement
Resolution has been approved by the requisite majority), and (B) not less than
two-thirds of the votes cast at the Prime Special Meeting by the Prime Minority
Shareholders; (ii) adoption of the Restated Certificate by the holders of a
majority of the outstanding shares of Homestake Common Stock; (iii) approval of
the Arrangement by the British Columbia Supreme Court; (iv) approval for listing
on the NYSE of the shares of Homestake Common Stock issuable in the Arrangement;
(v) approval for listing on the TSE of the HCI Exchangeable Shares issuable in
the Arrangement, or in the absence of meeting the distribution requirements of
the TSE, approval for listing the HCI Exchangeable Shares on another stock
exchange in Canada; (vi) the absence of legal restraints or prohibitions
preventing the consummation of the Arrangement; (vii) the representations and
warranties of the other party contained in the Arrangement Agreement being
materially true; (viii) the performance by the other party in all material
respects of its obligations contained in the Arrangement Agreement; and (ix) the
absence of any material adverse changes with respect to the other party.
See "The Arrangement--The Special Meetings--Prime" and "The Arrangement
Agreement-- Conditions."
TERMINATION
The Arrangement Agreement is subject to termination at the option of either
Prime or Homestake if the Arrangement is not completed on or before March 1,
1999, and prior to that time upon the occurrence of certain events, such as a
material breach by the other party or a material adverse change with respect to
the other party.
See "The Arrangement Agreement--Termination."
S-15
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
PRIME SELECTED HISTORICAL FINANCIAL DATA (CANADIAN GAAP)
The following table sets forth certain financial data relating to Prime
prepared in accordance with Canadian GAAP. The financial data should be read in
conjunction with (i) the Prime Financial Statements, including the notes
thereto, which are set forth in Appendix I and (ii) the Unaudited Pro Forma
Condensed Consolidated Financial Statements, which are included elsewhere in
this Supplement. Financial data for the six months ended June 30, 1998 and 1997
reflect, in the opinion of Prime, all adjustments necessary for a fair
presentation of such data. Results for the six months ended June 30, 1998 and
1997 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
(IN CANADIAN DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH CANADIAN GAAP)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 212,146 $ 204,587 $ 158,148 $ 28,626 $ 32,792
Net income........................... 30,689 42,052 36,514 7,136 4,571
Net income per share................. 0.40 0.55 0.48 0.10 0.06
Dividends per share.................. 0.08 0.08 -- -- --
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Total assets......................... $ 377,093 $ 381,286 $ 298,994 $ 234,784 $ 170,215
Long-term obligations................ 6,942 5,710 1,753 870 374
Deferred income and mining taxes..... 40,569 41,627 35,899 1,431 348
Shareholders' equity................. 313,535 288,932 252,966 216,452 164,856
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Revenues........................................................................... $ 114,531 $ 102,099
Net income......................................................................... 19,800 16,602
Net income per share............................................................... 0.26 0.22
Dividends per share................................................................ 0.04 0.04
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------
<S> <C>
Total assets...................................................................................... $ 395,512
Long-term obligations............................................................................. 7,435
Deferred income and mining taxes.................................................................. 39,774
Shareholders' equity.............................................................................. 330,292
</TABLE>
S-16
<PAGE>
PRIME SELECTED OPERATING DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
CAPITAL EXPENDITURES (THOUSANDS OF CANADIAN DOLLARS)......................... $ 21,287 $ 4,570 $ 4,376
OPERATING STATISTICS
Gold production (thousands of ounces)...................................... 360.4 313.1 247.9
Silver production (thousands of ounces).................................... 11,765.9 12,054.1 9,945.3
Gold equivalent production (thousands of ounces) (1)....................... 532.9 474.1 382.6
Total cash costs per equivalent ounce (US$)................................ $ 169 $ 174 $ 184
Noncash costs per ounce (US$).............................................. $ 51 $ 66 $ 47
RESERVES (AT DECEMBER 31)
Gold (millions of ounces).................................................. 2.7 2.7 2.2
Eskay Creek silver (millions of ounces).................................... 117.0 110.8 93.8
</TABLE>
- ------------------------
(1) Gold and silver are accounted for as co-products at Eskay Creek. Silver
production is converted into gold equivalent using the ratio of the gold
market price to the silver market price. For the years ended December 31,
1997, 1996 and 1995, the ratio was 68.2, 74.9 and 73.5 ounces of silver
production to one ounce of gold production, respectively.
S-17
<PAGE>
PRIME SELECTED HISTORICAL FINANCIAL DATA (U.S. GAAP)
The following table sets forth certain financial data relating to Prime
prepared in accordance with U.S. GAAP. The financial data should be read in
conjunction with (i) the Prime Financial Statements, including the notes
thereto, which are set forth in Appendix I and (ii) the Unaudited Pro Forma
Condensed Consolidated Financial Statements, which are included elsewhere in
this Supplement. Financial data for the six months ended June 30, 1998 and 1997
reflect, in the opinion of Prime, all adjustments necessary for a fair
presentation of such data. Results for the six months ended June 30, 1998 and
1997 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
(IN CANADIAN DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 212,146 $ 204,587 $ 158,148 $ 28,626 $ 32,792
Net income.............................. 32,862 48,290 42,748 12,061 4,418
Net income per share.................... 0.43 0.63 0.56 0.16 0.06
Dividends per share..................... 0.08 0.08 -- -- --
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets............................ $ 376,476 $ 381,324 $ 299,002 $ 234,784 $ 170,215
Long-term obligations................... 6,942 5,710 1,753 870 374
Deferred income and mining taxes........ 69,013 77,254 77,875 49,514 53,356
Shareholders' equity.................... 279,313 253,347 211,124 168,372 111,851
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Revenues........................................................................... $ 114,531 $ 102,099
Net income......................................................................... 20,523 19,138
Net income per share............................................................... 0.27 0.25
Dividends per share................................................................ 0.04 0.04
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------
<S> <C>
Total assets...................................................................................... $ 395,048
Long-term obligations............................................................................. 7,435
Deferred income and mining taxes.................................................................. 64,323
Shareholders' equity.............................................................................. 297,428
</TABLE>
S-18
<PAGE>
HOMESTAKE SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth certain financial data relating to Homestake.
The financial data should be read in conjunction with (i) the Homestake
Consolidated Financial Statements, including the notes thereto, which are set
forth in Appendix J and (ii) the Unaudited Pro Forma Condensed Consolidated
Financial Statements, which are included elsewhere in this Supplement. Financial
data for the six months ended June 30, 1998 and 1997 reflect, in the opinion of
Homestake, all adjustments necessary for a fair presentation of such data.
Results for the six months ended June 30, 1998 and 1997 are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole. Because Homestake owns more than 50% of Prime, Prime
financial information is consolidated with Homestake financial information, with
the 49.4% of Prime not owned by Homestake included in "minority interests."
(IN US DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)(1)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 971,415 $ 998,446 $ 949,251 $ 829,935 $ 855,834
Net income (loss)....................... (230,606)(2) 45,765(3) 49,942 93,631(4) 68,734(5)
Net income (loss) per share(6).......... (1.10)(2) 0.22(3) 0.25 0.47(4) 0.36(5)
Dividends per share(7).................. 0.15 0.20 0.20 0.175 0.10
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total assets............................ $ 1,609,534 $ 1,939,330 $ 1,673,390 $ 1,460,968 $ 1,355,928
Long-term debt.......................... 374,593 254,668 274,292 188,085 198,266
Other long-term obligations............. 152,610 123,475 127,558 111,065 93,685
Deferred income and mining taxes........ 161,862 218,379 202,607 147,278 173,258
Minority interests...................... 108,116 103,960 100,380 94,140 55,164
Shareholders' equity.................... 683,505 1,023,825 848,640 799,376 700,545
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenues................................ $411,502 $543,398
Net loss................................ (37,517)(8) (16,601)(9)
Net loss per share(6)................... (0.18)(8) (0.08)(9)
Dividends per share(7).................. 0.05 0.10
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Total assets............................ $ 1,505,461
Long-term debt.......................... 356,069
Other long-term obligations............. 143,871
Deferred income and mining taxes........ 146,105
Minority interests...................... 112,232
Shareholders' equity.................... 604,748
</TABLE>
- ------------------------
(1) Selected consolidated historical financial data reflects the April 1998
combination of Homestake and Plutonic on a pooling-of-interests basis.
Accordingly, all prior periods have been restated.
S-19
<PAGE>
(2) Includes a gain of $47.2 million ($62.9 million pretax) or $0.22 per share
on the fee received upon termination of Homestake's merger agreement with
Santa Fe Pacific Gold Corporation, a gain of $10.4 million ($10.4 million
pretax) or $0.05 per share with respect to the cancellation of an option to
acquire Great Central Mines Limited, and a gain of $8.1 million ($13.5
million pretax) or $0.04 per share on the sale of the George Lake and Back
River joint venture interests, and write-downs and unusual charges of $224.9
million ($285.3 million pretax) or $1.07 per share including (i) a
write-down of $84.9 million ($107.8 million pretax) in Homestake's
investment in the Main Pass 299 sulfur mine, (ii) a reduction of $60.1
million ($84.7 million pretax) in the carrying values of resource assets,
(iii) write-downs of $45.7 million ($47.9 million pretax) of certain
investments, (iv) an increase of $21.5 million ($29.1 million pretax) in the
accrual for estimated future reclamation expenditures, and (v) other charges
of $12.7 million ($15.8 million pretax) consisting primarily of foreign
exchange losses on intercompany redeemable preferred stock and losses on an
intercompany gold loan.
(3) Includes income of $24 million or $0.11 per share from a reduction in
Homestake's accrual for prior year income taxes, a gain of $7.9 million
($7.9 million pretax) or $0.04 per share from the sale of the investment in
Eagle Mining Corporation NL, a foreign currency exchange loss on
intercompany advances of $7.4 million ($8.9 million pretax) or $0.04 per
share primarily related to Homestake's Canadian-dollar denominated advances
to HCI, write-downs of $8.3 million ($9 million pretax) or $0.04 per share
in the carrying values of investments in mining company securities, and
proceeds of $4.9 million ($5.5 million pretax) or $0.02 per share from a
litigation recovery.
(4) Includes a gain of $12.6 million ($15.7 million pretax) or $0.06 per share
on the sale of Homestake's interest in the Dee mine and a gain of $11.2
million ($11.2 million pretax) or $0.06 per share on dilution of Homestake's
interest in Prime.
(5) Includes expense of $12.8 million ($16 million pretax) or $0.07 per share
for the write-down of oil assets at Main Pass 299 and expense of $6.8
million ($8.2 million pretax) or $0.03 per share for restructuring and
business combination costs.
(6) Basic and diluted earnings per share.
(7) Homestake only, excluding Plutonic dividends prior to the acquisition of
Plutonic.
(8) Includes expenses of $17.7 million ($20.7 million pretax) or $0.08 per share
for business combination and integration costs related to the acquisition of
Plutonic, $5.9 million ($8.9 million pretax) or $0.03 per share in
restructuring costs relating to the Homestake mine, and $2.6 million ($2.9
million pretax) or $0.02 per share for write-downs of exploration
properties.
(9) Includes a gain of $47.2 million ($62.9 million pretax) or $0.22 per share
on the fee received upon termination of Homestake's merger agreement with
Santa Fe Pacific Gold Corporation, a gain of $8.1 million ($13.5 million
pretax) or $0.04 per share on the sale of the George Lake and Back River
joint venture interests and write-downs and unusual charges of $50 million
($65.1 million pretax) or $0.24 per share including (i) a reduction of $31.9
million ($45 million pretax) in the carrying values of resource assets, (ii)
write-downs of $14.5 million ($14.5 million pretax) of certain mining
investments, and (iii) other charges of $3.6 million ($5.6 million pretax).
S-20
<PAGE>
HOMESTAKE SELECTED OPERATING DATA
(IN US DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
DEBT TO EQUITY RATIO (AT DECEMBER 31)..................................... 55% 32% 32%
CAPITAL EXPENDITURES (THOUSANDS OF DOLLARS)............................... $ 204,629 $ 169,950 $ 110,180
OPERATING STATISTICS
Gold production (thousands of ounces)................................... 2,544.3 2,417.9 2,226.0
Average realized gold price per ounce................................... $ 353 $ 406 $ 396
Total cash costs per ounce.............................................. $ 246 $ 261 $ 258
Noncash costs per ounce................................................. $ 57 $ 62 $ 55
RESERVES (AT DECEMBER 31)
Gold (millions of ounces)............................................... 19.5 22.6 23.6
Eskay Creek silver (millions of ounces)................................. 59.2 56.1 47.4
Sulfur (millions of long tons).......................................... 10.7 11.0 11.4
Oil (millions of barrels)............................................... 1.5 2.1 2.6
</TABLE>
S-21
<PAGE>
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE
AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
The following table presents unaudited pro forma selected financial data for
Homestake giving effect to the Arrangement and accounting for the Arrangement as
a purchase. The pro forma financial data do not purport to represent what the
combined financial position or results of operations would actually have been if
the Arrangement had occurred at the beginning of the periods or to project the
combined financial position or results of operations for any future date or
period.
The information below should be read in conjunction with (i) the Prime
Financial Statements and the Homestake Consolidated Financial Statements,
including the notes thereto, which are set forth in Appendices I and J,
respectively, and (ii) the Unaudited Pro Forma Condensed Consolidated Financial
Statements, which are included elsewhere in this Supplement.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Revenues................................................................... $ 411,352 $ 971,115
Net loss................................................................... (43,588) (239,153)
Net loss per share......................................................... (0.18) (1.00)
Cash dividends per share................................................... 0.05 0.15
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Total assets....................................................................................... $ 1,851,162
Long-term liabilities.............................................................................. 499,940
Deferred income and mining taxes................................................................... 261,752
Minority interests................................................................................. 12,286
Shareholders' equity............................................................................... 934,748
</TABLE>
See footnotes 1, 2, 6, 7 and 8 to the tables set forth above under the
heading "Homestake Selected Consolidated Historical Financial Data" and the
Unaudited Pro Forma Condensed Consolidated Financial Statements which are
included elsewhere in this Supplement.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents Homestake's and Prime's historical per share
data and Homestake's pro forma per share data for the six months ended June 30,
1998 and for the year ended December 31, 1997. The pro forma data gives effect
to the Arrangement and accounts for the Arrangement as a purchase, based upon
the Prime Financial Statements, the Homestake Consolidated Financial Statements
and the Unaudited Pro Forma Condensed Consolidated Financial Statements.
The information presented below should be read in conjunction with (i) the
Prime Financial Statements, including the notes thereto, which are set forth in
Appendix I, (ii) the Homestake Consolidated Financial Statements, including the
notes thereto, which are set forth in Appendix J and (iii) the Unaudited Pro
Forma Condensed Consolidated Financial Statements, which are included elsewhere
in this Supplement.
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
HISTORICAL:
Per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts in US dollars)
Book value(1)........................................................... $ 2.86 $ 3.24
Cash dividends.......................................................... 0.05 0.15
Net loss(2)............................................................. (0.18) (1.10)
Per Prime Common Share:
(Prepared in accordance with Canadian GAAP; amounts in Canadian dollars)
Book value(1)........................................................... $ 4.34 $ 4.12
Cash dividends.......................................................... 0.04 0.08
Net income(2)........................................................... 0.26 0.40
Per Prime Common Share:
(Prepared in accordance with U.S. GAAP; amounts in Canadian dollars)
Book value(1)........................................................... $ 3.91 $ 3.67
Cash dividends.......................................................... 0.04 0.08
Net income(2)........................................................... 0.27 0.43
PRO FORMA:
Per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts in US dollars)
Book value(1)........................................................... $ 3.91 $ 4.25
Cash dividends.......................................................... 0.05 0.15
Net loss(2)............................................................. (0.18) (1.00)
Per Prime Common Share equivalent(3):
(Prepared in accordance with U.S. GAAP; amounts in US dollars)
Book value(1)........................................................... $ 2.89 $ 3.14
Cash dividends.......................................................... 0.04 0.11
Net loss(2)............................................................. (0.13) (0.74)
</TABLE>
- --------------------------
(1) Book value per share is shareholders' equity divided by common shares
outstanding at June 30, 1998 and December 31, 1997.
(2) Basic and diluted earnings per share.
(3) Pro forma per Prime Common Share equivalent information reflects the pro
forma per share of Homestake Common Stock amount multiplied by the Exchange
Ratio of 0.74 shares of Homestake Common Stock for each Prime Common Share.
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<PAGE>
RISK FACTORS
The following risk factors should be considered in conjunction with the
other information included in this Supplement, including "Cautionary
Statements."
RISKS INHERENT IN GOLD EXPLORATION, DEVELOPMENT AND PRODUCTION
The business of gold exploration, development and production by its nature
involves significant risks. Among other things, the business depends on
successful location of reserves and skillful management. Gold exploration is
highly speculative in nature, involves many risks and frequently is
non-productive. Once mineralization is discovered and determined to be
economically recoverable, it usually takes a number of years from the initial
phase of exploration until production commences, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish reserves through drilling, to determine means of production and
metallurgical processes to extract the metal from ore and, in the case of new
properties, to construct mining and processing facilities.
Mining is subject to a variety of risks and hazards, including rock falls
and slides, cave-ins, flooding and other weather conditions, and other acts of
God. Prime and Homestake each maintain and, after the Arrangement, Homestake
intends to maintain, property and liability insurance consistent with industry
practice, but such insurance contains exclusions and limitations on coverage.
For example, coverage for environmental liability generally is limited and may
be totally unavailable. There can be no assurance that insurance will continue
to be available at economically acceptable premiums. Production costs also can
be affected by unforeseen changes in ore grades and recoveries, permitting
requirements, environmental factors, work interruptions, operating
circumstances, unexpected changes in the quantity or quality of reserves,
unstable or unexpected ground conditions, and technical issues.
All of Prime's gold production and exploration activities take place in
Canada. Substantially all of Homestake's gold production and significant
exploration activities take place in the United States, Australia and Canada,
all of which historically have experienced relatively low levels of political
and economic risk. Homestake also produces gold in Chile and conducts
exploration activities in Eastern Europe, Argentina, Brazil, Chile and the
Andean region of South America. These regions generally have higher levels of
political and economic risk than the United States, Australia and Canada,
including greater potential for government instability, uncertainty of laws and
legal enforcement and compliance, defects in or uncertainty as to title to
mining property, expropriation of property, restrictions on production, export
controls, currency non-convertibility, fluctuations in currency exchange rates,
inflation and other general economic and political uncertainties.
RISKS OF GOLD AND SILVER PRICE FLUCTUATIONS AND HEDGING ACTIVITIES
The results of Prime's and Homestake's operations are affected significantly
by the market price of gold. The results of Prime's operations and, to a lesser
extent, Homestake's operations, also are affected by the market price of silver.
The markets for gold and silver are worldwide markets. Gold and silver prices
are subject to volatile price movements over short periods of time and are
influenced by numerous factors over which Prime and Homestake have no control,
including expectations with respect to the rate of inflation, the relative
strength of the United States, Canadian and Australian dollars, interest rates,
global or regional political or economic crises, demand for jewelry and
industrial products containing gold and silver, speculation, and sales by
central banks and other holders and producers of gold and silver in response to
these factors. To date in 1998, the price of gold generally has been below
US$300 per ounce. After increasing to approximately US$7.81 per ounce in
February 1998, the price of silver has dropped significantly, to as low as
US$4.73 per ounce in September 1998.
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<PAGE>
The following table shows the reported annual high, low, average and end of
the period afternoon fixing prices of gold per ounce and silver per ounce in US
dollars on the London Bullion Market:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gold
High.......................... $ 313 $ 367 $ 416 $ 397 $ 398 $ 407
Low........................... 279 283 367 372 370 326
Average....................... 297 331 388 384 384 360
Period End.................... 296 290 369 387 383 392
Silver
High.......................... $ 7.81 $ 6.27 $ 5.83 $ 6.04 $ 5.75 $ 5.42
Low........................... 4.96 4.22 4.71 4.41 4.64 3.56
Average....................... 6.01 5.17 5.19 5.19 5.28 4.31
Period End.................... 5.36 5.95 4.73 5.11 4.87 5.08
</TABLE>
On September 24, 1998 the afternoon fixing price of gold per ounce was
US$292.70, and the closing spot price of silver per ounce was US$5.06.
The supply of gold and silver includes a combination of new mine production,
recycling of industrial products containing gold and silver, and sales from
existing stocks of bullion and fabricated gold and silver held by governments,
public and private financial institutions, and individuals.
In general, hedging enables a gold and silver producer to fix a future price
for hedged gold and silver that generally is higher than the then current spot
price. However, to the extent that sales of future production are hedged, the
ability to realize future increases in prices may be reduced subject to the
producer's ability to extend the expiry dates of the hedge contracts.
Prime has adopted a hedging policy under which Prime, in appropriate
circumstances, may enter into forward-sales contracts for up to 40% of its gold
and silver production in each of the subsequent five years. Homestake has
adopted a gold hedging policy under which Homestake, in appropriate
circumstances, may enter into forward-sales transactions for up to 30% of its
gold production in each of the subsequent ten years at prices in excess of
certain targeted prices. Homestake may also use, in appropriate circumstances,
combinations of put and call option contracts, which provide an effective price
floor for sales while permitting participation in future price increases. To the
extent Prime and Homestake have not hedged their production in forward-sales
transactions or established price floors, their profitability is fully exposed
to fluctuations in the current price of gold and silver in world markets.
Following the Arrangement, Homestake expects to continue the Homestake general
gold hedging policy and the Prime general silver hedging policy.
Homestake's results also are affected to a lesser degree by the market
prices for sulfur and for crude oil. Sulfur prices are affected principally by
the demand for fertilizer and the availability of by-product sulfur recovered
during the refining and processing of oil and natural gas. Crude oil prices are
affected principally by supply and demand for gasoline and fuel oil as well as
global or regional political or economic crises.
RISKS ASSOCIATED WITH RESERVE REALIZATION
Gold and silver reserves reported by Prime and Homestake reflect estimated
quantities and grades of gold and silver in deposits and in stockpiles of mined
material that Homestake believes can be mined, processed and sold at prices
sufficient to recover the estimated future cash costs of production, remaining
investment and anticipated additional capital expenditures. Reserves are
estimates based upon drilling results, past experience with mining properties,
experience of the person making the reserve estimates and
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<PAGE>
many other factors. Reserve estimation is an interpretive process based upon
available data. Further, reserves are valued based on estimates of future costs
and future prices. Prime's and Homestake's gold reserves at December 31, 1997
are based on an assumed price of US$325 per ounce for short-lived operations,
and US$350 per ounce for other operations. Silver reserves at December 31, 1997
at the Eskay Creek mine are based on an assumed price of US$5 per ounce.
Actual quality and other characteristics of ore deposits and gold and silver
prices will differ from the assumptions used to develop reserves. Such
differences may be significant.
Sulfur and oil reserve realization is subject to similar risks. In the third
quarter of 1997, Homestake wrote off its entire sulfur mine investment in light
of the continued depressed world market for sulfur.
RISKS OF GOVERNMENT REGULATION OF MINING
Prime's and Homestake's mining operations are subject to extensive
regulation governing development, production, labor standards, occupational
health, waste disposal, use of toxic substances, environmental regulations, mine
safety and other matters. Some jurisdictions also require or may in the future
require the payment of royalties. Changes in regulations can have material
impacts on anticipated levels of production, costs and profitability. It is
possible that exploration, or development or operation of a mine, may be delayed
or terminated as a result of the inability to obtain all required permits and
government approvals on an economic basis, or the imposition of royalty payments
or other government regulations.
RISKS OF CURRENCY FLUCTUATIONS
Gold and silver are sold throughout the world principally based on the US
dollar price, but operating expenses of gold and silver mining companies
generally are incurred in local currencies. Prime's operations are in Canada,
and Homestake's operations principally are based in the United States, Canada
and Australia. Prime engages in currency hedging in Canadian dollars, and
Homestake engages in currency hedging in Canadian and Australian dollars to
protect against significant currency fluctuations relative to the US dollar.
RISKS OF NATIVE TITLE CLAIMS
AUSTRALIA
The decision of the High Court of Australia in 1992 in MABO AND OTHERS V
QUEENSLAND (NO. 2) recognized traditional native title rights to land. That
decision and the Racial Discrimination Act raised the possibility that mining
and exploration tenements granted by the Crown after October 31, 1975, over
areas in which there were existing native title rights might be invalid to the
extent of any inconsistency with those native title rights. The High Court
recently held in THE WIK PEOPLES V QUEENSLAND that the grant of pastoral leases
will not necessarily extinguish native title rights. Many mining leases have
been granted over areas of pastoral leasehold.
The Commonwealth and the States of Australia have passed legislation that
permits native title claims to be made. The law currently in force provides for
a right on the part of native title holders or claimants to negotiate, after
January 1, 1994, before the grant or renewal of certain tenements (other than
renewals of tenements as of right, in accordance with the terms of their
original grant or renewals of validated tenements). Negotiations must take place
between the native title holders or claimants, the grantee party and the
government party. The law currently in force also validates mining tenements
granted before January 1, 1994 and suspends native title over the mining
tenements area. Any compensation for the suspension is payable by the government
that granted the tenement.
In July 1998, the Native Title Amendment Bill was enacted by both houses of
the Australian Parliament. The legislation will become law when it is
proclaimed, which is expected to occur before the end of the year. There will
then be a period of time during which regulations will need to be adopted to
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<PAGE>
fully implement the new law. The Bill makes significant changes in the regime
governing native title in Australia. Among other things, the new law will (i)
transfer the determination of native title claims to the Australian Federal
Courts; (ii) require that native title claims be registered in compliance with
specified requirements in order to qualify for the right to negotiate; (iii)
permit registration of claims to be delegated to State bodies; and (iv) permit
States to validate all titles issued between January 1, 1994 and December 23,
1996 on land which was the subject of freehold or leasehold title. Until the new
law comes into effect and regulations are enacted, Homestake cannot predict the
extent to which the new law will impact its operations, but it is generally
expected that the new law will facilitate and accelerate resolution of many
native title issues and eliminate some uncertainties.
There are a number of native title claims relating to the area of
Homestake's 50% owned Kalgoorlie operations, but the validity of those claims
has not been determined. In any event, all of the mining leases with respect to
active mining operations at Kalgoorlie are pre-1994 leases and therefore native
title claims will not adversely affect the operations. There also are native
title claims relating to areas in which Homestake's other Australian mining
operations are conducted, but the validity of these claims also has not been
determined. In any event, with the one exception described below, all of the
other production mining leases are pre-1994 leases not subject to native title
claims.
One production mining lease was granted between January 1 and March 15,
1995, when Western Australia did not comply with the requirement of negotiation
in granting these titles. Although there have been no decisions on the point to
date, titles granted during that period may be open to challenge on native title
grounds. If such titles are found to be invalid due to native title, the State
of Western Australia has indicated that it will facilitate regrants and pay any
compensation due to aggrieved native title parties.
Some of Homestake's exploration tenements in Australia are subject to
multiple native title claims. Should Homestake be successful in its exploration
activities in these areas and seek to convert its interests to mining leases, it
will be necessary to comply with the right to negotiate provisions of the law
and any agreement reached as a result of negotiations may include provisions
with respect to payment of compensation by Homestake to the native title
claimants. Under the law currently in force, if agreement cannot be reached, the
matter has to be determined by the National Native Title Tribunal. The National
Native Title Tribunal is entitled to include, in its determination as to whether
or not the titles may be granted, conditions with respect to compensation of
native title claimants. When the Native Title Amendment Bill comes into force,
under certain circumstances the negotiation process and grants of title will be
subject to the jurisdiction of State bodies.
CANADA
In the DELGAMUUKW decision in December 1997, the Supreme Court of Canada
(the "Supreme Court") affirmed that aboriginal tribal groups continue to have
aboriginal rights in lands in British Columbia used or occupied by their
ancestors in 1846. Those rights may vary from rights of limited use up to
aboriginal title. The decision has created uncertainty regarding property rights
in Canada (including mineral and other resource rights), particularly in British
Columbia and other areas where treaties were not concluded with aboriginal
groups. The Supreme Court stated these principles in broad terms, and did not
apply them to any particular lands. The decision also did not address how
aboriginal rights or title are to be reconciled with property and tenure rights
previously sold or granted by the government. The Supreme Court did confirm that
the extent of the aboriginal rights (including whether the rights rise to the
level of aboriginal title) will depend on, among other things, the extent of
prior aboriginal use and occupation. The Supreme Court also stated that,
depending on the nature of the aboriginal rights, consultation with and
compensation to (and possibly consent of) aboriginal groups may be required in
connection with sales of government-owned land or granting of mining, forestry
and other rights to use government-owned land. The Supreme Court indicated that
rights of compensation derive from the government's fiduciary obligations to the
aboriginal groups. The application of the principles enunciated in the decision
will not be possible until subsequent decisions provide clarification, and the
application of
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<PAGE>
these principles to any particular land will not be possible until the exact
nature of historical aboriginal use and occupancy and the resulting rights in
the particular property have been determined.
Since DELGAMUUKW, a number of aboriginal groups in British Columbia have
abandoned the treaty negotiation process and have filed legal proceedings
claiming aboriginal title and seeking damages against the Crown. In at least one
case, the aboriginal group is seeking cancellation of all grants, licenses and
other interests in land granted by the Crown to third parties, damages and an
account of profits against the Crown and the third parties. No judicial decision
has yet been rendered on any on these issues.
In July 1998, the negotiators for Canada, British Columbia and the Nisga'a
Nation, representing approximately 6,000 Nisga'a claiming aboriginal title and
aboriginal rights on their traditional territory situated in the Nass Valley in
northwest British Columbia, announced that they had concluded the Nisga'a Treaty
negotiations. The Treaty transfers approximately 1,992 square kilometers of land
in the Lower Nass Valley in fee simple to the Nisga'a, and provides for such
matters as self-government, resource development and wildlife management. It is
the first modern treaty to be signed in British Columbia and it is referred to
by the provincial government as a template for the following 51 other potential
treaties presently under negotiation in British Columbia.
The final text of the Treaty was approved on August 4, 1998. The Agreement
requires approval by a vote of the majority of all Nisga'a eligible voters and,
if approved, will be followed by federal and provincial legislation to ratify
and implement it.
Until the implementation legislation is adopted by both the Province of
British Columbia and Canada, the implications of the Treaty on existing
interests will remain uncertain. It appears, however, that the intention is that
existing and future interests will be protected subject to the potential payment
of fees, rents, royalties and other charges in respect of mineral resources on
Nisga'a lands to the Nisga'a government rather that the Provincial Government.
None of Prime's or Homestake's operations or exploration properties are located
in the area subject to the Treaty.
There are aboriginal claims that extend to the areas of British Columbia in
which Prime's Eskay Creek and Snip mines are located. These mining operations
are conducted under government mining leases which grant the exclusive right to
mine. There has not been any determination of the existence of any valid claim
of aboriginal rights or title in these areas. Prime and Homestake do not expect
any interruption of Prime's existing mining operations, and Homestake does not
believe that its other Canadian operations will be materially adversely affected
by aboriginal claims. However, Homestake and Prime expect that future Canadian
activities, including exploration and development of new mines, could be slowed
and could be adversely affected, depending on future legal developments in this
area and the extent of aboriginal rights in any particular property. See "Prime
Resources Group Inc.--Business and Property Description--Eskay Creek Mine."
UNITED STATES
There are no native title issues for Homestake's properties in the United
States.
DILUTION; ABSENCE OF SHAREHOLDER APPROVAL WITH RESPECT TO FUTURE ISSUANCES
Additional shares of Homestake Common Stock to be authorized under the
proposed Restated Certificate (up to a maximum of 450,000,000 shares of
Homestake Common Stock outstanding) and the Homestake Preferred Stock currently
authorized under the Homestake Certificate (up to a maximum of 10,000,000 shares
outstanding) will be available for issuance from time to time. Also, following
the Arrangement, additional HCI Exchangeable Shares will be available for
issuance from time to time. Future issuances of Homestake Common Stock,
Homestake Preferred Stock and HCI Exchangeable Shares could result in dilution
to holders of Homestake Common Stock and holders of HCI Exchangeable Shares. The
approval of holders of Homestake Common Stock and holders of HCI Exchangeable
Shares will not be
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<PAGE>
required for the issuance of HCI Exchangeable Shares or authorized but unissued
shares of Homestake Common Stock or Homestake Preferred Stock (or the reissuance
of previously issued shares that have been reacquired) or securities of
Homestake that are convertible into or exercisable or exchangeable for such
shares, unless deemed advisable by the Homestake Board or required by applicable
laws or stock exchange requirements. See "The Arrangement--Future Issuance of
Authorized Shares" and "--Possible Effect of Increase in Authorized Shares."
CAUTIONARY STATEMENTS
This Supplement contains certain information relating to Prime and Homestake
that is based on the beliefs of management, as well as assumptions made by and
information currently available to management. Any statements made in this
Supplement that are not historical in nature, including statements preceded by
the words "anticipate," "believe," "estimate," "expect," "intend," "will" and
similar expressions, as they relate to Prime or Homestake, are forward-looking
statements (as such term is defined in the United States Private Securities
Litigation Reform Act of 1995). Estimates of reserves, future production and
future cash costs per ounce of gold-equivalent production are also
forward-looking statements.
The purpose of these cautionary statements is to identify certain important
factors and assumptions on which forward-looking statements may be based or
which could cause actual results to differ materially from those expressed in
forward-looking statements. The important factors and assumptions set forth
below should be read in conjunction with "Risk Factors" herein.
RESERVES
Gold and silver reserves reported by Prime and Homestake reflect estimated
quantities and grades of gold and silver in deposits and in stockpiles of mined
material that Prime and Homestake believe can be mined, processed and sold at
prices sufficient to recover the estimated future cash costs of production,
remaining investment, and anticipated additional capital expenditures. Estimates
of costs of production are based on current and projected costs taking into
account past experience and expectations as to the future. Estimated mining
dilution is factored into reserve calculations.
Reserves are reported as general indicators of the life of mineral deposits.
Reserves should not be interpreted as assurances of mine lives or of the
profitability of current or future operations. Reserves are estimated for each
property based upon factors relevant to each deposit including drilling results,
past experience with the property, experience of the persons making the reserve
estimates and many other factors. Reserve estimation is an interpretive process
based upon available data, and the actual quality and other characteristics of
ore deposits cannot be known until mining has taken place.
Changes in reserves over time generally reflect (i) efforts to develop
additional reserves, (ii) depletion of existing reserves through production,
(iii) actual mining experience, (iv) continued testing and development of
additional information and (v) price and cost forecasts. Grades of ore actually
processed may be different from the stated reserve grades because of geologic
variations in different areas mined, mining dilution, losses in processing and
other factors. Recovery rates vary with the metallurgical and other
characteristics and grade of ore processed. Actual quality and other
characteristics of ore deposits, gold and silver prices, and costs of production
will vary from the assumptions used to develop reserve estimates. Such
differences may be material.
Gold and silver reserve calculations for properties operated by Homestake,
including the Eskay Creek and Snip mines, are prepared by Homestake. Gold and
silver reserve calculations for properties not operated by Homestake are based
on information provided to Homestake by the operator. Homestake periodically
reviews such information but does not independently confirm the information
provided by these operators. Prime and Homestake gold reserves at December 31,
1997 are based on an assumed price of US$325 per ounce for short-lived
operations, and US$350 per ounce for other operations. Silver
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<PAGE>
reserves at December 31, 1997 and 1996 are based on an assumed price of US$5 per
ounce. Prime and Homestake gold reserves at December 31, 1996 are based on an
assumed price of US$375 per ounce.
ESTIMATES OF PRODUCTION
Estimates of future production and mine life for particular properties are
derived from annual mining plans that have been developed based on, among other
things, mining experience, reserve estimates, assumptions regarding ground
conditions and physical characteristics of ores (such as hardness and presence
or absence of certain metallurgical characteristics), and estimated rates and
costs of production. Actual production may vary from estimates for a variety of
reasons, including risks and hazards of the types discussed above, actual ore
mined varying from estimates of grade and metallurgical and other
characteristics, mining dilution, strikes and other actions by labor at
unionized locations, restrictions imposed by government agencies and other
factors. Estimates of production from properties not yet in production or from
operations that are to be expanded are based on similar factors (including, in
some instances, feasibility reports prepared by company personnel and/or outside
consultants) but, as such estimates do not have the benefit of actual
experience, there is a greater likelihood that actual results will vary from the
estimates.
ESTIMATES OF OPERATING COSTS AND CAPITAL COSTS; CAPITAL PROJECTS
Estimates of cash costs for mining operations are developed based on past
experience, reserve and production estimates, anticipated mining and ground
conditions, metallurgical recoveries, estimated costs of materials, supplies and
utilities, exchange rates and other items. Estimates of amortization of noncash
costs are based on total capital costs and reserve estimates and may change at
least annually based on actual amounts of unamortized capital and changes in
reserve estimates. If the net book value of mining operations exceeds the fair
value, usually determined based on the estimated future undiscounted cash flows
from that mine, then an impairment loss based on the discounted cash flows would
be recognized as an expense in the period in which such evaluation is made.
Estimates for reclamation and environmental remediation costs are developed
based on existing and expected legal requirements, past reclamation experience,
cost estimates provided by company employees and third parties and other
factors. Estimates also reflect assumptions with respect to actions of
government agencies, including exercise of discretion and the amount of time
government agencies may take in completing processes required under applicable
laws and regulations. As a result, final costs may vary significantly from
estimates. Homestake periodically reevaluates reclamation cost estimates and
reclamation reserves for Prime and Homestake to take account of such factors.
Estimates of future capital costs are based on a variety of factors and may
include past operating experience, estimated levels of future production,
estimates by and contract terms with third-party suppliers, expectations as to
government and legal requirements, feasibility reports (which may be prepared by
company personnel and/or outside consultants) and other factors. Capital cost
estimates for new projects under development generally are subject to greater
uncertainties than additional capital costs for existing operations.
Estimated periods for completion of capital projects are based on many
factors, including experience in completing capital projects, and estimates
provided by and contract terms with contractors, engineers, suppliers and others
involved in design and construction of projects. Estimates also reflect
assumptions with respect to factors beyond the control of Prime and Homestake,
including, but not limited to, the time government agencies may take in
processing applications, issuing permits and otherwise completing processes
required under applicable laws and regulations. Actual time to completion may
vary significantly from estimates.
Estimates of exploration costs are based upon many factors such as past
exploration costs, estimates of the level and cost of future activities, and
assumptions regarding anticipated results on each property.
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<PAGE>
Actual costs may vary during the year as a result of such factors as actual
exploration results (which could result in increasing or decreasing expenditures
for particular properties), changed conditions, and acquisitions and
dispositions of property.
TAXES
The Canadian statutory tax rate, including federal and provincial income tax
and mining tax is approximately 49%. The applicable United States tax rate is
21% (20% alternative minimum tax plus 1% state tax). The Australian statutory
rate is 36%.
All of Prime's operations are conducted in Canada. Homestake's operations
are conducted in a number of jurisdictions, with differing rates of taxation,
but substantially all of Homestake's revenues come from the United States,
Canada and Australia.
Homestake's reported tax rate varies from the statutory rate because of
certain differences between the tax laws and the accounting treatment of income
and expenditures. For example, under the Arrangement there will be an increase
in the basis of mining assets for financial reporting purposes that will not be
deductible for Canadian tax purposes. The problem is partially mitigated by the
FASB 109 deferred tax purchase accounting adjustments established at the time of
purchase. In addition, some of Homestake's foreign exploration costs are
expensed for accounting purposes but are not yet deductible for tax purposes.
Therefore, the tax benefit related to those expenditures cannot be recognized
until there is sufficient taxable income generated in the jurisdictions where
such expenditures are incurred. Certain Canadian accounting expenses cannot be
deducted in calculating the mining tax. Homestake also has limited ability to
utilize foreign tax credits in calculating its United States income tax.
Homestake's overall effective tax rate is dramatically impacted by the
geographic mix of its pretax income and losses. A greater proportion of income
in a high tax jurisdiction, like Canada, can cause the consolidated effective
tax rate to rise. Homestake's consolidated provision for income taxes and
related effective tax rate is based on pretax income (loss) before minority
interests. Therefore, the Arrangement will not change the consolidated effective
tax rate because 100% of Prime's pretax income and tax expense historically has
been reflected in Homestake's consolidated operations.
Homestake's overall effective rate also can fluctuate significantly during a
period of low gold prices, because the tax rate is affected by the ratio of tax
expense to pretax income. Low pretax income or pretax losses can produce
unusually high or unusually low effective tax rates (including the possibility
of negative rates). This can occur if mining and income tax expense continue to
accrue on profitable mines in high tax jurisdictions while losses are incurred
in low tax jurisdictions. The tax expense in the high tax jurisdiction is not
fully offset by the tax benefit from losses generated in the low tax
jurisdictions. As a result, as the income and tax expenses from all
jurisdictions are blended into a consolidated total, the overall effective rate
is disproportionately impacted.
EXCHANGE RATE OF CANADIAN AND US DOLLARS
The following table sets forth, for each period indicated, the high and low
Exchange Rates for one Canadian dollar expressed in US dollars, the average of
such Exchange Rates on the last day of each month during such period, and the
Exchange Rate at the end of such period:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
High.................................... $ 0.7105 $ 0.7487 $ 0.7515 $ 0.7529 $ 0.7632 $ 0.8046
Low..................................... 0.6784 0.6954 0.7215 0.7025 0.7103 0.7439
Average................................. 0.6931 0.7220 0.7363 0.7287 0.7300 0.7729
Period End.............................. 0.6795 0.6997 0.7301 0.7325 0.7128 0.7544
</TABLE>
S-31
<PAGE>
On - , 1998, the Exchange Rate for one Canadian dollar expressed in US
dollars was US$ - .
The following table sets forth, for each period indicated, the high and low
Exchange Rates for one US dollar expressed in Canadian dollars, the average of
such Exchange Rates on the last day of each month during such period, and the
Exchange Rate at the end of such period:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
High.................................... $ 1.4740 $ 1.4398 $ 1.3860 $ 1.4235 $ 1.4078 $ 1.3443
Low..................................... 1.4075 1.3357 1.3306 1.3282 1.3103 1.2428
Average................................. 1.4428 1.3849 1.3581 1.3723 1.3699 1.2939
Period End.............................. 1.4717 1.4291 1.3696 1.3652 1.4030 1.3255
</TABLE>
On - , 1998, the Exchange Rate for one US dollar expressed in Canadian
dollars was C$ - .
S-32
<PAGE>
PRICE RANGE AND TRADING VOLUME OF PRIME COMMON SHARES AND
HOMESTAKE COMMON STOCK; DIVIDENDS
PRICE RANGES AND TRADING VOLUMES
PRIME COMMON SHARES
The Prime Common Shares are listed on the TSE, the VSE and Amex. The
following table sets forth the price ranges and volume of trading for the Prime
Common Shares for the periods indicated on the TSE and for the periods indicated
on Amex beginning July 31, 1997, the date that the Prime Common Shares began
trading on Amex:
<TABLE>
<CAPTION>
TSE AMEX
----------------------------------- -----------------------------------
HIGH LOW VOLUME HIGH LOW VOLUME
--------- --------- ------------- --------- --------- -------------
MILLIONS OF (US$) MILLIONS OF
(C$) SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter....................................... $ 15.13 $ 9.38 9.1 -- -- --
Second Quarter...................................... 13.50 10.00 4.6 -- -- --
Third Quarter....................................... 11.50 9.30 4.7 -- -- --
Fourth Quarter...................................... 10.55 8.75 11.0 -- -- --
1997
First Quarter....................................... $ 12.50 $ 8.90 8.6 -- -- --
Second Quarter...................................... 12.30 9.60 4.8 -- -- --
Third Quarter....................................... 12.40 9.25 5.0 $ 9.00 $ 7.94 0.1
Fourth Quarter...................................... 12.45 6.85 8.4 9.13 5.00 0.2
1998
First Quarter....................................... $ 11.95 $ 8.09 4.9 $ 8.50 $ 5.81 0.3
Second Quarter...................................... 12.50 10.00 10.7 9.25 6.69 0.6
Third Quarter (through -)...........................
</TABLE>
HOMESTAKE COMMON STOCK
Homestake Common Stock is listed on the NYSE, the Australian Stock Exchange
and the Swiss Stock Exchanges (Basel, Geneva and Zurich). The price ranges of
Homestake Common Stock on the NYSE, the principal exchange on which shares of
Homestake Common Stock are traded, and the volume of trading as shown on the
NYSE Composite Transaction Tape are set forth in the following table for the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW VOLUME
--------- --------- -------------
(US$) MILLIONS OF
SHARES
<S> <C> <C> <C>
1996
First Quarter............................................... $ 20.63 $ 15.75 82.8
Second Quarter.............................................. 20.88 16.88 53.0
Third Quarter............................................... 18.00 14.25 42.3
Fourth Quarter.............................................. 16.63 13.63 77.1
1997
First Quarter............................................... $ 16.63 $ 13.13 73.0
Second Quarter.............................................. 15.25 12.75 48.0
Third Quarter............................................... 15.38 12.31 45.9
Fourth Quarter.............................................. 15.56 8.31 56.8
1998
First Quarter............................................... $ 11.19 $ 7.70 73.5
Second Quarter.............................................. 13.13 9.31 73.4
Third Quarter (through -)................................... - - -
</TABLE>
S-33
<PAGE>
COMPARATIVE STOCK PRICES AND PREMIUM TO PRIME SHAREHOLDERS
Homestake publicly announced on May 25, 1998 its proposal to acquire each
Prime Common Share not held by HCI for 0.675 of a share of Homestake Common
Stock or 0.675 of an HCI Exchangeable Share. On September 11, 1998, Prime and
Homestake announced that Homestake and the Prime Board had agreed on an
increased Exchange Ratio of 0.74. The following table shows the closing prices
for Homestake Common Stock on the NYSE and for Prime Common Shares on the TSE
and Amex on May 22, 1998, (the last trading day before May 25, 1998, when the
initial proposal was announced), on September 10, 1998 (the last trading day
before the increase was announced) and on - , 1998:
<TABLE>
<CAPTION>
HOMESTAKE
COMMON
STOCK PRIME COMMON SHARES
----------- ---------------------
NYSE TSE AMEX
----------- --------- ----------
<S> <C> <C> <C>
May 22, 1998.............................................. US$ 12.06 C$ 10.50 US$ 7.50
September 10, 1998........................................ US$ 11.88 C$ 11.80 US$ 7.88
- -, 1998................................................... US$ - C$ - US$ -
</TABLE>
The following table shows the equivalent market price, in both US and
Canadian dollars, on May 22, 1998 and - , 1998 for 0.74 of a share of
Homestake Common Stock, being the Exchange Ratio of HCI Exchangeable Shares and
Homestake Common Stock for each Prime Common Share, based on the closing prices
of Homestake Common Stock on the NYSE on those days.
<TABLE>
<S> <C> <C>
May 22, 1998............................................. C$ 12.93 US$ 8.92
- - , 1998................................................. C$ - US$ -
</TABLE>
Canadian dollar amounts are calculated by multiplying the actual US dollar
amounts by the Exchange Rate on the applicable date.
Based on the closing prices of Prime Common Shares and Homestake Common
Stock at May 22, 1998 and - , 1998, the Arrangement offers a premium of 23.2%
at May 22, 1998 and a premium of - % at - , 1998 to the holders of Prime
Common Shares.
The market value of the shares of Homestake Common Stock or HCI Exchangeable
Shares that Prime Shareholders will receive in the Arrangement may vary
significantly from the prices shown above. Prime Shareholders are urged to
obtain current quotations for the market prices of Homestake Common Stock.
DIVIDENDS
In March 1997, the Homestake Board elected to change from quarterly
dividends to semi-annual dividends. On a semi-annual basis, the Homestake Board
evaluates the financial circumstances and requirements of Homestake to determine
whether a dividend should be paid and, if so, the amount of the dividend.
Homestake can give no assurance that dividends will continue to be paid on a
regular basis or in amounts previously paid. Any decision whether to pay
dividends will be made based on the financial requirements of Homestake as
determined by the Homestake Board from time to time.
S-34
<PAGE>
The following table sets forth, for the calendar quarters indicated,
dividends per share paid on the Homestake Common Stock:
<TABLE>
<CAPTION>
CALENDAR PERIOD DIVIDENDS PER SHARE
- -------------------------------------------------------------------------- ---------------------
<S> <C>
(C$)
1996
First Quarter........................................................... $ 0.05
Second Quarter.......................................................... 0.05
Third Quarter........................................................... 0.05
Fourth Quarter.......................................................... 0.05
1997
First Quarter........................................................... 0.05
Second Quarter.......................................................... 0.05
Third Quarter........................................................... --
Fourth Quarter.......................................................... 0.05
1998
First Quarter........................................................... --
Second Quarter.......................................................... 0.05
Third Quarter........................................................... --
</TABLE>
On September 25, 1998, the Homestake Board declared a semi-annual dividend
of five cents per share, payable November 18, 1998 to Homestake Stockholders of
record on October 30, 1998.
HCI will pay dividends on HCI Exchangeable Shares that are economically
equivalent to the dividends paid on Homestake Common Stock, but Homestake
Equivalent Dividends that are paid in cash will be payable in Canadian dollars.
Dividends on Homestake Common Stock are payable in US dollars (except dividends
payable to holders of record with Australian addresses are payable in Australian
dollars).
Under Homestake's bank credit agreement, Homestake is required to maintain a
consolidated net worth (as defined) of US$500 million. In addition, under the
Trust Agreement, Homestake has agreed not to declare or pay dividends on the
Homestake Common Stock unless HCI is able to pay and simultaneously pays an
equivalent dividend on the HCI Exchangeable Shares.
On a semi-annual basis, the Prime Board evaluates the financial
circumstances and requirements of Prime to determine whether a dividend should
be paid and, if so, the amount that should be paid. Any decision on dividends is
made by the Prime Board from time to time and dividend payments previously made
are not necessarily indicative of dividend payments that may be made in the
future.
S-35
<PAGE>
The following table sets forth, for the calendar quarters indicated,
dividends per share paid on the Prime Common Shares:
<TABLE>
<CAPTION>
CALENDAR PERIOD DIVIDENDS PER SHARE
- -------------------------------------------------------------------------- ---------------------
<S> <C>
(C$)
1996
First Quarter........................................................... $ --
Second Quarter.......................................................... 0.04
Third Quarter........................................................... --
Fourth Quarter.......................................................... 0.04
1997
First Quarter........................................................... --
Second Quarter.......................................................... 0.04
Third Quarter........................................................... --
Fourth Quarter.......................................................... 0.04
1998
First Quarter........................................................... --
Second Quarter.......................................................... 0.04
Third Quarter........................................................... --
</TABLE>
S-36
<PAGE>
THE ARRANGEMENT
GENERAL
The Prime Board and the Homestake Board each have approved the Arrangement
Agreement. The Arrangement Agreement provides that subsidiaries of Homestake
will acquire all of the Prime Common Shares not already owned by HCI, subject
to, among other things, (i) approval of the Arrangement by the Prime
Shareholders (including the Prime Minority Shareholders), (ii) adoption of the
Restated Certificate by the Homestake Stockholders and (iii) approval of the
Arrangement by the British Columbia Supreme Court. As a consequence of the
Arrangement, Prime will become a wholly-owned subsidiary of Homestake and the
holders of Prime Common Shares (other than Homestake subsidiaries and those who
properly perfect and exercise their Dissent Rights) will have the choice of
receiving the following consideration for each Prime Common Share:
(i) 0.74 of a share of Homestake Common Stock, or
(ii) 0.74 of an HCI Exchangeable Share.
Any Prime Shareholder that does not properly and timely elect to receive
Homestake Common Stock will receive HCI Exchangeable Shares.
Fractional shares of Homestake Common Stock and HCI Exchangeable Shares will
not be issued. Cash in lieu thereof will be paid in US dollars to Prime
Shareholders who receive Homestake Common Stock and will be paid in Canadian
dollars to Prime Shareholders who receive HCI Exchangeable Shares.
Holders of HCI Exchangeable Shares will have essentially the same voting
rights with respect to Homestake as if they held an equivalent number of shares
of Homestake Common Stock. Holders of HCI Exchangeable Shares also will receive
Homestake Equivalent Dividends. Other than as required by law, holders of HCI
Exchangeable Shares will not be entitled to vote on matters related to HCI nor
will they be entitled to receive any dividends payable by HCI except the
Homestake Equivalent Dividends. Pursuant to the Homestake Rights Agreement, each
share of Homestake Common Stock is accompanied by and trades with one Homestake
Right. Each HCI Exchangeable Share will also be accompanied by and trade with
one HCI Right that will entitle its holder to acquire additional HCI
Exchangeable Shares at the same price and in the same amounts and circumstances
in which holders of Homestake Rights are entitled to acquire Homestake shares.
Holders of HCI Exchangeable Shares will have the right at any time to
exchange each HCI Exchangeable Share for one share of Homestake Common Stock,
plus the Additional Amount, if any. At any time on or after December 31, 2008
(subject to acceleration under certain circumstances), HCI will have the right,
but not the obligation, to redeem all outstanding HCI Exchangeable Shares for an
equivalent number of shares of Homestake Common Stock, plus the Additional
Amount, if any, in respect of each HCI Exchangeable Share. Homestake and HCH
have the overriding right to purchase, for the same price, HCI Exchangeable
Shares proposed to be exchanged by their holders or redeemed by HCI.
Prime Shareholders who perfect and properly exercise their Dissent Rights
will be entitled to be paid the fair value of their Prime Common Shares in cash
in Canadian dollars. Homestake Stockholders do not have dissenters' appraisal
rights.
Each Prime Outside Director holds options to acquire 10,000 Prime Common
Shares, of which 5,000 are exercisable at a price of C$8.50 per share and 5,000
are exercisable at a price of C$9.55 per share, and all of which are vested or
will vest as a result of the Arrangment. Each Prime Outside Director must elect,
during the period beginning five days prior to the Prime Special Meeting and
ending on the Effective Date, either to exercise his options or to receive from
Prime cash equal to the difference between the option exercise price and the
higher of (x) the market price of Prime Common Shares on the date of such
election and (y) the market price of Prime Common Shares on the Effective Date.
S-37
<PAGE>
BACKGROUND OF THE COMBINATION
For a number of years, Homestake has engaged in a continuing evaluation of
strategic alternatives, including evaluation of possible acquisition and merger
candidates, both as a means of acquiring attractive operating properties and as
a means of acquiring exploration properties with potential. In 1996, Homestake
and Santa Fe Pacific Gold Corporation pursued negotiations that led to the
announcement of a merger agreement on December 8, 1996. In March 1997, that
agreement was terminated by Santa Fe. Santa Fe paid Homestake a US$65 million
termination fee and subsequently consummated a merger with Newmont Mining
Corporation.
Following the termination of the Santa Fe merger agreement, Homestake
continued its evaluation of other gold mining acquisition candidates. In
December 1997, Homestake entered into an agreement to acquire Plutonic Resources
Limited, the third largest Australian gold mining company. On April 30, 1998,
that combination was consummated and Plutonic became a wholly-owned subsidiary
of Homestake.
At various times over the past four years, Homestake has considered the
possibility of acquiring the 49.4% of Prime that it did not already own. This
evaluation was undertaken in part pursuant to Homestake's preferred strategy of
owning 100% of its operating subsidiaries. This preferred strategy is
exemplified by Homestake's decision in late 1995 to acquire the public's 18%
interest in Homestake Gold of Australia Limited, Homestake's principal
Australian operating subsidiary at that time.
Prior to May 1998, each time the matter was considered, Homestake concluded
for various reasons that it would be inadvisable to seek to acquire the 49.4% of
Prime that Homestake did not own. In May 1998, following the completion of the
acquisition of Plutonic, Homestake re-examined the possibility of acquiring the
Prime Common Shares that it did not own. On May 12, 1998, management of
Homestake reviewed with the Homestake Board the potential advantages of such an
acquisition. The Homestake Board was provided with the most recent analysis and
pro forma financial information prepared by Homestake management, and the
reasons why management now recommended pursuing the acquisition. Homestake
management reviewed, among other things, the business conditions and prospects
of the two companies on a stand-alone and combined basis, synergies and cost
savings, and exploration potential and other benefits that would be realized by
the Homestake Stockholders and Prime Shareholders. These matters are discussed
in more detail under "Homestake's Reasons for the Transaction; Recommendation of
the Homestake Board" below. Homestake's financial advisor did not participate in
these discussions or in the preparation of the analyses reviewed with the
Homestake Board. The Homestake Board determined that the acquisition of the
remainder of the Prime Common Shares was in the best interests of Homestake and
its stockholders. It also noted that the acquisition of the remainder of Prime
would not add any additional management burdens to Homestake, inasmuch as
Homestake has managed Prime's operations since first acquiring an interest in
Prime. The Homestake Board also considered the form of transaction that would be
appropriate, and concluded that Homestake should propose that the transaction be
in the form of a plan of arrangement that would be presented to the Prime
Shareholders for their approval and that would be subject to approval by the
British Columbia Supreme Court. The Homestake Board authorized management to
proceed with the development of a proposal and to determine the precise manner
in which the proposal would be structured, presented and negotiated. Following
the May meeting of the Homestake Board, Homestake retained SBC Warburg Dillon
Read Inc. and its Canadian affiliate Bunting Warburg Inc. (collectively, "SBC
Warburg"), as financial advisors to assist in the development of the terms and
structure of the proposed transaction. On May 25, 1998, Homestake announced a
proposal to acquire each of the Prime Common Shares not owned by HCI, with Prime
Shareholders (other than HCI) having the choice of receiving either 0.675 of a
share of Homestake Common Stock or 0.675 of an HCI Exchangeable Share for each
Prime Common Share.
The Prime Board met on May 27, 1998, and appointed a special committee of
independent directors to review the Homestake proposal. The Prime Special
Committee subsequently appointed McCarthy Tetrault as its special legal counsel
and retained RBCDS as its independent financial advisor and the geological and
mining consulting firm of Roscoe Postle as its technical advisor to conduct an
audit of the
S-38
<PAGE>
reserves of the Eskay Creek mine. RBCDS' work included the preparation of the
Valuation and Fairness Opinion. See "--RBCDS Valuation and Fairness Opinion."
Roscoe Postle's work included review of and comment on the Eskay Creek mine
database, geological interpretation, methodology and procedures used to estimate
reserves and mineralization and their classifications; independent estimates of
parts of the deposit; and assessment of the reliability of the reserve
estimates. See "--Reports of Prime Special Committee Technical Advisor."
On July 17, 1998, members of Homestake's management and its advisors made a
presentation to the Prime Special Committee and its advisors. At this
presentation, Homestake reviewed for the Prime Special Committee and its
advisors Homestake's analysis and rationale for its proposal. Homestake also
provided the Prime Special Committee and its advisors with information about
Homestake, its properties and prospects and its financial condition. On August
5, 1998, members of Homestake management again met with RBCDS and counsel for
Prime and for the Prime Special Committee to provide additional information
regarding Homestake.
On August 26, 1998, RBCDS presented to the Prime Special Committee certain
preliminary results relating to its valuation work. In such presentation, RBCDS
advised the Prime Special Committee of the midpoint of its draft valuation
analysis and further advised the Prime Special Committee that the proposed
exchange ratio of 0.675 of a share of Homestake Common Stock or 0.675 of an HCI
Exchangeable Share for each Prime Common Share not owned by HCI was not within
the preliminary valuation range determined by RBCDS and was therefore, in the
opinion of RBCDS, inadequate from a financial point of view. On August 26, 1998,
the Prime Board met and received a preliminary report from the Prime Special
Committee. At that meeting, the Prime Special Committee advised the Prime Board
that, in the opinion of the Prime Special Committee and based on the preliminary
results of RBCDS' valuation work, the proposed exchange ratio of 0.675 was
inadequate. The Prime Special Committee further advised the Prime Board that it
was not prepared to recommend the Homestake proposal to the Prime Board or to
the Prime Minority Shareholders. That conclusion was communicated to the
management of Homestake.
On September 3, 1998, Homestake management met with the Prime Special
Committee, RBCDS and counsel for the Prime Special Committee to discuss the
Homestake proposal. On September 4, 1998, Homestake management advised the Prime
Special Committee that Homestake management was prepared to recommend to the
Homestake Board that Homestake increase the exchange ratio to 0.74 of a share of
Homestake Common Stock or 0.74 of an HCI Exchangeable Share for each Prime
Common Share not owned by HCI and make certain changes to the proposed terms of
the Arrangement Agreement requested by the Prime Special Committee. After
further discussion between the parties, on September 8, 1998 Homestake advised
the Prime Special Committee that Homestake would not again increase the proposed
exchange ratio, even though the Prime Special Committee advised Homestake that
the exchange ratio of 0.74 was below the preliminary valuation midpoint as
determined by RBCDS.
On September 9 and 10, 1998, the Prime Special Committee met with RBCDS and
counsel for the Prime Special Committee. RBCDS advised the Prime Special
Committee that although the exchange ratio of 0.74 was below the valuation
midpoint, it was within the valuation range determined by RBCDS in its valuation
assessment. RBCDS also indicated that it would be prepared to deliver an opinion
to the Prime Special Committee to the effect that the proposed exchange ratio of
0.74 was fair from a financial point of view to the Prime Minority Shareholders.
The Prime Special Committee was also advised that since the exchange ratio of
0.74 was below the valuation midpoint, the Arrangement Resolution would need to
be approved by not less than two-thirds of the Prime Minority Shareholders at
the Prime Special Meeting. After further consideration and consultation with
RBCDS and counsel for the Prime Special Committee, the Prime Special Committee
determined that it would recommend approval of the proposed Arrangement to the
Prime Board and would recommend that the Prime Board recommend approval of the
proposed Arrangement to the Prime Minority Shareholders. See "--Prime Special
Committee--Deliberations of the Prime Special Committee;--Recommendation of the
Prime Special Committee." That conclusion was communicated to Homestake.
S-39
<PAGE>
On September 10, 1998, the Homestake Board met and approved the revised
exchange ratio of 0.74 of a share of Homestake Common Stock or 0.74 of an HCI
Exchangeable Share for each Prime Common Share not owned by HCI. The Homestake
Board also authorized management of Homestake to negotiate the terms of a
definitive Arrangement Agreement with Prime.
On September 10, 1998, the Prime Board met to receive an oral presentation
from the Prime Special Committee with respect to the proposed Arrangement. In
that meeting, Messrs. Anderson, Elam, Kirk, Leathley and Segsworth abstained
from voting. After consideration, the Prime Board resolved to recommend that the
Prime Minority Shareholders vote in favor of the Arrangement Resolution.
During the period of September 11 to September 25, 1998, management of
Homestake and representatives of the Prime Special Committee reached agreement
on the definitive terms of the Arrangement Agreement. The Arrangement Agreement
was approved by the Prime Board on September 28, 1998, with Messrs. Anderson,
Elam, Kirk, Leathley and Segsworth abstaining from voting.
PRIME SPECIAL COMMITTEE
GENERAL
On May 27, 1998, the Prime Board appointed the Prime Special Committee to
review, consider and report to the Prime Board on the terms of the proposed
Arrangement. The Prime Special Committee consists of Graham H. Scott, J. Douglas
Little and Alan J. Lenczner. Mr. Scott was appointed as Chairman of the Prime
Special Committee. None of the members of the Prime Special Committee is an
employee, insider, associate or affiliate of Prime or Homestake or of any of
their respective associates or affiliates (other than by reason of being a
director of Prime) nor has any member of the Prime Special Committee held any
such position during the previous five years. Messrs. Scott and Lenczner, and
the respective law firms of which they are partners, have provided legal
services to both Prime and Homestake during the previous five years. Except in
respect of their rights under outstanding Prime Board of Director Options, none
of the members of the Prime Special Committee will benefit from the Arrangement
in a manner that is different from the Prime Minority Shareholders nor will any
of them have any material interest in Prime or Homestake. The Prime Special
Committee was authorized to engage such legal counsel, valuers and other
advisors as it considered appropriate.
DELIBERATIONS OF THE PRIME SPECIAL COMMITTEE
The Prime Special Committee undertook deliberate and full consideration of
the Arrangement and obtained the advice of financial, technical and legal
advisors for such purpose. The Prime Special Committee met as a committee 21
times in person or by telephone during the period from its constitution on May
27, 1998 to September 28, 1998, the date of its formal report to the Prime
Board. On July 17, 1998, the Prime Special Committee and its advisors also
attended a presentation by Homestake and its advisors relating to Homestake and
the Arrangement. In addition, apart from meeting as a committee, members of the
Prime Special Committee spent time reviewing and considering relevant data and
documents and discussing matters arising out of their review among themselves
and with the advisors to the Prime Special Committee.
The Prime Special Committee engaged McCarthy Tetrault as its special legal
counsel to assist the Prime Special Committee in carrying out its
responsibilities and to provide the Prime Special Committee with advice
concerning its duties and the conduct of its affairs.
Because all management and technical functions of Prime are carried out by
Homestake or HCI, the Prime Special Committee deemed it advisable to retain an
independent technical advisor to assess the mineral properties of Prime. After
considering submissions from several independent consulting firms, the Prime
Special Committee engaged the services of Roscoe Postle to review the
methodology of ore reserve and resource estimation employed at the Eskay Creek
mine, conduct an audit of such reserves and resources, report on the exploration
potential and fair market value of Prime's exploration properties, and
S-40
<PAGE>
provide additional review and evaluation services. See "--Reports of Prime
Special Committee Technical Advisor."
At various times throughout its deliberations, the Prime Special Committee,
together with RBCDS, discussed with Roscoe Postle its activities in connection
with the preparation of the Roscoe Postle Reports, including the results of
meetings between Roscoe Postle and management of Prime and Homestake and staff
at the Eskay Creek mine. Further, the Prime Special Committee discussed in
detail with Roscoe Postle the methodology, assumptions and parameters for
reserve and resource estimation at the Eskay Creek mine and the methodology used
in connection with the audit of such reserves and resources, as well as the
valuation methodologies, approaches and assumptions used in connection with the
assessment of the exploration potential and fair market value of Prime's
exploration properties.
The Prime Special Committee, after considering several investment dealers,
engaged the services of RBCDS to prepare a formal valuation in accordance with
Policy 9.1 and Policy Q-27, to provide an opinion as to whether the terms of the
Arrangement are fair from a financial point of view to the Prime Minority
Shareholders and to provide financial advice to the Prime Special Committee. The
Prime Special Committee concluded that RBCDS was a qualified and independent
valuer, competent to provide the financial services required by the Prime
Special Committee. See "--RBCDS Valuation and Fairness Opinion."
At various times throughout its deliberations, the Prime Special Committee
discussed with RBCDS its activities in connection with the preparation of the
Valuation and Fairness Opinion, including the results of due diligence meetings
between RBCDS and management of both Prime and Homestake, and matters relating
to the review, analysis and adjustment by RBCDS of internal Prime plans and
models and its review of agreements and other documents relating to Prime's
assets. The Prime Special Committee discussed in detail with RBCDS the valuation
methodologies, approaches and assumptions proposed to be used by RBCDS in
preparing the Valuation and Fairness Opinion, including the potential to
increase the ore output at the Eskay Creek mine. The Prime Special Committee
also conducted a detailed review of a draft of the Valuation and Fairness
Opinion with representatives of RBCDS, who answered questions from members of
the Prime Special Committee to their satisfaction. The Prime Special Committee
determined that the Valuation and Fairness Opinion had been properly prepared
and was adequate to allow the Prime Special Committee to form a judgment and
recommendation on financial matters with respect to the terms of the
Arrangement.
RBCDS also addressed with the Prime Special Committee provisions of Policy
9.1 and Policy Q-27 which require a valuer to consider any distinctive material
value that may accrue to Homestake as a result of the Arrangement that would not
be available to an independent third party buyer. In this regard, the Prime
Special Committee requested RBCDS to specifically consider, among other things,
possible benefits of the Arrangement unique to Homestake such as any accelerated
use of available tax losses, reduced costs and other expense eliminations and
synergies.
On August 26, 1998, RBCDS presented to the Prime Special Committee certain
preliminary results relating to its valuation work. In such presentation, RBCDS
advised the Prime Special Committee of the midpoint of its draft valuation
analysis and further advised the Prime Special Committee that the proposed
exchange ratio of 0.675 of a share of Homestake Common Stock or 0.675 of an HCI
Exchangeable Share for each Prime Common Share not owned by HCI was not within
the preliminary valuation range determined by RBCDS and was therefore, in the
opinion of RBCDS, inadequate from a financial point of view. The Prime Special
Committee subsequently advised the Prime Board and management of Homestake that,
in the opinion of the Prime Special Committee and based on the preliminary
results of RBCDS' valuation work, the proposed exchange ratio of 0.675 was
inadequate and that therefore the Prime Special Committee was not prepared to
recommend the Homestake proposal to the Prime Board or to the Prime Minority
Shareholders.
S-41
<PAGE>
The Prime Special Committee, in a series of discussions and meetings with
representatives of Homestake from August 26, 1998 to September 10, 1998, engaged
in negotiations for an increase in the proposed exchange ratio. In such
discussions, the Prime Special Committee also requested certain changes to the
proposed terms of the Arrangement Agreement. Homestake offered to increase the
exchange ratio to 0.74 of a share of Homestake Common Stock or 0.74 of an HCI
Exchangeable Share for each Prime Common Share and agreed to make the requested
changes to the terms of the Arrangement Agreement. See "--Background of the
Combination."
On September 9 and 10, 1998, the Prime Special Committee met with RBCDS and
counsel for the Prime Special Committee. RBCDS advised the Prime Special
Committee that although the exchange ratio of 0.74 was below the valuation
midpoint, it was within the valuation range determined by RBCDS in its valuation
assessment. RBCDS also indicated that it would be prepared to deliver an opinion
to the Prime Special Committee to the effect that the proposed exchange ratio of
0.74 was fair from a financial point of view to the Prime Minority Shareholders.
The Prime Special Committee was also advised that since the exchange ratio of
0.74 was below the valuation midpoint, the Arrangement would require approval by
not less than two-thirds of the votes cast by the Prime Minority Shareholders at
the Prime Special Meeting. On that basis, and after considering other relevant
factors set out below, the Prime Special Committee made an oral presentation to
the Prime Board on September 10, 1998 recommending that the Prime Board approve
the proposed Arrangement and recommend approval of the proposed Arrangement to
the Prime Minority Shareholders.
In addition to the Valuation and Fairness Opinion and Roscoe Postle Reports,
during the course of its deliberations and in arriving at its recommendation,
the Prime Special Committee reviewed, considered and discussed, both together
with and separate from its financial and technical advisors and legal counsel,
the following matters:
(a) the terms of the Arrangement Agreement and the procedures required in order
to effect the Arrangement, including:
(i) approval by the British Columbia Supreme Court which will, among other
things, consider the fairness and reasonableness of the Arrangement;
(ii) shareholder approval including approval by not less than two-thirds of
the Prime Minority Shareholders at the Prime Special Meeting; and
(iii) the rights of dissent and appraisal which will be available to Prime
Shareholders who dissent to the Arrangement.
(b) advantages and disadvantages to Prime and the Prime Minority Shareholders of
the Arrangement, including:
(i) the effect on Prime's costs of carrying on business, including general
and administrative expenses, and on Prime's general business objectives
and corporate structure;
(ii) the opportunity for Prime to combine its operations with those of a
large senior gold mining company and that the combined company will have
enhanced long-term growth prospects and greater geographic
diversification in its operating and exploration properties than Prime,
and will allow the anticipated cash flow from the Eskay Creek mine over
its remaining life to be applied toward development and exploration of a
more geographically diversified group of properties;
(iii) the long-term prospects of Prime, and that the business of the
combined company will have significantly greater financial and business
resources than those of Prime alone, which may enable the combined
company to compete more effectively with competitors having greater
resources than Prime alone;
(iv) a pro forma contribution analysis of the contributions by each of Prime
and Homestake to the combined company; and
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(v) the relative liquidity and nature of Prime Minority Shareholders'
investment before and after giving effect to the completion of the
Arrangement, including that Prime Minority Shareholders would lose
exposure to silver price movements on a relative basis;
(c) the nature and composition of the Prime Minority Shareholders;
(d) that the HCI Exchangeable Shares will provide holders with a security of a
Canadian issuer having essentially the same economic rights and, indirectly,
voting rights as those of a holder of Homestake Common Stock; the HCI
Exchangeable Shares will provide holders who are Canadian residents with the
opportunity to obtain, in certain circumstances, a deferral of some or all
of the taxable gain they would otherwise realize for Canadian federal income
tax purposes; and the HCI Exchangeable Shares will not constitute "foreign
property" for Canadian federal income tax purposes;
(e) whether any special benefits would accrue to Homestake as a result of the
Arrangement; and
(f) the adequacy of the consideration offered by Homestake, including whether
any premium over the fair market value or the trading price of Prime Common
Shares forms part of such consideration and the adequacy of such premium, if
any.
In reaching its determination, the Prime Special Committee also considered
and evaluated, among other things: (i) information with respect to the financial
condition, business and operations of Prime and Homestake on both a historical
and prospective basis, including on a pro forma consolidated basis; (ii)
information with respect to the operations, reserves, asset quality, cost
structure and properties of Prime and Homestake; (iii) historical information
regarding the trading prices and volumes of the Prime Common Shares and
Homestake Common Stock; (iv) recent and historical information as well as
industry forecasts regarding the prices and price trends of gold and silver and
the potential impact thereof on each of Prime, Homestake and combined entity;
and (v) current and prospective economic, industry, market and world political
conditions affecting Prime and Homestake. The Prime Special Committee also
recognized that there are certain risks associated with the Arrangement,
including the factors set forth under "Risk Factors" and "Cautionary Statements"
in this Supplement.
RECOMMENDATION OF THE PRIME SPECIAL COMMITTEE
On September 25, 1998, the Prime Special Committee received the written
Valuation and Fairness Opinion from RBCDS. On September 28, 1998, the Prime
Special Committee approved the Prime Special Committee formal report to the
Prime Board concluding that the Arrangement is fair to the Prime Minority
Shareholders and confirming its previous recommendation on September 10, 1998
that the Prime Board approve the Arrangement and recommend approval of the
Arrangement Resolution to the Prime Minority Shareholders.
In arriving at its conclusions and formulating its recommendation, the Prime
Special Committee considered fully all of the matters referred to under
"--Deliberations of the Prime Special Committee." However, the Prime Special
Committee paid special attention to the fact that Prime Minority Shareholders
would not receive under the Arrangement, in consideration for their Prime Common
Shares, a premium over the midpoint of the fair market value of the Prime Common
Shares as determined by RBCDS in the Valuation. Notwithstanding this concern,
the Prime Special Committee concluded, on balance, that in determining whether
the Arrangement is fair to Prime Minority Shareholders the negative factors that
it considered were outweighed by the positive factors. In coming to such
conclusion, the Prime Special Committee assigned, among the matters considered,
relatively greater weight to the Valuation and Fairness Opinion, potential
constraints on Prime's long-term growth prospects if the Arrangement is not
completed (in view of Homestake's stated intention to maintain majority
ownership of Prime and Homestake's advice that it does not favor international
expansion of Prime's operating and exploration activities) and the fact that
shares of the Homestake Common Stock that Prime Shareholders will receive in
consideration for their Prime Common Shares under the Arrangement (assuming
exchange of the HCI Exchangeable Shares) are relatively liquid and may be
readily traded in the public market.
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RECOMMENDATION OF THE PRIME BOARD
On September 28, 1998, a meeting of the Prime Board was held to receive the
formal report of the Prime Special Committee. In its formal report, the Prime
Special Committee concluded that the Arrangement is fair to the Prime Minority
Shareholders and recommended to the Prime Board that it approve the Arrangement
and recommend to Prime Minority Shareholders that they vote in favor of the
Arrangement Resolution. The Prime Board reviewed the formal report of the Prime
Special Committee and resolved to approve the Arrangement. THE PRIME BOARD HAS
DETERMINED THAT THE ARRANGEMENT IS FAIR TO PRIME MINORITY SHAREHOLDERS AND
RECOMMENDS THAT PRIME MINORITY SHAREHOLDERS VOTE IN FAVOR OF THE ARRANGEMENT
RESOLUTION.
M. Norman Anderson, a director of Prime, is also a director of Homestake.
Gene G. Elam, Wayne Kirk, Gillyeard J. Leathley and Walter T. Segsworth are
officers, employees and stockholders of Homestake and directors of Prime, and
Messrs. Kirk and Segsworth also are officers of Prime. Each of Messrs. Anderson,
Elam, Kirk, Leathley and Segsworth fully disclosed his relationship with
Homestake and abstained from voting at the meeting of the Prime Board to approve
the Arrangement and to recommend that Prime Minority Shareholders approve the
Arrangement Resolution. All members of the Prime Board who were present and did
not abstain from voting at the meeting of the Prime Board voted in favor of the
resolution approving the Arrangement.
Prime Minority Shareholders should consider the terms of the Arrangement
carefully and should come to their own decision as to whether to vote in favor
of the Arrangement Resolution. Shareholders who are in doubt as to how they
should vote should consult their investment dealer, stock broker, chartered
accountant, lawyer or other professional advisor.
RBCDS VALUATION AND FAIRNESS OPINION
RBCDS was retained by the Prime Special Committee on June 10, 1998 to act as
its financial advisor and to prepare the Valuation and Fairness Opinion. RBCDS
is one of Canada's largest investment banking firms, with operations in all
facets of corporate and government finance, mergers and acquisitions, equity and
fixed income sales and trading and investment research. For providing the
Valuation and Fairness Opinion, RBCDS will be paid a fee of C$440,000. The
compensation of RBCDS does not depend in whole or in part on the conclusions
reached in the Valuation or the Fairness Opinion or the successful outcome of
the Arrangement. The Prime Special Committee has also agreed, on behalf of
Prime, to indemnify RBCDS in certain circumstances and to reimburse its
reasonable expenses.
Neither RBCDS nor any of its affiliates is an insider, associate or
affiliate (as those terms are defined in the SECURITIES ACT (Ontario)) of Prime,
Homestake or any of their respective associates or affiliates. RBCDS has not
been engaged to provide any financial advisory services, nor has it participated
in any financing, involving Prime, Homestake or any of their respective
associates or affiliates within the past two years. There are no understandings,
agreements or commitments between RBCDS and Prime, Homestake or any of their
respective associates or affiliates with respect to any future business
dealings. RBCDS may, in the future, in the ordinary course of its business,
perform financial advisory or investment banking services for Prime, Homestake
or any of their respective associates or affiliates.
RBCDS acts as a trader and dealer, both as principal and agent, in major
financial markets and, as such, may have had and may in the future have
positions in the securities of Prime, Homestake or any of their respective
associates or affiliates and, from time to time, may have executed or may
execute transactions on behalf of such companies or clients for which it
received or may receive compensation. As an investment dealer, RBCDS conducts
research on securities and may, in the ordinary course of its business, provide
research reports and investment advice to its clients on investment matters,
including with respect to Prime, Homestake or the Arrangement.
RBCDS was instructed by the Prime Special Committee to (i) prepare a
valuation of Prime and of the Homestake Common Stock and HCI Exchangeable Shares
to be issued as consideration in exchange for
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Prime Common Shares under the Arrangement and (ii) provide an opinion as to the
fairness from a financial point of view of the terms of the Arrangement to the
Prime Minority Shareholders, both in accordance with Policy 9.1 and Policy Q-27.
In the preparation of the Valuation and Fairness Opinion, RBCDS reviewed and
relied upon or carried out, among other things: certain publicly available
business, financial and other information relating to, and stock trading history
of, Prime and Homestake; life of mine operating plans and financial information
prepared by Prime relating to the Eskay Creek mine and Snip mine and to Prime
generally; discussions with senior management of Prime and Homestake, the
auditors and legal counsel of Prime and the auditors of Homestake; and the
Roscoe Postle Reports and discussions with the principals of Roscoe Postle.
RBCDS also relied upon such other information and carried out such other
investigations and analyses as it considered necessary or appropriate in the
circumstances. RBCDS also visited the Eskay Creek mine and Snip mine to tour the
mines and gain familiarity with various aspects of their operations, and
attended a presentation made to the Prime Special Committee on July 17, 1998 by
Homestake and its advisors. RBCDS has not, to the best of its knowledge, been
denied access by Prime to any information requested by RBCDS.
With the Prime Special Committee's approval, RBCDS has relied upon and
assumed without independent verification (subject to the exercise of its
professional judgment) the completeness, accuracy and fair presentation of all
of the financial and other information, data, advice, opinions or
representations obtained by it from public sources, senior management of Prime
and Homestake, and their respective consultants and advisors (collectively, the
"Information"). The Valuation and Fairness Opinion are conditional upon such
completeness, accuracy and fair presentation of the Information.
In preparing the Valuation and Fairness Opinion, RBCDS has made several
assumptions, including that all of the conditions required to implement the
Arrangement will be met and that the disclosure provided or incorporated by
reference into this Supplement with respect to Prime, Homestake and their
respective subsidiaries and affiliates and the Arrangement is accurate in all
material respects.
The Valuation and Fairness Opinion are rendered on the basis of securities
markets, economic, financial and general business conditions prevailing as at
September 4, 1998 and the condition and prospects, financial and otherwise, of
Prime, Homestake and their respective subsidiaries and affiliates, as they were
reflected in the Information and as they have been represented to RBCDS in
discussions with management of Prime and Homestake. In its analyses and in
preparing the Valuation and Fairness Opinion, RBCDS made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of RBCDS or any party
involved in the Arrangement.
For purposes of the Valuation, RBCDS defined fair market value as the
highest price, expressed in terms of money or money's worth, available in an
open and unrestricted market between informed and prudent parties, each acting
at arm's length, where neither party is under any compulsion to act. No downward
adjustment was made to the value of the Prime Common Shares to reflect the
liquidity of the Prime Common Shares, the effect of the Arrangement or the fact
that Prime Common Shares held by Prime Minority Shareholders do not form part of
a controlling interest.
In assessing the fair market value of Prime, RBCDS used the following
valuation methods: a net asset value ("NAV") analysis (employing where
appropriate discounted cash flow analysis and an appropriate market multiple)
and an analysis of certain ratios of certain comparable publicly traded
companies (the "Comparable Company method"). Under the NAV method, the implied
value of Prime Common Shares ranged from C$11.96 to C$12.91 and under the
Comparable Company method, the implied value of the Prime Common Shares ranged
from C$7.03 to C$16.09. In its valuation of Prime, RBCDS placed the greatest
emphasis on the NAV method, with secondary emphasis on the Comparable Company
method.
In assessing the fair market value of the Homestake Common Stock and HCI
Exchangeable Shares to be issued as consideration in exchange for Prime Common
Shares under the Arrangement, RBCDS relied on the market value method given the
high liquidity of the Homestake Common Stock, the number of
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shares of Homestake Common Stock issuable in connection with the Arrangement and
other characteristics of the Homestake Common Stock and HCI Exchangeable Shares
specified in the Valuation. In addition, RBCDS indicated in the Valuation that
it was not aware of any material information which had not been publicly
disclosed which would reasonably be expected to affect the market price of the
Homestake Common Stock.
In the Valuation, RBCDS determined that the fair market value of Prime, as
at September 4, 1998, was in the range of C$11.00 to C$13.25 per Prime Common
Share and that the fair market value of the Homestake Common Stock and HCI
Exchangeable Shares to be issued as consideration in exchange for Prime Common
Shares under the Arrangement, as at September 4, 1998, was approximetely C$11.96
per Prime Common Share based on a fair market value of US$10.56 per share of
Homestake Common Stock (being the 30 day average to September 4, 1998). RBCDS
also determined that the fair market value of the Homestake Common Stock would
be the most appropriate indicator of the fair market value of the HCI
Exchangeable Shares. Accordingly, the range of implied exchange ratios based on
the fair market values of the Prime Common Shares and the shares of Homestake
Common Stock and HCI Exchangeable Shares, as determined by RBCDS, is 0.680 to
0.820. RBCDS ALSO ADVISED THE PRIME SPECIAL COMMITTEE IN THE FAIRNESS OPINION
THAT THE TERMS OF THE ARRANGEMENT ARE FAIR FROM A FINANCIAL POINT OF VIEW TO THE
PRIME MINORITY SHAREHOLDERS.
Consideration of only selected portions of the Valuation and Fairness
Opinion would likely be misleading and omit important parts of the process and
supporting assumptions used to arrive at such valuation and opinion. THE SUMMARY
OF THE VALUATION AND FAIRNESS OPINION SET FORTH IN THIS SUPPLEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH VALUATION AND OPINION,
WHICH ARE CONTAINED IN APPENDIX H HERETO, AND PRIME MINORITY SHAREHOLDERS ARE
URGED TO READ THE VALUATION AND FAIRNESS OPINION CAREFULLY AND IN THEIR
ENTIRETY.
The Valuation and Fairness Opinion address only the fairness of the terms of
the Arrangement from a financial point of view and do not constitute a
recommendation to any Prime Shareholder as to how to vote at the Prime Special
Meeting.
REPORTS OF PRIME SPECIAL COMMITTEE TECHNICAL ADVISOR
Roscoe Postle was formally engaged by the Prime Special Committee on June
24, 1998 to review the methodology of ore reserve and resource estimations at
the Eskay Creek mine and conduct an audit of such reserves and resources, report
on the exploration potential and fair market value of Prime's exploration
properties, and provide additional review and evaluation services. Roscoe Postle
is one of Canada's leading independent geological and mining consultants and has
provided a wide range of engineering consulting services for major mining
companies, junior mining and exploration companies, financial institutions and
individual investors. In such engagements, Roscoe Postle has rendered
independent opinions on ore reserves, project economics, the value of mining and
exploration properties and related matters. Roscoe Postle is not an insider,
associate or affiliate of Prime or Homestake, but was engaged by Prime in 1989
to provide certain geological services. There are no agreements or
understandings, express or implied, with respect to future business between
Roscoe Postle and either of Prime or Homestake. Roscoe Postle will be paid a fee
of C$69,000 and reimbursed for its reasonable expenses for providing its
services to the Prime Special Committee in connection with the Arrangement.
In the course of its engagement, Roscoe Postle prepared two reports, each
dated July 28, 1998, for the Prime Special Committee. The first report contained
an audit of the reserves and resources at the Eskay Creek mine and analyzed the
exploration potential of the immediate mine area (the "Audit Report"). The
second report analyzed the exploration potential and fair market value of areas
of the Eskay Creek property (other than the immediate mine area) and of Prime's
other exploration properties (the "Exploration Properties Report"). Copies of
the Roscoe Postle Reports are available for inspection at the offices of Prime.
A copy of the Roscoe Postle Reports will be sent to any Prime Shareholder upon
request to the Corporate Secretary of Prime upon payment of a nominal charge to
cover printing and postage.
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In order to prepare the Roscoe Postle Reports, Roscoe Postle visited the
Eskay Creek mine site to review technical data, tour the underground operation
and gain familiarity with various aspects of the operation and the reserve and
resource database and estimation process. Roscoe Postle also visited the Corey
property exploration camp to review data. In addition, Roscoe Postle held
various discussions with Eskay Creek staff and with management of Prime and
Homestake in Vancouver, British Columbia.
In the Audit Report, Roscoe Postle reported to the Prime Special Committee
that it had conducted a thorough audit of the reserves and resources at the
Eskay Creek mine. The audit comprised a review of the methodology, assumptions
and parameters for reserve and resource estimation, as well as a re-estimation
for specific parts of the deposit. IN ROSCOE POSTLE'S OPINION, THE RESERVES AND
RESOURCES AS ESTIMATED BY THE ESKAY CREEK MINE STAFF ARE REASONABLE. As of
December 31, 1997, the total ore reserves at Eskay Creek were reported at
1,356,152 tonnes grading 58.06 grams per tonne gold and 2,684 grams per tonne
silver and the additional resources were reported at 337,000 tonnes grading
20.12 grams per tonne gold and 410 grams per tonne silver. Roscoe Postle
reported that the reserve and resource estimates have been done in an
appropriate manner, using reasonable assumptions and parameters, and that the
overall quality of the estimation work was very high. Roscoe Postle further
reported that considerable effort had been applied to refining the tonnage and
grade estimations using experience gained in the mining operations at the Eskay
Creek mine. Any shortcomings found in the derivation of the reserve estimate
were reported to be minor ones, and in almost all cases where problems are known
to exist, the mine staff was working to resolve them.
In the Audit Report, Roscoe Postle reported that the reserves and resources
at Eskay Creek were estimated by the mine geological staff using computer block
models and inverse-distance-squared sample weighting. The block model was
constrained with 3D triangulation models created from cross-sectional geological
interpretations. Roscoe Postle further reported that it had reviewed the
database, methodology, assumptions and parameters used in estimation of the
reserves and resources and found them to be reasonable and appropriate. Cut off
grades had been derived and applied in a reasonable fashion and appropriate
factors had been applied to the reserves to account for mining extraction and
dilution.
The Audit Report also reported that the audit checks carried out by Roscoe
Postle yielded results that agreed well with the reported reserves. Roscoe
Postle's estimates of precious metal grades differed from the mine staff
estimation by less than 10%, which was viewed as within an acceptable margin of
error, especially in view of the variability in results due to minor changes in
the database. Roscoe Postle noted that mine staff had reviewed the block model
and applied manual adjustments in areas where mining experience suggested that
some divergence from the reserve estimate might occur. Roscoe Postle further
noted that the block model had been in use for less than one year and that it
would be prudent to further refine the parameters and models.
The Audit Report also reported that a reconciliation exercise conducted over
the first six months of 1998 by the mine staff and reviewed by Roscoe Postle
indicated that the block models may be understating tonnage and overstating
precious metal grades, although Roscoe Postle stressed that the six-month time
period in which the data was collected for the analysis was too short to draw
definitive conclusions. Roscoe Postle noted that there was evidence that the
tonnage of the ore in the 21B Zone was being understated by approximately 15%,
whereas gold and silver grades were overstated by approximately 7% and 15%,
respectively. The apparent discrepancy in tonnage was thought to be due to an
underestimation of specific gravity, resource volume and dilution. Roscoe Postle
further noted that the apparent overstatement of grades was partially offset by
the understatement of tonnage.
Roscoe Postle noted in the Audit Report that the mining methods and
production rates appear to be optimized for minimizing dilution and maximizing
extraction, especially for the direct-shipping component of the ore. Roscoe
Postle expressed the opinion that the production rate for the smelter ore may be
modestly increased but a substantial increase in production rate would result in
less precise grade control and an attendant loss in profitability. For the
mill-feed ore, where the quality control constraints are not so severe, Roscoe
Postle indicated that there may be scope for increasing the production rate as
well.
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Roscoe Postle was of the opinion that the exploration potential in the
immediate area is good for modest increases in tonnage, although it reported
that there appears to be little scope for discovery of something on the scale of
the 21B Zone. Roscoe Postle noted that during the mine's operating life to date,
the reserves have been more than replaced by exploration.
In the Exploration Properties Report, Roscoe Postle analysed the exploration
potential and fair market value of areas of the Eskay Creek property (other than
the immediate mine area) and of Prime's other exploration properties. The other
properties consist of the Corey property south of Eskay Creek; the Pillow Basalt
Ridge property, the GIN claims, and the Club property north of Eskay Creek; the
Java property in the Yukon; and the Marchand property in Quebec. Roscoe Postle
noted that its approach to estimating the fair market value of such exploration
properties consisted of a two-step process. The first step was to use the
technical data from past exploration and warranted future exploration to
determine an appraised value for the property, using the appraised value method.
The second step was to confirm the appraised value using a different method, if
such information was available. The other methods used by Roscoe Postle were the
option agreement terms method and the comparable transaction method. The
appraised value and the other values were then used to estimate a fair market
value for each of Prime's exploration properties.
In the Exploration Properties Report, Roscoe Postle estimated that the total
value of Prime's interest in the exploration properties it had evaluated was
C$6,698,000. The property with the highest exploration value was the Eskay Creek
property (excluding the immediate mine area), with an estimated fair market
value of C$4,327,000.
HOMESTAKE'S REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE HOMESTAKE BOARD
HOMESTAKE'S REASONS FOR THE TRANSACTION
In connection with its consideration of the transaction, the Homestake Board
received and considered presentations by Homestake management and presentations
by and advice from Homestake's legal and financial advisors in May and September
1998. After careful consideration, on September 10, 1998 the Homestake Board
approved the transaction and the Arrangement as being fair to and in the best
interests of Homestake and its stockholders. In reaching these decisions, the
Homestake Board considered a number of factors including those listed below. In
view of the wide variety of factors considered by the Homestake Board in its
evaluation and the complexity of those matters, the Homestake Board did not
consider it practicable to, nor did it attempt to, quantify or otherwise assign
relative weights to the specific factors it considered in reaching its
decisions. In addition, individual members of the Homestake Board may have given
different weight to different factors.
GENERAL INDUSTRY FACTORS. The Homestake Board reviewed the generally
prevailing conditions in the gold industry in North America and worldwide. The
Homestake Board believes that in the current low gold price environment,
companies that continue to reduce their costs, become more efficient and add
quality reserves will weather the low gold price environment and thrive when
gold prices return to more normal levels. In addition, companies that
consolidate, increase their cash flow through the acquisition of low cash cost
production, and acquire good exploration prospects will be much better
positioned to compete in the future than those companies that do not take the
opportunity to grow during this period of depressed valuations. Finally, recent
experience of a number of gold companies in many parts of the world has
demonstrated the value of growing and adding quality production in countries
with low political risk profiles.
BUSINESS, CONDITIONS AND PROSPECTS OF PRIME AND HOMESTAKE. In evaluating
the proposed Arrangement, the Homestake Board considered information with
respect to the business, conditions and prospects of both Prime and Homestake.
The Homestake Board noted that Prime is a low cash-cost producer that generates
substantial amounts of cash, even in a low price environment. However, because
the Snip mine will close on or about April 1, 1999, Prime essentially is a
one-mine company, with the Eskay Creek mine
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having an estimated life of approximately 10 years. Although the Eskay Creek
mine has been successful in replacing reserves mined to date, it is likely to be
increasingly difficult to do so in the future, particularly at grades that are
as high as those currently being mined. The Homestake Board also noted that for
a number of years both Homestake and Prime have not had exploration success in
Canada outside of the boundaries of the Eskay Creek mine, in spite of joint
venture exploration efforts that have gone on for a number of years at a cost of
approximately US$6.7 million. Notwithstanding that lack of success, Homestake
believes that the Eskay Creek area has good exploration potential. Finally, the
Homestake Board noted that there have been very few opportunities for quality
acquisitions in Canada that would not be dilutive to Prime Shareholders, despite
an intensive search by Homestake and Prime over the past several years. The
Homestake Board believes that expansion by Prime beyond Canada would not be a
cost-effective alternative. Development of an effective international
exploration and operations organization takes many years at a considerable cost.
International exploration is very expensive, and competition for good properties
is intense, especially in areas with good potential and relatively low political
risk.
Homestake owns interests in 16 mines, of which it manages 11. As a result,
Homestake has expertise in managing a wide variety of mining operations in many
locations throughout the world. A number of the Homestake mines are young and
developing, with excellent potential for substantial addition to reserves.
Several of Homestake's mines, including the Hemlo, Super Pit, Plutonic and
Darlot/Centenary mines, are long-lived operations. In recent years, Homestake
has been successful in substantially reducing its cash cost per gold equivalent
ounce, although Homestake's average cash cost per gold equivalent ounce is
higher than that of Prime. In addition, Homestake possesses a large exploration
portfolio, with properties in highly prospective areas in Nevada, Western
Australia, South America, and Eastern Europe. Homestake also has an experienced
exploration group established in principal locations in the areas of its
exploration activities.
RELATIVE PRICES AND LIQUIDITY OF STOCK; OTHER STOCK MARKET
CONSIDERATIONS. The Homestake Board considered the relative prices of the two
companies' shares as one aspect of its evaluation. Homestake's proposal
represents a 23.2% premium to the market price of Prime Common Shares on the
last trading day for the two stocks prior to the initial proposal on May 25,
1998. The Homestake Board believes that the premium is not comparable with other
transactions partly for the reason that Prime has historically traded at a
higher price relative to its peer companies based, in part, upon the market
expectation that at some time Homestake would offer to acquire the Prime Common
Shares not owned by it. In addition, Prime does not have substantial amounts of
mineralized material that have the potential for conversion to reserves. The
Homestake Board also considered the relative liquidity of Prime Common Shares as
compared to that of Homestake Common Stock, and noted that the trading volume
for Homestake Common Stock is approximately eight to ten times the trading
volume for Prime Common Shares. Because Prime Common Shares trade at a much
lower relative volume as compared with Homestake Common Stock, it is much more
difficult to liquidate substantial amounts of Prime Common Shares during a
relatively short period of time.
The Homestake Board also considered the fact that, until recently, Homestake
Common Stock has traded at multiples that were significantly lower than those of
other major North American producers, principally Barrick Gold Corporation,
Newmont Mining Corporation and Placer Dome Inc. During the past year and
particularly during the several months prior to and after completion of the
acquisition of Plutonic, Homestake's stock price has improved relative to the
stock prices of the other three major North American producers. The Homestake
Board believes that there is a good opportunity for even greater improvement in
the relative price of Homestake Common Stock as the market increasingly
recognizes the restored growth profile for Homestake, the excellent exploration
potential of Homestake's Western Australian properties, the continued reduction
in Homestake's costs, its healthy balance sheet and cash flow, and the low
political risk profile for Homestake.
SYNERGIES AND COST SAVINGS. In considering the Arrangement, the Homestake
Board recognized that the synergies and cost savings potential are limited.
Since Homestake already manages Prime, there is a
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limited opportunity to eliminate redundant activities. Although there is some
potential for savings due to the elimination of the costs associated with Prime
being a publicly reporting company, those savings are modest. The Homestake
Board also considered that there are some potential tax synergies that are,
principally due to the planned amalgamation of Prime and HCI, which will result
in a modest reduction of total provincial income taxes.
ACCOUNTING TREATMENT. The Arrangement will be accounted for as a purchase.
Based on the estimated purchase price of US$335 million, Homestake would have an
excess purchase price over the book value of the related assets of US$235.1
million. After taking into account the related increase in deferred taxes of
US$91 million required under U.S. GAAP, Homestake expects to allocate US$276.1
million to proven and probable reserves at Eskay Creek. In addition, after
taking into account the related increase in deferred taxes of US$24.6 million
required under U.S. GAAP, Homestake expects to allocate US$74.6 million to
unproven mineral properties at Eskay Creek. The amortization rate for that
portion of the excess purchase price allocated to reserves currently is
estimated at US$145 per ounce with an offsetting credit to income tax expense of
US$48 per ounce. This additional amortization, computed on 100% of Eskay Creek's
future production, will increase Homestake's reported Eskay Creek noncash costs
by approximately US$48 per gold equivalent ounce and will increase Homestake's
consolidated reported noncash costs by approximately US$8 per gold equivalent
ounce. Homestake will amortize excess purchase price allocated to unproven
mineral properties on a units-of-production basis to the extent proven and
probable reserves are identified, or will expense the excess purchase price if
and when and to the extent the carrying value of an unproven property is
determined to be not recoverable. Consequently, the effect of the Arrangement
will be to increase Homestake's noncash cost and total cost per ounce of the
production from known reserves. As a consequence, the transaction initially is
expected to be dilutive to earnings. In addition, it will be necessary to have
substantial exploration success for Homestake to recover excess purchase price
allocable to exploration property. Failure to fully recover excess purchase
price allocable to exploration property will also be dilutive.
BENEFITS TO HOMESTAKE STOCKHOLDERS AND PRIME SHAREHOLDERS. Taking all
factors into consideration, the Homestake Board believes that both the Homestake
Stockholders and the Prime Shareholders will benefit from the transaction.
Homestake Stockholders will benefit by having 100% ownership of the Eskay
Creek mine, one of the world's premier gold and silver mines and one of Canada's
highest-grade and lowest-cost operations. Since Homestake already manages the
Prime operations, the acquisition of the remaining Prime Common Shares will
allow Homestake to increase its reserves and equity production without any
increase in administrative costs or burden. The transaction will increase
Homestake's reserves by approximately 2.1 million gold equivalent ounces at
December 31, 1997, to a total of 22.3 million gold equivalent ounces.
Acquisition of the Prime minority interest also will benefit Homestake in terms
of total equity production growth and the reduction of total cash cost per ounce
of equity production. With the additional approximately 200,000 ounces of annual
equity production, Homestake's total equity production is expected to be
approximately 2.3 million gold equivalent ounces at a total cash cost of US$206
per ounce for 1999 (based on current exchange rates of approximately
A$1.00=US$.60 and C$1.00=US$.67). Homestake also will benefit from direct access
to Prime's cash position and its continued generation of cash in the current low
gold price environment. The combined company's strong balance sheet and cash
flow should permit the combined company to easily manage debt service and
provide increased opportunities for timely asset acquisitions in prospective
areas throughout the world. Unification of Homestake's presence in Canada also
will eliminate potential conflict of interest problems that can arise as a
result of Homestake having both independent operations and its interest in Prime
in Canada. The Arrangement also will broaden and diversify Homestake's Canadian
stockholder base and, through the medium of the HCI Exchangeable Shares, will
provide, in effect, a trading market for Homestake Common Stock in Canada.
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These benefits are offset in part by the high tax rates in Canada, as well
as the increase in Homestake's noncash costs. The increase in reported noncash
costs per ounce is estimated at approximately US$48 per gold equivalent ounce
for Homestake's reported Eskay Creek production and approximately US$8 per gold
equivalent ounce for Homestake's total production. In addition, Homestake must
discover and mine additional reserves sufficient to generate US$50 million in
pre-tax income in order to recover the excess purchase price allocated to
unproven mineral properties.
The Homestake Board believes that the Prime Shareholders will benefit by
receipt of an immediate premium to the market price of their investment. They
also will benefit by ownership in a company with diverse international
operations and experience, a number of long-lived mines, excellent exploration
potential in a number of highly prospective areas and the potential and
characteristics described above. They will have immediate liquidity in their
investments that is much greater than the liquidity in Prime Common Shares.
Canadian shareholders of Prime also will have the opportunity to acquire that
investment with maximum tax flexibility, as a result of the choice between HCI
Exchangeable Shares and Homestake Common Stock.
RECOMMENDATION OF THE HOMESTAKE BOARD
After considering the matter, including all of the factors described above,
the Homestake Board believes that the transaction is in the best interests of
the Homestake Stockholders. ACCORDINGLY, THE HOMESTAKE BOARD RECOMMENDS THAT THE
HOMESTAKE STOCKHOLDERS ADOPT THE RESTATED CERTIFICATE IN ORDER TO AUTHORIZE THE
ADDITIONAL SHARES OF HOMESTAKE COMMON STOCK REQUIRED TO IMPLEMENT THE
ARRANGEMENT.
HOMESTAKE AFTER THE ARRANGEMENT
Following the Arrangement, Homestake plans to continue its existing
substantial exploration program. Homestake will continue to focus on its best
prospects, particularly the Australian properties recently acquired through its
acquisition of Plutonic and the area in the vicinity of the Eskay Creek mine. In
addition, Homestake expects to continue evaluating prospects for acquisitions
and mergers with a view toward acquiring attractive companies and properties
that will enhance value for the Homestake Stockholders. That may include
additional acquisitions in Canada which, in appropriate circumstances, may
involve the issuance of additional HCI Exchangeable Shares.
Homestake (through HCI) already manages Prime's business and management
activities. As a result, Homestake anticipates that there will not be
significant changes in management activities, except for changes resulting from
Prime ceasing to be a separate publicly held corporation. The existing officers
and directors of Homestake will continue to hold their respective positions
following the Arrangement. See "Homestake Management."
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENT
PRIME STOCK OPTIONS
Each of the Prime Outside Directors (Messrs. Anderson, Lenczner, Little and
Scott) holds options to acquire 10,000 Prime Common Shares, of which 5,000 are
exercisable at a price of C$8.50 per share and 5,000 are exercisable at a price
of C$9.55 per share. All of the options are vested or will vest as a result of
the Arrangement. Each Outside Director must elect, during the period beginning
five days prior to the Prime Special Meeting and ending on the Effective Date,
either to exercise his options or to receive from Prime cash equal to the
difference between the option exercise price and the higher of (x) the market
price of Prime Common Shares on the date of such election and (y) the market
price of the Prime Common Shares on the Effective Date. Consequently, following
the Arrangement, the Prime Outside Directors will not continue to hold any
options to acquire Prime Common Shares.
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COMMON DIRECTORS AND EXECUTIVE OFFICERS
The following individuals hold director or executive officer positions, or
both, in both Homestake and Prime:
<TABLE>
<CAPTION>
NAME HOMESTAKE POSITIONS PRIME POSITIONS
- ---------------------------- -------------------------------------------- --------------------------------------
<S> <C> <C>
M. Norman Anderson.......... Director Director
Gene G. Elam................ Vice President, Finance and Chief Financial Director
Officer
Wayne Kirk.................. Vice President, General Counsel and Director and Assistant Secretary
Corporate Secretary
Gillyeard J. Leathley....... Senior Vice President, Operations Director
Walter T. Segsworth......... Vice President, Canada and President and Director and President and Chief
Chief Executive Officer of HCI Executive Officer
</TABLE>
Each of the following individuals beneficially owns Homestake Common Stock
and other rights to acquire Homestake Common Stock at August 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF HOMESTAKE COMMON STOCK
SUBJECT TO OPTIONS AND
OTHER CONTINGENT RIGHTS
NUMBER OF SHARES OF TO ACQUIRE HOMESTAKE
HOMESTAKE COMMON STOCK COMMON STOCK WITHIN 60 DAYS
NAME BENEFICIALLY OWNED OF AUGUST 31, 1998
- -------------------------------------- ------------------------ ----------------------------
<S> <C> <C>
M. Norman Anderson.................... 2,529 6,686
Gene G. Elam.......................... 12,337 122,750
Gillyeard J. Leathley................. 3,831 62,425
Wayne Kirk............................ 9,250 105,500
Walter T. Segsworth................... 0 0
</TABLE>
In addition, (i) M. Norman Anderson, a director of Homestake, holds options
to acquire 5,000 Prime Common Shares at a price of C$8.50 per share and options
to acquire 5,000 Prime Common Shares at a price of C$9.55 per share (all of
which are vested or will vest pursuant to the Arrangement), and (ii) two
executive officers of Homestake who also are directors of Prime own Prime Common
Shares: Gene G. Elam owns 500 Prime Common Shares and Wayne Kirk owns 1,000
Prime Common Shares.
OTHER
Graham H. Scott and Alan J. Lenczner, and the respective law firms of which
they are partners, have provided legal services to both Prime and Homestake
during the previous five years. In 1997 and through August 1998, Homestake has
paid C$61,471 to Mr. Scott's law firm and C$64,428 to Mr. Lenczner's law firm.
All of the payments to Mr. Lenczner's law firm related to a lawsuit in which
both Prime and Homestake are defendants and in which they have agreed to share
defense costs (Homestake, 51% and Prime, 49%).
AGREEMENTS WITH HOMESTAKE
MANAGEMENT AGREEMENT
Homestake and Prime have a Management and Administrative Services Agreement,
amended and restated as of January 1, 1997 (the "Management Agreement"). Under
the Management Agreement, Homestake provides all technical, professional,
managerial, operating and administrative services required in connection with
carrying on Prime's business and operating the Eskay Creek and Snip mines. The
aggregate fees in 1997 were C$187,000 per month for these services, plus cost
reimbursement payments based upon time and resources spent by certain
non-executive personnel of Homestake. In 1997, Homestake received approximately
C$2.9 million under the Management Agreement, including C$170,000 for the
administration of the construction of the mill at the Eskay Creek mine.
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EXPLORATION PROGRAM
Effective January 1, 1995, Homestake and Prime agreed to conduct a
generative exploration program on approved properties. Prime's interest in the
program is 49% and Homestake's interest is 51%. During 1997, total expenditures
aggregated approximately C$3.5 million.
THE SPECIAL MEETINGS
PRIME
The Prime Special Meeting will be held on - , 1998.
Based upon the Valuation and Fairness Opinion, the Roscoe Postle Reports and
certain other considerations, the Prime Special Committee concluded that the
Arrangement is fair to the Prime Minority Shareholders and recommended that the
Prime Board recommend that the Prime Minority Shareholders vote in favor of the
Arrangement Resolution. All members of the Prime Board who were present and did
not abstain from voting at the meeting of the Prime Board voted in favor of the
resolution approving the Arrangement, and recommended that the Prime Minority
Shareholders vote in favor of the Arrangement Resolution.
The Arrangement Resolution must be approved by 75% of the votes cast by the
holders of Prime Common Shares in person or by proxy at the Prime Special
Meeting. Homestake owns 50.6% of the Prime Common Shares and will vote its
shares in favor of the Arrangement. In addition, pursuant to the provisions of
the Company Act and because the Arrangement constitutes a "related party
transaction" under Policy 9.1 and Policy Q-27, the Arrangement also must be
approved by not less than two-thirds of the votes cast by the Prime Minority
Shareholders at the Prime Special Meeting.
HOMESTAKE
The Homestake Special Meeting will be held on - , 1998.
The Homestake Stockholders will be asked to adopt the Restated Certificate,
which will (i) increase the number of authorized shares of Homestake Common
Stock from 250,000,000 to 450,000,000 shares, (ii) increase the number of
authorized shares of Series A Preferred Stock (which may be issued under the
Homestake Rights Agreement) from 2,500,000 to 4,500,000 shares, (iii) create one
share of Special Voting Stock and (iv) make certain technical changes, primarily
to reflect the existence of the Special Voting Stock.
The Homestake Board has approved the Restated Certificate and has approved
the Arrangement as being in the best interests of Homestake and its
stockholders. The Homestake Board has unanimously recommended that the Homestake
Stockholders vote for the proposal to adopt the Restated Certificate.
Approval of the proposal to adopt the Restated Certificate requires the
approval of a majority of the shares of Homestake Common Stock outstanding on
the Homestake Record Date.
DISSENTERS' RIGHTS
PRIME
The Company Act does not contain a provision requiring Prime to purchase
Prime Common Shares from Prime Shareholders who dissent to the Arrangement.
However, Homestake and Prime have granted to Prime Shareholders who object to
the Arrangement Resolution a Dissent Right in respect of the Arrangement. While
the terms of such Dissent Right are analogous to the dissenting shareholder
provisions of the Company Act, they are not identical.
A Prime Shareholder who wishes to exercise a Dissent Right must give a
Dissent Notice to Prime by delivering such Dissent Notice to Prime, or mailing
it to Prime by registered mail, at its head office at 1100-1055 West Georgia
Street, Vancouver, British Columbia V6E 3P3 in all cases so that it is received
by Prime at least 48 hours before the Prime Special Meeting. To be valid, a
Dissent Notice must:
(a) state that the Prime Shareholder is exercising a Dissent Right, and
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(b) specify the number of Prime Common Shares in respect of which such Prime
Shareholder is exercising a Dissent Right.
If Prime proceeds with the Arrangement, the Dissenting Shareholder is entitled
to require Prime to purchase all of the Prime Common Shares in respect of which
the Dissent Notice was given.
The giving of a Dissent Notice does not deprive a Prime Shareholder of the
right to vote at the Prime Special Meeting. A vote against the Arrangement
Resolution or the execution or exercise of a proxy does not constitute a Dissent
Notice.
A Prime Shareholder is entitled to exercise a Dissent Right with respect to
any Prime Common Shares that such shareholder does not vote (or is deemed by
submission of any incomplete proxy, to have instructed his, her or its proxy
holder to vote) in favor of the Arrangement Resolution.
If the Arrangement Resolution is duly passed, Prime will, within ten days
after such resolution is passed, give each Dissenting Shareholder notice that
the Arrangement Resolution has been duly passed.
On receiving such notice, a Dissenting Shareholder is entitled to require
Prime to purchase all of the Prime Common Shares in respect of which the Dissent
Right is being exercised by delivering to Prime within five days after Prime
gives its notice,
(a) a notice that requires Prime to purchase all of the Prime Common Shares
in respect of which the Notice of Dissent was given; and
(b) the share certificates representing all of the Prime Common Shares in
respect of which the Dissent Notice was given,
and thereupon the Dissenting Shareholder is bound to sell those Prime Common
Shares to Prime and Prime is bound to purchase them.
The price to be paid to a Dissenting Shareholder will be the fair value of
such Prime Common Shares as of the day before the date on which the Arrangement
Resolution is approved by the Prime Shareholders. Each Dissenting Shareholder
who has complied with the Dissent Procedures will be paid the same price per
Prime Common Share.
If the Arrangement becomes effective and there are Dissenting Shareholders,
Prime will be required to determine the fair value of the Prime Common Shares
and to make a written offer to pay such amount to the Dissenting Shareholders.
If such offer is not made or accepted within 30 days after the Effective Date,
Prime may apply to the British Columbia Supreme Court to fix the fair value of
the Prime Common Shares. Prime has no obligation to apply to the British
Columbia Supreme Court. If Prime fails to make such an application, a Dissenting
Shareholder has the right to so apply within a further 20 days. On any such
application to the British Columbia Supreme Court,
(a) all Dissenting Shareholders will be joined as parties and will be
bound by the decision of the Court, and
(b) Prime will notify each affected Dissenting Shareholder of the date,
place and consequences of the application and of the right to be
heard in person or by counsel.
On any such application to the British Columbia Supreme Court, the British
Columbia Supreme Court will fix the fair value per share for the Prime Common
Shares of all Dissenting Shareholders and each Dissenting Shareholder will be
entitled to be paid such amount.
Any notice required to be given by Prime or a Dissenting Shareholder to the
other in connection with the exercise of the Dissent Right will be deemed to
have been given on the day of delivery (if personally delivered), or on the
earlier of the day of receipt and the fifth Business Day after the day of
mailing (if mailed), or on the first Business Day after the day of transmittal
if sent by telecopier or other similar form of transmission.
A Prime Shareholder who properly exercises the Dissent Right by complying
with all of the Dissent Procedures will:
(a) be deemed not to have participated in the Arrangement, and
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<PAGE>
(b) as of the Effective Date cease to have any rights as a Prime
Shareholder other than the right to be paid the fair value for Prime
Common Shares in accordance with the Dissent Procedures.
A Prime Shareholder who initially seeks to exercise the Dissent Right, but
(a) who for any reason does not properly comply with each of the Dissent
Procedures required to be complied with by a Dissenting Shareholder,
or
(b) subsequent to giving a Dissent Notice, acts inconsistently with such
dissent
will be deemed to have participated in the Arrangement on the same basis as each
non-dissenting Prime Shareholder and will be issued, as of the Effective Date,
such HCI Exchangeable Shares as the shareholder is entitled to receive under the
Arrangement, together with the Additional Amount, if any, and a cash payment in
lieu of fractional shares.
PRIME SHAREHOLDERS SHOULD CONSULT THEIR LEGAL ADVISORS WITH RESPECT TO THE
LEGAL RIGHTS AVAILABLE TO THEM IN RELATION TO THE ARRANGEMENT AND THE DISSENT
RIGHT.
HOMESTAKE
Homestake Stockholders have no dissenters' appraisal rights in connection
with the Arrangement or the proposal to adopt the Restated Certificate.
COURT APPROVAL OF THE ARRANGEMENT AND COMPLETION OF THE ARRANGEMENT
An arrangement under the Company Act also requires approval by the British
Columbia Supreme Court. Prior to the mailing of the Prime Information Circular
to the Prime Shareholders, Prime obtained the Interim Order providing for the
calling and holding of the Prime Special Meeting and other procedural matters. A
copy of the Interim Order and the Notice of Application for Final Order are
attached hereto as Appendix G.
Subject to the requisite approval of the Arrangement by the Prime
Shareholders, including the Prime Minority Shareholders, at the Prime Special
Meeting, the hearing in respect of the Final Order is scheduled to take place on
- , 1998 at 9:45 a.m. (Vancouver time) in the Court at 800 Smithe Street,
Vancouver, British Columbia V6Z 2E1. All Prime Shareholders who wish to
participate or be represented or to present evidence or arguments at that
hearing must serve and file a notice of appearance as set out in the Notice of
Application for Final Order and satisfy any other requirements. At the hearing
of the motion in respect of the Final Order, the British Columbia Supreme Court
will consider, among other things, the fairness and reasonableness of the
Arrangement. The British Columbia Supreme Court may approve the Arrangement as
proposed or as amended in any manner and subject to such conditions as the court
may specify.
If the Final Order is granted and the other conditions to the Arrangement
Agreement are satisfied or waived, it is anticipated that immediately
thereafter: (i) a certified copy of the Final Order will be filed with the
Registrar of Companies for British Columbia to give effect to the Arrangement;
(ii) the Trust Agreement will be executed and delivered; and (iii) the various
other documents necessary to consummate the transactions contemplated under the
Arrangement Agreement will be executed and delivered. It is presently
anticipated that the Effective Date will occur on or about - .
ACCOUNTING TREATMENT
Homestake will account for the Arrangement as a purchase in accordance with
U.S. GAAP. Under this method of accounting, Homestake's cost of acquiring the
49.4% of Prime not already owned by Homestake is determined by the value of the
Homestake Common Stock and HCI Exchangeable Shares issued (plus cash for
fractional shares), plus the direct costs associated with the Arrangement, which
are estimated at approximately US$5 million. The value of an HCI Exchangeable
Share is expected to be equivalent to the value of a share of Homestake Common
Stock. See "The Arrangement--RBCDS Valuation and Fairness Opinion" and
"Unaudited Pro Forma Condensed Consolidated Financial Information."
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<PAGE>
With the exception of property, plant and equipment, the assets and
liabilities of Prime included in Homestake's consolidated financial statements
primarily consist of working capital items, the carrying values of which are
substantially at fair market value. Based on Homestake's experience at Eskay
Creek, Homestake expects to allocate the excess of the purchase price paid over
the net book value of the assets acquired ("excess purchase price") to the Eskay
Creek mineral properties (with related increases in deferred taxes and in the
carrying value of mineral properties in accordance with U.S. GAAP). Based on the
estimated purchase price of US$335 million and an excess purchase price of
US$235.1 million, Homestake expects to allocate US$185.1 million of excess
purchase price to proven and probable reserves at Eskay Creek (which, including
a related increase in deferred taxes of US$91 million, results in an increase of
US$276.1 million in the carrying value of mineral properties), and US$50 million
of excess purchase price to unproven mineral properties at Eskay Creek (which,
including a related increase in deferred taxes of US$24.6 million, results in an
increase of $74.6 million in the carrying value of unproven mineral properties).
The final allocation of the purchase price will be made when the acquisition is
completed.
Homestake will amortize excess purchase price allocated to proven and
probable reserves on a units-of-production basis. The amortization rate for that
portion of the excess purchase price currently is estimated at US$145 per gold
equivalent ounce with an offsetting credit to income tax expense of US$48 per
gold equivalent ounce, computed on the minority interests' 49.4% share of Eskay
Creek's future production. This additional amortization, computed on 100% of
Eskay Creek's future production, will increase Homestake's reported Eskay Creek
noncash costs by approximately US$48 per gold equivalent ounce and will increase
Homestake's consolidated reported noncash costs by approximately US$8 per gold
equivalent ounce. Since Homestake already consolidates Prime and historically
has reported cash costs including minority interests' share of production, the
acquisition of the Prime minority interests will have no impact on Homestake's
reported cash costs per gold equivalent ounce.
Homestake will amortize the excess purchase price allocated to unproven
mineral properties on a units-of-production basis to the extent proven and
probable reserves are identified, or will expense the excess purchase price if
and when and to the extent the carrying value of the unproven properties are
determined to be impaired.
STOCK EXCHANGE LISTINGS
HOMESTAKE COMMON STOCK
Homestake Common Stock is listed on the NYSE, the Australian Stock Exchange
and the Swiss Stock Exchanges (Basel, Geneva and Zurich), and Homestake has made
application to list the additional shares of Homestake Common Stock that will be
issued in connection with the Arrangement on the NYSE.
HCI EXCHANGEABLE SHARES
The TSE has conditionally approved the listing of the HCI Exchangeable
Shares, subject to the satisfaction of the customary requirements of the TSE,
including minimum distribution requirements. If the distribution requirements of
the TSE are not met, HCI will attempt to obtain the listing of the HCI
Exchangeable Shares on another stock exchange in Canada.
FUTURE ISSUANCE OF AUTHORIZED SHARES
In the transaction, Homestake expects to issue, or reserve for issuance on
exchange of HCI Exchangeable Shares, a total of approximately 27,811,300
additional shares of Homestake Common Stock. Although a principal purpose of the
adoption of the Restated Certificate is to create the shares needed to complete
the Arrangement, another important purpose is to provide additional authorized
capital stock that may be issued in future acquisitions and for other corporate
purposes, including but not limited to equity financings, convertible security
financings, stock dividends and stock splits. In addition, the creation of the
Special Voting Stock will give Homestake a mechanism to complete acquisitions
and other transactions in Canada that can provide favorable tax and other
characteristics for Canadian residents. The Homestake Board will have the
ability to authorize the issuance of the additional shares of Homestake Common
Stock
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in acquisitions and other transactions in its sole discretion and without the
delay and expense associated with obtaining stockholder approval, except where
stockholder approval for such issuance is required by applicable stock
exchanges. The NYSE, on which Homestake Common Stock is listed, currently
requires stockholder approval for the issuance of shares in certain
circumstances, including (i) where the issuance could increase the number of
outstanding shares by more than 20 percent, or (ii) transactions or the adoption
of certain plans and programs involving the issuance of common stock to officers
or directors.
Homestake has reserved shares of Homestake Common Stock for issuance under
stock option and share rights plans and on conversion of Homestake's Convertible
Subordinated Notes. In addition, Homestake is considering refinancing its
existing Convertible Subordinated Notes in the principal amount of
US$149,995,000 with a new issue of convertible notes, including the possibility
of increasing the total amount thereof. At the Homestake Special Meeting,
Homestake Stockholders also are being asked to approve a 1998 Outside Directors'
Stock Compensation Plan that provides for the issuance of up to 250,000 shares
of Homestake Common Stock. With these exceptions, and except for the shares to
be issued pursuant to the Arrangement, Homestake does not currently have any
plans, commitments or undertakings to issue additional shares of Homestake
Common Stock or to cause HCI to issue additional HCI Exchangeable Shares.
However, Homestake continues to actively evaluate possible acquisitions and will
effect one or more such transactions if the Homestake Board determines that such
transactions are in the best interests of the Homestake Stockholders.
DESCRIPTION OF HOMESTAKE COMMON STOCK
Holders of Homestake Common Stock are entitled to one vote per share on all
matters requiring their vote, except for matters exclusively reserved for the
vote of holders of Homestake Preferred Stock. No Homestake Preferred Stock
currently is outstanding. Holders of HCI Exchangeable Shares will be entitled to
one vote per share on all matters as to which holders of Homestake Common Stock
are entitled to vote. Voting by holders of HCI Exchangeable Shares will be
effected through instructions given to the Trustee, as the holder of the Special
Voting Stock, under the Trust Agreement. Homestake Common Stock and the Special
Voting Stock will vote as a single class of stock, except as otherwise required
by applicable law or the Restated Certificate. Directors will be elected by a
plurality of the votes cast by the record holders of the Homestake Common Stock
and the Trustee, as the holder of the Special Voting Stock (as directed by the
holders of the HCI Exchangeable Shares under the Trust Agreement) and a majority
of the votes entitled to be cast will be able to elect all directors.
Holders of Homestake Common Stock are entitled to receive dividends if, when
and as declared by the Homestake Board from funds legally available. Under the
Trust Agreement, Homestake may not declare and pay dividends on Homestake Common
Stock unless an equivalent amount per share (which will be paid in Canadian
dollars) is declared and paid by HCI on the HCI Exchangeable Shares. Any such
dividend rights are subject to the dividend rights of holders of any Homestake
Preferred Stock that may be issued in the future.
Homestake Common Stock is not redeemable and does not have conversion or
pre-emptive rights. HCI Exchangeable Shares will only be retractable and
redeemable for shares of Homestake Common Stock. HCI Exchangeable Shares will
not have pre-emptive rights.
Under the Homestake Rights Agreement, each share of Homestake Common Stock
trades with a Homestake Right. Homestake Rights are not exercisable currently.
Homestake Rights will become exercisable on a date designated by the Homestake
Board following the commencement of, or an announcement of an intent to
commence, a tender offer by any person, entity or group for 15% or more of the
Homestake Common Stock and the HCI Exchangeable Shares, considered as a single
class. When so exercisable, each Homestake Right initially entitles the owner to
purchase from Homestake one one-hundredth of a share of Series A Preferred
Stock, at a price of US$75 (the "Purchase Price"). Each one-hundredth of a share
of Series A Preferred Stock is equivalent to one share of Homestake Common Stock
with respect to voting and liquidation rights and dividends and distributions.
In addition, if any person, entity or group (an "Acquiring Person") acquires 15%
or more of the Homestake Common Stock and the
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HCI Exchangeable Shares, considered as a single class, each Homestake Right
(whether or not previously exercisable) thereafter entitles the owner (other
than an Acquiring Person or its affiliates and associates) to purchase for the
Purchase Price the number of one one-hundredths of a share of Series A Preferred
Stock equal to the Purchase Price divided by one-half of the market price of the
Homestake Common Stock. In lieu of permitting Homestake Rights to be exercised,
the Homestake Board has the option to issue, in exchange for each Homestake
Right, one-half of the number of shares of Series A Preferred Stock that would
be issuable on exercise of the Homestake Right (or Homestake Common Stock having
a value equal to the Purchase Price). If the Homestake Board has not exchanged
shares for the Homestake Rights and Homestake engages in a business combination
with an Acquiring Person (or affiliate or associate thereof), the holder of
Homestake Rights will be entitled to purchase for the Purchase Price (i) common
stock of the surviving company or its publicly held affiliate having a market
value equal to twice the Purchase Price, or (ii) common stock of the surviving
company having a book value equal to twice the Purchase Price if the surviving
company and its affiliates are not publicly held. The number of shares and the
Purchase Price are subject to adjustment for stock dividends, stock splits and
other changes in capitalization. The Homestake Rights expire on October 15,
2007.
Each HCI Exchangeable Share will trade with an HCI Right issued under an HCI
Rights Agreement. The HCI Rights will entitle their holders to acquire
additional HCI Exchangeable Shares at the same price and in the same amounts and
circumstances in which the holders of Homestake Rights are entitled to acquire
Homestake shares.
The Homestake Certificate currently authorizes the Homestake Board to issue
up to 10,000,000 shares of Homestake Preferred Stock in one or more series and
to fix the number, voting power, designations, preferences and relative,
participating, optional and other rights of each series. To date, the Homestake
Board has established the Series A Preferred Stock, with 2,500,000 shares
authorized, none of which have been issued. The Series A Preferred Stock may be
issued if the Homestake Rights become exercisable. The Restated Certificate will
increase the authorized number of shares of Series A Preferred Stock to
4,500,000 shares.
If the Homestake Stockholders adopt the Restated Certificate (and regardless
of whether the Arrangement is completed), the Restated Certificate will become
effective upon its filing with the Delaware Secretary of State, which is
expected to take place promptly after the Homestake Special Meeting.
POSSIBLE EFFECT OF INCREASE IN AUTHORIZED SHARES
One result of the proposed increase in the number of shares authorized for
future issuance is that it may help discourage or make more difficult a change
in control of Homestake. The additional shares could be used under certain
circumstances to dilute the voting power of, create voting impediments for or
otherwise frustrate the efforts of persons seeking to effect a takeover or gain
control of Homestake, whether or not the change of control is favored by a
majority of unaffiliated stockholders. For example, such shares could be
privately placed with purchasers who might side with the Homestake Board in
opposing a hostile takeover bid. Homestake has other defenses available against
acts of third parties that are designed to effect a change in control of
Homestake.
Any issuance of Homestake Common Stock or HCI Exchangeable Shares would
have, and any issuance of Homestake Preferred Stock could have, the effect of
reducing the percentage voting interests of previously outstanding Homestake
Common Stock. It is not possible to predict in advance whether the issuance of
additional shares will have a dilutive effect on earnings per share as it
depends on the specific circumstances of a particular transaction.
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THE ARRANGEMENT AGREEMENT
The following is a summary of the material terms of the Arrangement
Agreement. Shareholders are urged to read in its entirety the Arrangement
Agreement, which is attached as Appendix B to this Supplement.
COMPLETION OF THE ARRANGEMENT
If the Arrangement Resolution is passed at the Prime Special Meeting in
accordance with the Interim Order, Prime will take the necessary steps to submit
the Arrangement to the British Columbia Supreme Court and apply for the Final
Order. If the Final Order is obtained, subject to the satisfaction, waiver or
release of the conditions to closing, Prime will, in consultation with
Homestake, file a certified copy of the Final Order for acceptance by the
Registrar to give effect to the Arrangement. See "--Conditions."
REPRESENTATIONS AND WARRANTIES
The Arrangement Agreement contains certain customary representations and
warranties of each of Prime, HCI, HCH and Homestake relating to, among other
things, their due incorporation, their respective organization, qualification,
and capital structure, the accuracy of their filings with securities regulatory
authorities, the receipt of waivers or consents required to give effect to the
Arrangement and the possession by them of the necessary authority to enter into
the Arrangement Agreement and to complete the Arrangement. Homestake and HCI
have provided representations and warranties as to the valid issuance of the
shares of Homestake Common Stock and HCI Exchangeable Shares, respectively,
issuable in connection with the Arrangement. In addition, Homestake has provided
further representations and warranties regarding authorized capital, the absence
of material litigation, the conduct of business in the ordinary course, the
absence of material environmental liabilities, the possession of material
environmental permits, the possession of good and marketable title to its
material properties, the proper presentation of reserves set forth in its most
recent Annual Report on Form 10-K, the possession of adequate insurance
policies, the proper presentation of financial statements in accordance with
U.S. GAAP, compliance with applicable laws, lack of defaults under material
contracts and the timely payment of taxes and filing of tax returns.
COVENANTS
Each of Prime on the one hand, and Homestake, HCI and HCH, on the other, has
agreed that, without the prior written agreement of the other (such agreement
not to be unreasonably withheld), its business will be conducted and operated in
the ordinary course consistent with past practice and that it will not enter
into any arrangement or perform any act which might interfere with, or be
inconsistent with, the successful completion of the Arrangement. Each of Prime,
Homestake, HCI and HCH has agreed to cooperate and use reasonable efforts to
obtain all consents, orders and approvals necessary for the consummation of the
Arrangement and to satisfy each of the conditions to be satisfied by it under
the Arrangement Agreement.
Prime also has agreed that, unless otherwise agreed to by Homestake in
writing, it will not allot or issue any shares or enter into or have outstanding
any subscriptions, warrants, options or other agreements or commitments
obligating it to issue any shares.
Prime has agreed that unless otherwise agreed to by Homestake in writing, it
will not (a) declare, set aside or pay any dividends on (other than in the
normal course), or make any other distributions in respect of, any of its
capital stock; (b) subdivide, consolidate or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in its capital stock
in respect of, in lieu of or in substitution for shares of its capital stock;
(c) purchase, redeem or otherwise acquire any shares of capital stock of Prime
or any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities, other than pursuant to the Prime Outside
Director Plan; and (d) amend the Prime Memorandum or Prime Articles.
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Each of Homestake, HCI and HCH has agreed to use its reasonable efforts (a)
to cause the HCI Exchangeable Shares issuable pursuant to the Arrangement to be
conditionally approved for listing on the TSE or another Canadian stock exchange
by the Effective Date, and (b) to cause the shares of Homestake Common Stock
issuable pursuant to the Arrangement to have been approved for listing by the
NYSE by the Effective Date, subject to notice of issuance.
CONDITIONS
Completion of the Arrangement is subject to the satisfaction or waiver of,
or release from, the following conditions.
MUTUAL CONDITIONS. The mutual conditions are as follows: (a) the Interim
Order in form and substance satisfactory to each of the parties shall have been
received (satisfied on - , 1998); (b) the Arrangement Resolution, with or
without amendment, shall have been approved at the Prime Special Meeting in
accordance with the Interim Order; (c) the Final Order shall have been obtained
in form satisfactory to each of the parties acting reasonably; (d) registration
statements of Homestake and HCI, if filed, shall have been declared effective
under the Securities Act and shall not be the subject of any stop-order or
proceedings seeking a stop-order, and the Prime Information Circular shall on
the Effective Date not be subject to any similar proceedings commenced or
threatened by the SEC, the BCSC or other relevant securities regulatory
authorities; (e) the parties shall be satisfied, acting reasonably, that all
regulatory filings have been made, rulings and orders obtained, and other
proceedings taken so that the HCI Exchangeable Shares and shares of Homestake
Common Stock issuable pursuant to the Arrangement Agreement will be qualified
for issuance under applicable securities laws and "freely tradable" at the
Effective Date, subject to customary restrictions; (f) no order or decree of a
court or governmental authority and no law or regulation shall have been made,
issued or applied to enjoin or impose material limitations on the Arrangement;
(g) there shall be no prohibition at law against completing the Arrangement; (h)
the Arrangement Agreement shall not have been terminated; and (i) the Restated
Certificate shall have been adopted by the Homestake Stockholders. Prime,
Homestake, HCI and HCH all must agree to the waiver of any these conditions.
CONDITIONS IN FAVOR OF HOMESTAKE, HCI AND HCH. The conditions in favor of
Homestake, HCI and HCH are as follows: (a) the representations and warranties of
Prime in the Arrangement Agreement shall be true and correct as of the Effective
Date; (b) Prime shall have performed and complied in all material respects with
all of its covenants required to be performed by it under the Arrangement
Agreement and the Plan of Arrangement on or before the Effective Date, and
Homestake, HCI and HCH shall receive a certificate to such effect signed by a
Vice President or the Chief Financial Officer of Prime; (c) since the date of
the Arrangement Agreement, there shall not have been one or more events or
changes that has had or would be reasonably likely to have a Material Adverse
Effect on Prime and neither Prime, nor any of its subsidiaries, shall have taken
any action which would have a Material Adverse Effect on Prime; and (d) there
shall be no more than 3,758,291 Dissenting Shares in the aggregate. Homestake,
HCI and HCH each has the right to waive any of these conditions on its behalf.
CONDITIONS IN FAVOR OF PRIME. The conditions in favor of Prime are: (a) the
representations and warranties of Homestake, HCI and HCH in the Arrangement
Agreement shall be true and correct as of the Effective Date; (b) Homestake
shall have amended the Homestake Rights Agreement in the manner contemplated in
the Arrangement Agreement and HCI shall have adopted the HCI Rights Agreement;
(c) Homestake, HCI and HCH shall have performed and complied in all material
respects with all of their covenants required to be performed by them under the
Arrangement Agreement and the Plan of Arrangement on or before the Effective
Date, and Prime shall receive a certificate to such effect signed by a Vice
President or the Chief Financial Officer of Homestake; (d) the HCI Exchangeable
Shares issuable pursuant to the Arrangement shall have been conditionally
approved for listing on the TSE, or another Canadian exchange, by the Effective
Date and the shares of Homestake Common Stock issuable pursuant to the
Arrangement shall have been approved for listing on the NYSE by the Effective
Date, subject to notice of issuance; (e) since the date of the Arrangement
Agreement, there shall not have been one or
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more events or changes that has had or would be reasonably likely to have a
Material Adverse Effect on Homestake, HCI and HCH and neither Homestake, nor any
of its subsidiaries, shall have taken any action which would have a Material
Adverse Effect on Homestake; and (f) Prime shall have received opinions
satisfactory to it from counsel to Homestake in respect of Homestake Common
Stock, and from counsel to HCI in respect of HCI Exchangeable Shares, to the
effect that the shares of Homestake Common Stock and HCI Exchangeable Shares,
respectively, issuable pursuant to the Arrangement Agreement, will, when issued,
be duly and validly issued and fully paid and non-assessable. Prime has the
right to waive any of these conditions.
TERMINATION
The Arrangement Agreement may be terminated any time prior to the Effective
Date whether before or after approval of the Arrangement by the Prime
Shareholders and the Prime Minority Shareholders or the adoption of the Restated
Certificate by the Homestake Stockholders: (a) by mutual agreement; (b) by
Prime, if there has been a breach of any representation, warranty, covenant, or
agreement set forth in the Arrangement Agreement on the part of Homestake, HCI
or HCH or if any representation or warranty of Homestake, HCI and HCH shall have
become untrue, in either case which has or is reasonably likely to have a
Material Adverse Effect on Homestake and which Homestake, HCI or HCH, as the
case may be, fails to cure within 15 Business Days after written notice thereof
from Prime (except that no cure period shall be provided for a breach by
Homestake, HCI or HCH which by its nature cannot be cured); (c) by Homestake,
HCI or HCH if there has been a breach by Prime of any representation, warranty,
covenant or agreement set forth in the Arrangement Agreement on the part of
Prime or if any representation or warranty of Prime shall have become untrue, in
either case, which has or is reasonably likely to have a Material Adverse Effect
on Prime and which Prime fails to cure within 15 Business Days after written
notice thereof from Homestake (except that no cure period shall be provided for
a breach by Prime which by its nature cannot be cured); (d) by any party
(provided that such party is not then in breach of the Arrangement Agreement) if
the Prime Shareholders do not approve the Arrangement by the requisite
majorities at the Prime Special Meeting or the Homestake Stockholders do not
adopt the Restated Certificate; (e) by either Prime or Homestake, if all the
conditions to the completion of the Arrangement have not been satisfied or
waived on or before 5:00 p.m. (Vancouver time) on March 1, 1999, other than as a
result of a breach of the Arrangement Agreement by the terminating party; and
(f) by any party, if a permanent injunction or other order by any U.S. or
Canadian federal, provincial or state court has been issued and becomes final
and non-appealable which would (i) make illegal or otherwise restrain or
prohibit the consummation of the Arrangement; (ii) prohibit ownership or
operation by Homestake, HCI or HCH of all of the business or assets of Prime; or
(iii) compel Homestake, HCI or HCH to dispose of or hold separate all or any
material portion of the business or assets of Prime.
MECHANICS OF THE ARRANGEMENT
PLAN OF ARRANGEMENT
The Plan of Arrangement is attached as Appendix C to this Supplement. The
Plan of Arrangement provides for the acquisition of all issued and outstanding
Prime Common Shares, other than the Prime Common Shares held by HCI, in exchange
for HCI Exchangeable Shares and Homestake Common Stock.
Under the Plan of Arrangement, if all conditions to the implementation of
the Arrangement (including the approval of the Arrangement Resolution by the
Prime Shareholders (including the Prime Minority Shareholders) and the adoption
of the Restated Certificate by the Homestake Stockholders) have been satisfied
or waived, the following will occur in the following order on the Effective
Date:
(a) each Prime Common Share other than Prime Common Shares held by (i)
HCI, (ii) Prime Shareholders who elect the direct exchange option for
Homestake Common Stock described in (b) below; and (iii) Prime Shareholders
who have exercised their Dissent Right in accordance with the Plan of
Arrangement (and who ultimately are entitled to be paid fair value for such
shares), will be acquired by HCI in exchange for 0.74 of an HCI Exchangeable
Share; and
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(b) each Prime Common Share held by a holder who so elects in the Letter
of Transmittal will be acquired by HCH in exchange for 0.74 of a share of
Homestake Common Stock.
The HCI Exchangeable Shares are described below under "Description of HCI
Share Capital" and the shares of Homestake Common Stock are described below
under "Description of Homestake Capital Stock."
Holders of Prime Common Shares who are residents of Canada for the purposes
of the Canadian Tax Act, who are not exempt from tax for the purposes of Part I
of the Canadian Tax Act or, in the case of a holder that is a partnership, where
one or more members of the partnership is such a person, and who elect to
receive HCI Exchangeable Shares will be entitled to make an income tax election
pursuant to subsection 85(1) or subsection 85(2) of the Canadian Tax Act, as
applicable by providing to HCI a completed Tax Election Filing Package,
including two signed and completed copies of the necessary election forms within
90 days following the Effective Date. HCI will sign the election forms within 30
days of receipt and, at the direction of the Prime Shareholder, will return the
election forms to the Prime Shareholder or file them on behalf of the Prime
Shareholder with Revenue Canada.
No fractional HCI Exchangeable Shares and no fractional shares of Homestake
Common Stock will be issued. In lieu of a fractional share, each former holder
of Prime Common Shares who otherwise would be entitled to receive a fractional
share will receive an amount determined by multiplying the fractional interest
to which such holder would otherwise be entitled by the average of the last
reported sales prices of Homestake Common Stock on the NYSE as reported in THE
WALL STREET JOURNAL or, if not reported therein, in another authoritative
source, for the five trading days immediately preceding the Effective Date.
Payment will be made by HCH in US dollars to persons receiving Homestake Common
Stock and by HCI in Canadian dollars to persons receiving HCI Exchangeable
Shares.
HCI EXCHANGEABLE SHARES
The HCI Exchangeable Shares will be issued by HCI. The terms of the HCI
Exchangeable Shares are set out in the HCI Exchangeable Share Provisions
attached as Appendix D to this Supplement. The HCI Exchangeable Shares are
intended to be economically equivalent to shares of Homestake Common Stock. The
HCI Exchangeable Shares will be exchangeable, at any time at the option of the
holder, on a one-for-one basis, for shares of Homestake Common Stock. By
furnishing instructions to the Trustee under the Trust Agreement, holders of HCI
Exchangeable Shares will be able to exercise essentially the same voting rights
with respect to Homestake as they would have if they had exchanged their HCI
Exchangeable Shares for Homestake Common Stock. Holders of HCI Exchangeable
Shares will also be entitled to receive from HCI dividends payable in Canadian
dollars that are economically equivalent to any cash dividends paid on the
Homestake Common Stock. The HCI Exchangeable Shares are subject to adjustment or
modification in the event of a stock split or other changes to the capital
structure of Homestake so as to maintain the initial one-to-one relationship
between the HCI Exchangeable Shares and shares of Homestake Common Stock.
Each HCI Exchangeable Share will include and trade with an HCI Right issued
under the HCI Rights Agreement. The HCI Rights Agreement is included as Schedule
6 to the Arrangement Agreement, which is attached as Appendix B to the
Supplement. The HCI Rights will entitle their holders to acquire additional HCI
Exchangeable Shares at the same price and in the same amounts and circumstances
in which holders of Homestake Rights are entitled to acquire Homestake shares.
See "The Arrangement-- Description of Homestake Common Stock."
Although the HCI Exchangeable Shares are intended to be economically
equivalent to Homestake Common Stock, the HCI Exchangeable Shares will be issued
by HCI, not Homestake, and the rights of holders of such shares will be
determined under the laws of Ontario, the HCI Exchangeable Share Provisions, the
Trust Agreement and HCI's charter documents. Prime Shareholders who receive HCI
Exchangeable Shares under the Arrangement will obtain a direct interest in
Homestake only upon receipt of Homestake Common Stock in exchange for their HCI
Exchangeable Shares.
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Following the Arrangement, HCI and Prime will amalgamate under the name
Homestake Canada Inc. The amalgamation will not affect the rights of holders of
HCI Exchangeable Shares.
DIVIDENDS
Holders of HCI Exchangeable Shares will be entitled, subject to applicable
law (i) in the case of a cash dividend or distribution declared on the shares of
Homestake Common Stock, to receive the Canadian dollar equivalent of such cash
dividend calculated on the date such dividend was declared; (ii) in the case of
a stock dividend or a distribution declared on the shares of Homestake Common
Stock to be paid in shares of Homestake Common Stock, to receive such number of
HCI Exchangeable Shares for each HCI Exchangeable Share held as is equal to the
number of shares of Homestake Common Stock to be paid to holders of Homestake
Common Stock in respect of each share held; or (iii) in the case of a dividend
or distribution declared on the shares of Homestake Common Stock to be paid in
property other than cash or shares of Homestake Common Stock, to receive in
respect of each HCI Exchangeable Share held the economic equivalent (as
determined by the Board of Directors of HCI) of the dividend or distribution
paid for each share of Homestake Common Stock. The record date for the
determination of holders of HCI Exchangeable Shares entitled to receive payment
of, and the payment date for, any dividend or distribution declared on the HCI
Exchangeable Shares will be the same as the record date and payment date,
respectively, for the corresponding dividend or distribution declared on the
shares of Homestake Common Stock.
Except as described above, holders of HCI Exchangeable Shares will not be
entitled to share in any other dividends payable by HCI.
RETRACTION, REDEMPTION AND CALL RIGHTS
HOLDER'S RETRACTION RIGHTS
Holders of the HCI Exchangeable Shares will be entitled at any time
following the Effective Date to retract (that is, require HCI to redeem) any or
all such HCI Exchangeable Shares owned by them and to receive an equivalent
number of shares of Homestake Common Stock, plus, for each HCI Exchangeable
Share, the Additional Amount, subject to the Retraction Call Right of Homestake
and HCH described below. Holders of the HCI Exchangeable Shares may effect such
retraction by presenting a certificate or certificates to HCI or its transfer
agent representing the number of HCI Exchangeable Shares the holder desires to
retract, together with a duly executed statement in the form of Schedule A to
the HCI Exchangeable Share Provisions attached as Appendix D to this Supplement
or in such other form as may be acceptable to HCI (the "Retraction Request")
specifying the number of HCI Exchangeable Shares the holder wishes to retract
and such other documents as may be required to effect the retraction of the HCI
Exchangeable Shares. The retraction will become effective five Business Days
after the request is received by HCI (the "Retraction Date").
HOMESTAKE'S AND HCH'S RETRACTION CALL RIGHT
Upon the receipt by HCI of a Retraction Request and other required
documentation, HCI is required to immediately notify Homestake and HCH of such
Retraction Request. Homestake or HCH will then have two Business Days in which
to exercise a Retraction Call Right to purchase all of the HCI Exchangeable
Shares submitted for retraction. If Homestake or HCH exercises its Retraction
Call Right, it must deliver, or cause to be delivered, as the case may be, an
equivalent number of shares of Homestake Common Stock, plus the Additional
Amount in respect of each HCI Exchangeable Share submitted for retraction, to
the transfer agent for delivery to the holder on the Retraction Date. If neither
Homestake nor HCH determines to exercise its Retraction Call Right, HCI is
obligated to deliver to the holder the number of shares of Homestake Common
Stock equal to the number of HCI Exchangeable Shares submitted by the holder for
retraction, plus the Additional Amount in respect of each HCI Exchangeable Share
submitted for retraction.
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REDEMPTION
Subject to applicable law and the Redemption Call Right of Homestake and HCH
described below, on any Optional Redemption Date, HCI may redeem all of the HCI
Exchangeable Shares then outstanding in exchange for an equal number of shares
of Homestake Common Stock, plus the Additional Amount in respect of each such
HCI Exchangeable Share. If HCI elects to redeem HCI Exchangeable Shares,
Homestake and HCH will have the overriding right (the "Redemption Call Right")
to purchase on the Optional Redemption Date all of the outstanding HCI
Exchangeable Shares (other than HCI Exchangeable Shares beneficially owned by
Homestake or its subsidiaries) in exchange for one share of Homestake Common
Stock, plus the Additional Amount, for each such HCI Exchangeable Share. If
either Homestake or HCH exercises a Redemption Call Right, HCI's right to redeem
the HCI Exchangeable Shares on such Optional Redemption Date will terminate.
Prior to any Optional Redemption Date, HCI will provide the registered holders
of HCI Exchangeable Shares with written notice of the proposed redemption of the
HCI Exchangeable Shares by HCI.
HCI LIQUIDATION RIGHTS
In the event of the liquidation, dissolution or winding up of HCI, holders
of the HCI Exchangeable Shares will have preferential rights to receive from HCI
one share of Homestake Common Stock, plus the Additional Amount, for each HCI
Exchangeable Share they hold. Upon the occurrence of such liquidation,
dissolution or winding up, Homestake and HCH will have the overriding right to
purchase all of the outstanding HCI Exchangeable Shares (other than HCI
Exchangeable Shares beneficially owned by Homestake or its subsidiaries) from
the holders thereof on the effective date of such liquidation, dissolution or
winding up in exchange for one share of Homestake Common Stock, plus the
Additional Amount, for each such HCI Exchangeable Share. Upon the occurrence of
an HCI Insolvency Event, the trustee on behalf of the holders of HCI
Exchangeable Shares, will have the right to require Homestake to purchase each
HCI Exchangeable Share then outstanding (other than HCI Exchangeable Shares
beneficially owned by Homestake or its subsidiaries) in exchange for one share
of Homestake Common Stock, plus the Additional Amount.
HOMESTAKE LIQUIDATION RIGHTS
Upon the occurrence of a Homestake Liquidation Event, in order for the
holders of the HCI Exchangeable Shares to participate on a pro rata basis with
the holders of Homestake Common Stock in the liquidation, dissolution or winding
up contemplated by a Homestake Liquidation Event, all the outstanding HCI
Exchangeable Shares held by holders (other than Homestake and its subsidiaries)
will be automatically exchanged for shares of Homestake Common Stock. To effect
such exchange, Homestake will purchase, on the fifth Business Day prior to the
Homestake Liquidation Event, all outstanding HCI Exchangeable Shares (other than
HCI Exchangeable Shares held by Homestake or its subsidiaries) in exchange for
one share of Homestake Common Stock, plus the Additional Amount in respect of
each HCI Exchangeable Share.
VOTING RIGHTS
Except as required by applicable law or in certain limited circumstances
described below, holders of HCI Exchangeable Shares are not entitled to receive
notice of or to attend any meetings of shareholders of HCI or to vote at any
such meeting.
AMENDMENT AND APPROVAL
Any change to the rights, privileges, restrictions and conditions attaching
to the HCI Exchangeable Shares must be approved by a resolution passed by not
less than two-thirds of the votes cast on such resolution, at a meeting of
holders of HCI Exchangeable Shares called for such purpose at which at least 50
percent of the HCI Exchangeable Shares then outstanding are present or
represented by proxy, provided that such approval must be given by the
affirmative vote of holders of not less than two-thirds of the HCI Exchangeable
Shares represented in person or by proxy at the meeting (excluding shares
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beneficially owned by Homestake or its subsidiaries). If no such quorum is
present and the meeting is adjourned the resolution subsequently must be passed
by the vote of not less than two-thirds of the votes cast thereon.
TRUST AGREEMENT
On the Effective Date, Homestake, HCI and the Trustee will enter into the
Trust Agreement in substantially the form attached as Appendix E to this
Supplement.
VOTING RIGHTS
Pursuant to the terms of the Trust Agreement, on the Effective Date
Homestake will issue the Special Voting Stock to the Trustee. The Special Voting
Stock will entitle the Trustee to cast at any annual or special meeting of
Homestake Stockholders, with respect to any matter as to which holders of shares
of Homestake Common Stock are entitled to vote, a number of votes equal to the
number of HCI Exchangeable Shares outstanding on the relevant record date that
are not held by Homestake or its subsidiaries. With respect to any such matter,
each record holder of HCI Exchangeable Shares will have the right to instruct
the Trustee as to how to vote the number of votes equal to the record holder's
number of HCI Exchangeable Shares.
Except as required by applicable law, the holders of the HCI Exchangeable
Shares are not entitled to receive notice of or attend any meeting of the
shareholders of HCI or vote at any such meeting.
HOMESTAKE SUPPORT OBLIGATIONS
Pursuant to the Trust Agreement, Homestake will make the following covenants
regarding the HCI Exchangeable Shares:
- Homestake will not declare or pay dividends on the Homestake Common Stock
unless HCI is able to pay and simultaneously pays an equivalent dividend
on the HCI Exchangeable Shares;
- Homestake will advise HCI in advance of the declaration of any dividend on
the Homestake Common Stock and ensure that the declaration date, record
date and payment date for dividends on the HCI Exchangeable Shares are the
same as those for the Homestake Common Stock and that such dates will
correspond with any requirement of the stock exchange on which the HCI
Exchangeable Shares are then listed;
- Homestake will ensure that the record date for any dividend declared on
the Homestake Common Stock is not less than ten Business Days after the
declaration date of such dividend or such shorter period within which
applicable law may be complied with;
- In the event of a liquidation, dissolution or winding up of HCI, a
Retraction Request by a holder of HCI Exchangeable Shares or a redemption
of HCI Exchangeable Shares by HCI, Homestake will take all actions and do
all things necessary to ensure that HCI is able to pay to the holders of
the HCI Exchangeable Shares the required number of shares of Homestake
Common Stock, plus the Additional Amount, if any;
- Homestake will not vote or otherwise take any action or omit to take any
action causing the liquidation, dissolution or winding up of HCI; and
- Homestake will use its best efforts to enable HCI to maintain a listing
for the HCI Exchangeable Shares on the TSE or another Canadian stock
exchange.
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PRIME RESOURCES GROUP INC.
BACKGROUND
Prime is engaged in precious metals mining and related activities, including
exploration, development, extraction and processing. Its principal assets are
the Eskay Creek and the Snip mines, which are located in northwestern British
Columbia. Prior to the discovery of the Eskay Creek orebody in 1988, Prime (and
its predecessor companies) operated principally as a mining exploration finance
company, raising funds for drilling programs for itself and other companies.
Homestake first acquired an interest in Prime in 1992 when Homestake
acquired International Corona Corporation (subsequently renamed Homestake Canada
Inc.), which held Prime Common Shares. At the time, Prime held a 50% interest in
the Eskay Creek property and Stikine Resources Ltd. ("Stikine") held the
remainder. Prime acquired Stikine's interest as a result of a share exchange
with Stikine's shareholders in November 1993 and the winding up of Stikine into
Prime in November 1994. In April 1996, Prime purchased the 60% joint venture
interest of Cominco Ltd. in the Snip mine, giving Prime a 100% ownership
interest. Homestake is the operator of the Eskay Creek and Snip mines and
Homestake provides all management and administrative services to Prime pursuant
to contractual arrangements.
The total number of Prime Common Shares outstanding on was 76,073,913.
BUSINESS AND PROPERTY DESCRIPTION
ESKAY CREEK MINE
The Eskay Creek mine is a 440-ton (400-tonne) per day mine that produces
gold and silver ore and concentrate for shipment and sale to smelters. See "--
Ore and Concentrate Sales." The mine facilities include a crushing and blending
plant, a gravity/flotation mill, accommodations for 132 workers, a diesel-
generated power plant and related maintenance, storage, assay and treatment
facilities.
Prior to 1997, all of the ore was crushed and blended and sold directly to
smelters without further processing or concentrating by Prime. During 1997, a
165-ton (150-tonne) per day processing facility was constructed at the minesite
at a cost of approximately C$17 million.
The mill commenced commercial production in January 1998. The mill produces
a high-grade gravity concentrate and a flotation concentrate. The processing
facility improves the profitability of certain Eskay Creek ores that otherwise
would have been shipped directly to third-party smelters, and it permits
treatment of mineralized material that was previously uneconomic. The mill is
expected to increase annual production over the mine's remaining life. During
the first six months of operations, the mill operated in accordance with design
specifications, achieving slightly better than expected concentration ratios.
While individual ore zones vary on an overall basis, approximately 93% of
the precious metals in the ore processed through the mill is recovered.
Currently, approximately 12% is recovered by gravity concentration and 81% is
recovered by flotation, but it is expected that gravity recoveries will improve
over time. The overall concentration ratio through June 30, 1998 was 6.6 to 1.
Significant reductions in transportation and smelting costs have resulted from
the operation of this facility. In 1997, transportation costs and smelting
deductions accounted for 65% of the costs associated with producing finished
gold and silver.
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<PAGE>
PRODUCTION
Key production statistics for the Eskay Creek mine for 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Tons of ore shipped............................................ 121,465 115,868
Tons shipped per day........................................... 333 317
Grade (oz/ton):
Gold....................................................... 2.16 1.92
Silver..................................................... 97.7 106.6
Payable production (oz):
Gold....................................................... 244,722 211,276
Silver..................................................... 11,765,902 12,054,161
Gold equivalents (1)....................................... 417,303 372,279
Total cash costs (US$/oz) (2).................................. $ 157 $ 170
Noncash costs (US$/oz) (3)..................................... 33 43
------------- -------------
Total production costs (US$/oz)................................ $ 190 $ 213
</TABLE>
- ------------------------
(1) Silver was converted to gold equivalent using the ratio of the silver market
price to gold market price, which was 68.2 ounces of silver to one ounce of
gold for 1997 and 74.9 ounces of silver to one ounce of gold for 1996.
(2) Total cash costs per gold equivalent ounce include costs incurred by
third-party smelter owners and others to produce marketable gold and silver.
(3) Noncash costs of US$35 per gold equivalent ounce were reported by Homestake
for the year ended December 31, 1997 as a result of additional amortization
costs related to Homestake's investment in Prime.
LOCATION AND ACCESS
The Eskay Creek property is located approximately 51 air miles (83 km) north
of Stewart, British Columbia.
Access to the mine on a year-round basis is provided by a 37 mile (59 km)
single lane, 15 feet (5m) wide gravel road along the Iskut Valley, which
connects the minesite with Highway 37.
TENURES
The Eskay Creek mining area is approximately 3,477 acres (1,407 hectares)
and is comprised of five mining leases having remaining terms, subject to rights
of renewal, of approximately 23 to 27 years, one mineral claim and certain
surface rights.
There are no federal, provincial or regional parks, wilderness or
conservancy areas, ecological reserves or recreational areas in the vicinity of
the Eskay Creek property. At present, the Tahltan Nation is the sole potential
claimant to native title over the area.
In December 1997, the Supreme Court of Canada re-affirmed the existence of
aboriginal rights in land in British Columbia. In August 1998, Canada, British
Columbia and the Nisga'a Nation approved the final text of a treaty to transfer
certain property in northwest British Columbia to the Nisga'a Nation. None of
Prime's operations or exploration properties are located in areas subject to the
treaty. See "Risk Factors--Risks of Native Title Claims."
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<PAGE>
MINERALIZATION
A program of geological mapping, soil geochemistry and diamond drilling
which began in 1988 culminated in the discovery of mineralization in the area
known as the 21 Zone and its environs. Exploration programs in and around the 21
Zone have partially delineated several mineralized zones over a strike length of
about 1 mile (1.6 km). The 21B Zone, which is the principal target of mining at
Eskay Creek, has distinctive mineralogy and style of mineralization. Other zones
mined at Eskay Creek are the 109, NEX and HW zones. The Pumphouse Lake and 21C
Zones have not been sufficiently drilled to permit ore reserve designation;
however, portions of these zones are included as mineralized material.
The main axis of the 21B Zone plunges north-northeast at a moderate angle;
it measures about 3,000 feet (900 m) long, 660 feet (200 m) wide and averages 15
to 20 feet (5 to 6 m) thick but ranges up to 40 feet (13 m) thick in a central
high-grade core. The zone is continuous and is defined by sharp assay boundaries
where the high grades rapidly drop off. Ore types in the 21B Zone include 1 to 6
inch (2 to 15 cm) layers of fine clastic sulphide laminations interbedded with
mudstone, fragmental massive sulphides and more typical massive sulphides where
there is minimal fragmentation of sulphides or mudstone.
Sphalerite, pyrite, galena and tetrahedrite are the most abundant ore
minerals. Native gold ranges from visible to microscopic particles located
between sulphide grains or at their boundaries and in fractures within sulphide
grains, while some is locked in pyrite.
The 109 Zone occurs in the footwall rhyolite beneath the contact mudstone,
which is the host to 21B mineralization. The form of the mineralized envelope is
that of a steeply dipping oblate ellipsoid. Mineralization consists of commonly
coarse-grained sphalerite, pyrite, galena and visible gold in milky quartz veins
or stockwork or disseminated in silicified and pyrite altered felsic volcanics.
MINING
The high ore grades at Eskay Creek, coupled with deposit geometry and
relatively weak rock, require the use of a selective production mining method
utilizing cement stabilized backfill. Accordingly, the underground mine plan has
been developed utilizing the underhand and overhand drift and fill method for
ore extraction.
A contractor provides the underground workforce which operates equipment
owned by Prime. All major mining equipment is rubber tired and diesel powered.
Drilling equipment is a combination of hand-held and mechanized drills. The
operation runs continuously, with work crews housed in accommodations at the
minesite when they are on the active cycle of their scheduled rotation.
Based on the ore reserve estimate and the current ore and concentrate sales
contracts, the mine life is estimated to be approximately ten years.
ORE AND CONCENTRATE SALES
In the 21B Zone, most precious metals occur as electrum (an alloy of gold
and silver) and as fine disseminations within a variety of sulphides. Complex
metal associations limit satisfactory precious metal recovery by conventional
methods. Prime has entered into agreements with smelters in Quebec and Japan for
the direct sale of crushed ore. Select ores from other zones are processed at
the minesite in the 165 ton (150 tonne) per day gravity/flotation mill. This
concentrate is sold to one of the parties purchasing ore from Eskay Creek.
The ore sales contracts with these smelters provide for the sale of between
99,000 dry tons (90,000 dry tonnes) and 132,000 dry tons (120,000 dry tonnes) of
ore per year at prices based on the prevailing market values of the contained
gold and silver, less treatment, refining and penalty charges which vary based
on the amount of certain elements such as mercury, arsenic and antimony
contained in the ore. Prime crushes and blends the ore mined from different
areas of the orebody in order to minimize penalties due to the presence of these
elements.
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<PAGE>
The contract with the Japanese smelter provides for the annual sale of
44,000 dry tons (40,000 dry tonnes) and, with mutual consent, a maximum of
55,000 dry tons (50,000 dry tonnes) of ore until the earlier of either
cumulative deliveries of 550,000 dry tons (500,000 dry tonnes) or December 31,
2006. The Quebec smelter contract provides for the annual sale of a minimum of
55,000 dry tons (50,000 dry tonnes) and, with mutual consent, a maximum of
77,000 dry tons (70,000 dry tonnes) of ore up to December 31, 1999 and,
thereafter, the annual sale of between 44,000 dry tons (40,000 dry tonnes) and
77,000 dry tons (70,000 dry tonnes) up to December 31, 2007. The contracts
provide for periodic cost escalation, within certain limits. Prime made a spot
sale of ore to a U.S. smelter in 1997 but none has been made or is planned for
1998.
Prime has entered into agreements for the sale of the full production of
concentrate at Eskay Creek for the period up to December 31, 2000 at prices
based on prevailing market prices for the gold, silver and copper content, less
certain deductions for smelting and refining charges and for any excess amounts
of specified elements such as lead, mercury, zinc, arsenic and antimony.
ROYALTY
Prime is obligated to pay an effective royalty of 1% of net returns from
production of all precious metals and other minerals from the Eskay Creek mine
other than the former IKS-1 claim. Royalties of C$1.5 million were paid in 1997.
Prime is also obligated to pay a 2% net smelter return on ores mined from
the portion of the Eskay Creek property formerly subject to the IKS-1 claim. The
IKS-1 claim contains a minimal amount of the currently delineated ore reserve.
SNIP MINE
The Snip Mine is an underground mine near Stewart, British Columbia. The
Snip mine is expected to close on or about April 1, 1999.
PRODUCTION
The following table presents the key production statistics for the Snip mine
for the last two years (100% basis, except as indicated):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1996(2)
------------- -------------
Tons milled.................................................... 164,856 171,056
Tons milled per day............................................ 452 467
Grade (oz/ton)................................................. 0.78 0.79
Mill recovery (%).............................................. 92.1 91.8
Gold produced (oz)............................................. 115,644 123,590
Prime's share (1).............................................. 115,644 101,827
Total cash costs (US$/oz)...................................... $ 213 $ 190
Noncash costs (US$/oz)......................................... 115 151
------------- -------------
Total production costs (US$/oz)................................ $ 328 $ 341
</TABLE>
- ------------------------
(1) Includes ounces of gold recovered from dore and contained ounces of gold in
concentrates. Figures for the period prior to May 1, 1996 reflect Prime's
40% interest only.
(2) Prior to May 1996, the Snip mine was operated as a joint venture between
Prime as to 40% and Cominco Ltd. ("Cominco") as to 60%, with Cominco as the
operator. On April 30, 1996, Prime acquired the 60% joint venture interest
of Cominco for C$53.5 million, including C$7.4 million for
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<PAGE>
Cominco's interest in the joint venture's cash and noncash working capital,
and became operator of the mine.
LOCATION AND ACCESS
The Snip mine is located at the junction of Bronson Creek and the Iskut
River, approximately 56 air miles (90 km) north of Stewart, British Columbia.
Access to the mine is by fixed wing aircraft to a 4,500 foot (1,375 m) landing
strip. There is no road access to the Snip mine. Personnel and supplies are
flown in to the minesite from communities in British Columbia and Wrangell,
Alaska. Concentrate is transported out by cargo plane to Wrangell for shipping
to a smelter in Japan.
TENURE
The Snip mining area consists of a mining lease that terminates in 2021,
together with three mineral claims, covering an aggregate of approximately 3,637
acres (1,472 hectares).
MINING AND PROCESSING
The Snip orebody is a vein-type deposit, varying from 3 to 30 feet (1 to 10
m) in thickness. Access to the mine is provided by adits at the 180-m level, the
300-m level and the 420-m level and by a haulageway driven from the Iskut River
flats to the 130-m level. Mining is a combination of conventional shrinkage, cut
and fill, and mechanized cut and fill in the wider upper portion of the mine.
Ore is processed at the minesite in a 500 ton (450 tonne) per day
gravity/flotation concentrator. By processing the ore through a gravity
concentration circuit, approximately 35% of the gold is recovered as dore.
Additional gold is recovered by producing a high-grade flotation concentrate
which is sold to a smelter. Total gold recovery is approximately 92%. Other
facilities at the minesite include crushing facilities, an accommodation complex
for 180 workers and related maintenance, storage and assay facilities.
MINERALIZATION
The main ore body at the Snip mine is called the Twin Zone, a
quartz-carbonate-sulfide-filled shear structure within a Triassic sedimentary
unit. Gold primarily occurs as finely disseminated grains along pyrite grain
boundaries. Other sulfides within the Twin Zone include pyrrhotite, chalcopyrite
and sphalerite, with trace arsenopyrite.
ROYALTY
When Prime acquired Cominco's 60% joint venture interest in 1996, Cominco
retained an effective royalty of 3% of net smelter returns on any gold recovered
and sold from any ore from the present Snip property containing at least 0.3
oz/ton of gold in excess of the 529,800 tons (480,660 tonnes) of ore reserves
and mineralized material that had been identified at the time the transaction
closed. On the basis of the planned cessation of mining in 1999, it is not
expected that any royalty will be payable.
ORE RESERVES AND MINERALIZED MATERIAL
Prime estimates its proven and probable ore reserves and mineralized
material in January of each year for each property based upon factors relevant
to each deposit. Proven and probable ore reserves are estimates of the in situ
deposits which Prime believes can be recovered and sold economically at prices
sufficient to at least recover estimated future capital and total production
costs. The estimates of total production costs are based on current and
projected costs. Mineralized material is an estimate of the tonnage and grade of
a mineral deposit with potential economic merit. These estimates are made on the
basis of continuity, size and shape of mineralization and include an allowance
for mining dilution.
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<PAGE>
The following table sets forth the estimates of proven and probable ore
reserves and mineralized material at the Eskay Creek and Snip properties as at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
PROVEN AND PROBABLE ORE RESERVES(1) MINERALIZED MATERIAL
------------------------------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1997
------------------------------------- --------------------------------------- --------------------------
<CAPTION>
GRADE
TONS (OZ PER CONTAINED TONS GRADE CONTAINED TONS GRADE
(000'S) TON) OZ (000'S) (000'S) (OZ PER TON) OZ (000'S) (000'S) (OZ PER TON)
----------- ----------- ----------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eskay Creek mine:
Gold............... 1,495 1.693 2,532 1,397 1.73 2,418 371 0.59
Silver............. 78.3 117,011 79.3 110,810 12.0
Snip mine:
Gold............... 232 0.678 157 369 0.72 267 26 0.75
Total gold and gold
equivalent(2)...... 4,208 4,124
<CAPTION>
<S> <C> <C>
1996
--------------------------
TONS GRADE
(000'S) (OZ PER TON)
----------- -------------
<S> <C> <C>
Eskay Creek mine:
Gold............... 278 0.54
Silver............. 31.6
Snip mine:
Gold............... 19 0.56
Total gold and gold
equivalent(2)......
</TABLE>
- ------------------------
(1) Reserves have been calculated using a price of US$325 per ounce of gold for
the short-lived Snip mine and a price of US$350 per ounce of gold for the
Eskay Creek mine.
(2) Silver is converted to gold equivalent using the ratio of the market prices
of silver and gold at January 1, 1998 and 1997. For purposes of the gold
equivalent ore reserve calculations, the ratio used was 77 ounces of silver
to one ounce of gold.
See "The Arrangement--Reports of Prime Special Committee Technical Advisor."
EXPLORATION AND INVESTMENT
Exploration expenditures were C$8.7 million in 1997 compared to C$8.9
million in 1996. Approximately 53%, or C$4.5 million, of exploration spending in
1997 was for programs at and around the Eskay Creek mine, and C$2.5 million was
spent for programs at the Snip mine. The balance of exploration spending was for
Prime's share (49%) of joint exploration programs with Homestake (through HCI)
conducted in Ontario, Quebec, the Yukon and south-central British Columbia.
Prime and Homestake conduct their exploration programs in Canada on a joint
venture basis under an agreement pursuant to which Prime acquires a 49% interest
and Homestake a 51% interest in all exploration properties. The agreement renews
automatically on an annual basis unless either party terminates by giving six
months' prior notice. This venture excludes properties in the vicinity of
Prime's and Homestake's existing operations, such as Prime's Eskay Creek and
Snip properties and Homestake's Hemlo properties. Homestake has no interest
(other than through its 50.6% ownership interest in Prime) in Prime's
exploration in the vicinity of the Eskay Creek and Snip mines, and Prime has no
interest in Homestake's exploration in the vicinity of the Williams and David
Bell mines.
In 1997, Prime completed a total of 52,000 feet of drilling in 59 holes
around the Eskay Creek mine. This exploration resulted in the addition of ore
reserves containing 375,500 ounces of gold and 18.1 million ounces of silver
(before taking into account reductions due to production in 1997). Targets at
Eskay Creek have now been expanded to include mineralization that would have
been considered uneconomic prior to the metallurgical testing program that
allowed construction of the mill.
At the Snip mine, Prime drilled a total of 22,900 feet in 28 holes from
surface and 120,000 feet from underground in 1997. The results were not
encouraging and following a limited exploration program in the first part of
1998, exploration on the property has ceased.
During 1997, Prime expanded its interests in land in the region around the
Eskay Creek mine through certain agreements entered into with Kenrich Mining
Corporation ("Kenrich"). In July 1997, Prime acquired investment units comprised
of 300,000 common shares, 1,200,000 flow-through common shares
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<PAGE>
and 1,500,000 common share purchase warrants of Kenrich for an aggregate cost of
C$1.5 million. A minimum of C$1.2 million of the proceeds is committed to
exploration of Kenrich's Corey property, 8 miles (13 km) south of the Eskay
Creek minesite. Prime has option rights to acquire joint venture interests
varying from 50% to 70% of the Corey property by making additional subscriptions
for shares and expenditures and other payments which, if fully exercised, could
total in excess of C$18 million in the period up to 2004. Geologic mapping and
geochemical sampling programs on the Corey property began in May 1998 to define
drill targets.
Prime's budget for participating in exploration activities in 1998 is C$6.9
million. Approximately C$6 million of this budget relates to exploration
surrounding existing mining operations and C$0.9 million is for participation in
joint venture generative exploration and property interest acquisition
activities with Homestake.
At Eskay Creek, follow up work is underway to review mineralized drill hole
intersections underlying the existing ore body. This rhyolite hosted
mineralization is below the current cut-off grade. Studies will determine the
quantity, grade and potential for mining this material utilizing a bulk method.
In June 1998, exploration drilling intersected high-grade material below the
#4 stope of the 21B Zone which was not in the ore reserves. Preliminary
estimates indicate that this area will add in excess of 100,000 ounces of gold
and four million ounces of silver to the reserves. Further drilling is underway
to delineate this extension to the #4 stope.
CREDIT FACILITIES
Prime has an unsecured operating line of credit facility for C$15 million
from a Canadian chartered bank. Prime also has an agreement with Homestake to
obtain funds for general corporate purposes and to finance exploration and
operating activities as required. This agreement provides for advances up to C$5
million or such greater amount as may be agreed from time to time between Prime
and Homestake, subject to bank approval. Advances under both facilities are
repayable on demand and bear interest at the Canadian prime rate. The agreement
with Homestake permits Homestake to obtain security on all of Prime's assets.
Except for arrangements for letters of credit relating to future minesite
reclamation requirements, no amounts were outstanding under either facility in
1997.
HEDGING AND CURRENCY MANAGEMENT
The results of Prime's operations are affected significantly by the market
price of gold and silver.
Prime recently has adopted gold and silver hedging policies which permit
Prime to hedge up to 40% of its estimated annual production of gold and silver
for the next five years if forward prices exceed certain targeted amounts. In
the first six months of 1998, Prime entered into forward sales contracts for 7.2
million ounces of silver, at an average price of US$6.28 per ounce, for the
period 1999 through 2001. The delivery schedule for these contracts includes 3
million ounces at an average price of US$6.34 per ounce for 1999, 3 million
ounces at an average price of US$6.33 per ounce for 2000 and 1.2 million ounces
at an average price of US$6.00 per ounce for 2001. The estimated mark-to-market
value of these contracts at June 30, 1998 was US$4.9 million.
As a significant amount of revenue is denominated in US dollars, Prime has
implemented a foreign currency protection program. See Note 11(a) to the Prime
Financial Statements, included in Appendix I.
See "Risk Factors--Risks of Gold and Silver Price Fluctuations and Hedging
Activities."
ENVIRONMENT AND PERMITS
Prime has obtained and holds all requisite permits for its operations at the
Eskay Creek and Snip mines. Operations commenced at Eskay Creek in 1994
following a process of governmental assessment and public consultation pursuant
to the Mine Development Assessment Act (British Columbia). The Mine
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<PAGE>
Development Certificate for Eskay Creek as originally issued permitted annual
production of approximately 145,000 tons (130,000 tonnes) and is valid for ten
years from commencement of production. During 1997, the Mine Development
Certificate was amended to allow annual production of approximately 201,000 tons
(183,000 tonnes).
Prime's operations at Eskay Creek have been studied extensively for
environmental effects in the process of obtaining the Mine Development
Certificate. Given the complex mineralogy of the Eskay Creek ore, much attention
has been given to the deportment of heavy metals. Studies undertaken have
indicated that some mine wasterock is acid generating. After review and approval
of the process by both provincial and federal regulatory agencies, the wasterock
is disposed of subaqueously in a nearby barren lake to prevent the material from
generating acid. Tailings from the new gravity/flotation concentrator also are
disposed of in the barren lake pursuant to a permit. The disposal of smelting
by-products is the responsibility of the smelters to which ore and concentrates
are sold. In 1997, Eskay Creek was listed on the provincial semi-annual
non-compliance report for exceeding permit levels for fecal coliform in the
sewage treatment plant discharge and suspended solids in one of the settling
ponds. These situations were promptly addressed and remedied.
In connection with obtaining a Mine Development Certificate and a
Reclamation Program Permit, Prime was required to deposit financial security in
the amount of C$4.2 million with the provincial government to cover future
reclamation costs at Eskay Creek. The financial security was provided in the
form of a letter of credit drawn against Prime's C$15 million bank credit
facility (see "--Credit Facilities"). Since January 1, 1995, Prime has been
accruing on a per ounce basis for the estimated Eskay Creek reclamation and
closure costs. The amount accrued at the end of 1997 was C$1 million.
During 1997 and for the first half of 1998, the Snip mine operated in
compliance with its environmental permit requirements. Prime accrues on a per
ounce basis the estimated Snip mine reclamation and closure costs. The amount
accrued to the end of 1997 was C$5.9 million. Security under the bank operating
line of credit in the amount of C$1 million has been lodged with the provincial
government for reclamation costs at the Snip mine.
EMPLOYEES
Prime has no employees. All management, administrative and consulting
services are provided to Prime by Homestake pursuant to contractual arrangements
which are reviewed annually by the audit committee of the Prime Board. Homestake
also has agreed to engage the necessary employees and contractors to operate the
Eskay Creek and Snip mines on behalf of Prime. During 1997, an average of 86 and
182 people were employed full time to operate the Eskay Creek and Snip mines,
respectively; in addition, independent contractors engaged an additional 100
employees at Eskay Creek.
For further details on the management arrangements in respect of Prime, see
"The Arrangement-- Agreements with Homestake."
LEGAL PROCEEDINGS
The directors and officers of Prime are not aware of any material legal
proceedings commenced or contemplated by or against Prime or relating to the
business of Prime, except the Inmet litigation in which both Prime and Homestake
are defendants. This claim is described in more detail under "Homestake Mining
Company--Legal Proceedings."
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<PAGE>
HOMESTAKE MINING COMPANY
BACKGROUND
Homestake Mining Company is a Delaware corporation incorporated in 1983 as
the parent holding company of Homestake Mining Company of California ("Homestake
California"), which has been engaged in the gold mining business since 1877.
Homestake is one of the largest North American-based gold mining companies with
annual production of approximately 2.5 million ounces of gold and reserves of
approximately 19.5 million ounces of gold at December 31, 1997. Homestake's
operations include mineral exploration, extraction, processing and refining.
Gold bullion is Homestake's principal product. Homestake has significant
operations in the United States, Canada and Australia. Homestake also has
operations in Chile. Homestake is engaged in active exploration projects in the
United States, Canada, Australia, Eastern Europe, Argentina, Brazil, Chile and
the Andean region of South America.
Homestake California was founded to develop the Homestake Mine discovered in
the Black Hills of the Dakota Territory in 1876. Homestake was predominately a
gold mining company until its diversification into uranium mining and production
in the early 1950s and into lead and zinc in the 1960s. In 1984, Homestake
further diversified into the oil and gas business, principally as a result of
the acquisition of Felmont Oil Company. In 1989 and 1990, Homestake disposed of
its oil and gas business. In 1990, Homestake closed its last remaining uranium
mine and sold its interest in its base metals business.
In 1975, Homestake made its initial investment in the Kalgoorlie gold
district of Western Australia (known as the Golden Mile) when Homestake Gold of
Australia Limited ("HGAL") acquired a 48% interest in the Kalgoorlie Mining
Associates partnership. In 1987, Homestake sold 20% of its shares of HGAL to the
public. Subsequently, HGAL increased its interest in Kalgoorlie Mining
Associates to 50% and acquired a 50% interest in adjacent joint ventures and
properties. In late 1995 and early 1996, Homestake acquired the HGAL shares that
it did not then own.
In 1989, Homestake joined with two partners in the development of a major
sulfur discovery, Main Pass 299, in the Gulf of Mexico.
In 1992, Homestake acquired International Corona Corporation, a large
Canadian gold producer, subsequently renamed Homestake Canada Inc. As a result
of that transaction, Homestake acquired its 50% interests in the Williams and
David Bell mines and also acquired interests in Prime and Stikine Resources
Limited, the owners of the Eskay Creek property. Prime and Stikine were
subsequently combined and, through HCI, Homestake now owns 50.6% of Prime.
In April 1998, Homestake acquired Plutonic Resources Limited ("Plutonic"),
the third largest Australian gold mining company. As a result of that
transaction, Homestake acquired five operating mines in Western Australia and a
large number of exploration tenement holdings in Australia, principally in
Western Australia where some of the most significant discoveries in Australia
have taken place over the past 20 years.
Homestake's gold hedging policy provides for the use of forward sales
contracts for up to 30% of expected annual gold production for each of the
following ten years at prices in excess of certain targeted prices and the use
of combinations of put and call option contracts to establish minimum floor
prices while allowing participation in future increases in the price of gold.
Gold sales for the six months ended June 30, 1998 include 450,000 ounces at
an average price of US$325 per ounce under this program. At June 30, 1998
Homestake owned put options for 450,000 ounces of gold exercisable during 1998
at a price of US$325 per ounce. Homestake also had written call options
outstanding for 450,000 ounces of gold exercisable during 1998 at a price of
US$325 per ounce and owned call options for 450,000 ounces of gold exercisable
during 1998 at a price of US$336 per ounce.
During the six months ended June 30, 1998, Homestake delivered or
financially settled 60,000 ounces of its North American gold production at an
average price of US$396 per ounce under forward sales contracts. At June 30,
1998, Homestake had committed 520,000 ounces of its future North American gold
production for sale through the year 2003 at an average price of US$438 per
ounce under forward sales
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<PAGE>
contracts. Homestake also owned put options for 30,000 ounces of gold
exercisable during 2000 at a price of US$350 per ounce and had written call
options outstanding for 15,000 ounces of gold exercisable during 2000 at an
average price of US$395 per ounce.
During the six months ended June 30, 1998, Homestake delivered or
financially settled 178,900 ounces of its Australian gold production into
Australian dollar denominated forward gold contracts at an average price of
US$339 (A$524) per ounce. During June 1998, Homestake closed out and financially
settled one million ounces of its Australian dollar denominated forward gold
contracts. The gain of US$5 million realized on this was deferred and will be
recorded in income as the originally designated production is delivered. At June
30, 1998, Homestake had remaining commitments for 210,000 ounces of its future
Australian dollar denominated forward gold contracts at an average price of
US$320 (A$526) per ounce.
The estimated liquidation value of Homestake's hedging position at June 30,
1998 was approximately US$56.9 million. This does not include the Prime silver
hedging position discussed below.
In August 1998, Homestake entered into a series of Australian dollar
denominated put and call options, which provide a floor price of US$296 (A$510)
per ounce and a ceiling price of US$308 (A$530) for 120,000 ounces of gold
expected to be produced in Australia during 1999 and a floor price of US$311
(A$535) per ounce and a ceiling price of US$317 (A$545) for 120,000 ounces of
gold expected to be produced in Australia during 2000. In addition, Homestake
entered into Australian dollar denominated forward gold contracts for 120,000
ounces of gold expected to be produced in Australia during 2001 at a price of
US$325 (A$560) per ounce. US dollar amounts referred to in this paragraph are
translated based on the September 28, 1998 exchange rate of 0.5809.
In February 1998, Prime adopted a gold and silver hedging policy that
provides for the use of forward sales contracts for up to 40% of each of the
following five year's expected annual gold and silver production at prices in
excess of certain targeted prices. At June 30, 1998 Prime had forward sales
contracts outstanding for approximately 7.2 million ounces of silver during the
period between 1999 through 2001 at an average price of US$6.28 per ounce.
SIGNIFICANT 1998 DEVELOPMENTS
In January 1998, Homestake began a major restructuring of operations at the
Homestake mine to reduce operating costs. Annual production will be reduced to
approximately 150,000 to 180,000 ounces per year. Implementation of the plan has
required a major reduction in the level of employment and a complete
reorganization of the methods of operation. To implement the plan, Homestake
suspended underground mining while it completed the final details of the new
operating plan and readied the underground mine to begin operating on the
restructured basis. The new operating plan involves closing parts of the mine
and concentrating on the best ore bodies on substantially fewer production
levels in order to reduce continuing infrastructure and other operating costs.
Although the new plan reduces proven and probable gold reserves by 1.5 million
ounces (before taking account of 1997 production), the improved per ounce
operating margin on the remaining reserves is expected to increase the mine's
future total cash flow significantly.
Underground crews commenced returning to work on a phased basis at the end
of March 1998. The final underground work force is approximately one-half of the
size of the underground work force prior to the shutdown. The Open Cut
operations are now winding down, as mining in the Open Cut ceased in September
1998. Open Cut stockpiles will continue to be processed through the first
quarter of 1999. Milling and other surface operations also are being reduced to
accommodate the reduced size of the operations.
Homestake acquired Plutonic in April 1998. Following the completion of
Homestake's acquisition of Plutonic, Plutonic's office in Sydney was closed and
administrative functions were moved to Homestake's office in Perth. Homestake's
and Plutonic's principal exploration functions were also consolidated in a
single office in Perth. Mining and development continue at the Plutonic,
Darlot/Centenary and Lawlers mines. Operations at the Mt Morgans mine ceased in
September 1998, but active exploration continues in
S-75
<PAGE>
the vicinity of the mine. Stockpile processing will continue at the Peak Hill
mine until June 1999, and active exploration continues in the vicinity of the
mine.
On September 15, 1998, Homestake and Normandy Mining Limited announced that
a revised mining plan would be implemented for the Mt Charlotte underground mine
at Kalgoorlie, Western Australia. The new mine plan contemplates extraction of
approximately 1.5 million tons of ore over the next twelve months. Performance
of the mine will be monitored during this time to determine whether the
operation will continue beyond that period. Homestake expects to record a charge
of US$25 million (US$37 million pretax) during the third quarter of 1998 for
severance, unrecovered capital and other costs. In order to offset the loss of
ore from Mt Charlotte, ore production from the Super Pit will be increased. Ore
reserves at Mt Charlotte will be evaluated as a result of the new mining plan.
STATISTICAL SUMMARY
The information in the following table is a summary of certain 1997 and 1996
statistical information regarding ownership of gold mines, production costs,
reserves and mineralized material of Homestake's significant properties. The
ownership interests and production amounts shown are Homestake's interests
without reduction for minority interests. Reserves and mineralized material are
Homestake's interest after reduction for minority interests. Mineralized
material is reported in short tons of 2,000 pounds (equivalent to 0.9071 metric
tons). The statistical information included in the table is derived from
studies, analyses and other information prepared by or for, or available to,
Homestake. Information contained in the table reflects the acquisition of
Plutonic.
S-76
<PAGE>
<TABLE>
<CAPTION>
PRODUCTION COSTS PER
GOLD PRODUCTION OUNCE (1)
-------------------------------------------------- ---------------------------------
TONS
INTEREST PROCESSED GRADE RECOVERY OUNCES OPERATING OTHER NON-
% (MILLIONS) (OZ/TON) % PRODUCED CASH (C) CASH (D) CASH (E)
- ----------------------------------------------------------------------------------------------------------------------------------
1997
UNITED STATES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
..................................................................................................................................
Homestake 100 2.6 0.163 94 397,299 $306 $ 4 $ 47
Round Mountain (2) 25 12.1 0.015 75 119,959 210 16 49
Ruby Hill (3) 100 0.3 -- -- 16,629 -- -- --
McLaughlin 100 2.7 0.075 58 118,491 247 7 120
Pinson (4)(5) 50 0.6 0.046 86 25,829 334 10 54
Marigold (5) 33 0.9 0.028 95 24,547 239 28 34
CANADA
..................................................................................................................................
Eskay Creek (6)(7) 100 0.1 3.661 95 417,303 155 2 35
Williams 50 1.3 0.160 95 201,098 222 7 40
David Bell (8) 50 0.3 0.397 96 101,313 184 10 45
Snip (6)(9) 100 0.2 0.780 92 115,644 213 -- 115
AUSTRALIA
..................................................................................................................................
Kalgoorlie 50 6.6 0.072 89 425,914 259 -- 55
Plutonic 100 3.4 0.094 88 274,608 234 -- 70
Darlot/Centenary 100 0.6 0.114 95 65,153 320 -- 29
Lawlers 100 0.5 0.178 96 87,481 260 -- 25
Mt Morgans 80 1.0 0.093 88 73,588 374 6 85
Peak Hill 67 0.7 0.069 97 33,104 269 -- 151
Other Projects -- -- -- -- -- -- -- --
CHILE
..................................................................................................................................
Agua de la Falda (10) 100 0.3 0.172 65 31,417 213 -- 82
..................................................................................................................................
Total Production (11) 2,544,325 $242 $ 4 $ 57
Minority Interests (12) (278,670)
..................................................................................................................................
Homestakes' Share of Gold
Production 2,265,655
- ----------------------------------------------------------------------------------------------------------------------------------
1996
UNITED STATES
..................................................................................................................................
Homestake 100 2.6 0.166 95 407,322 $293 $ 11 $ 35
Round Mountain (2) 25 10.2 0.017 71 102,744 230 26 61
Ruby Hill (3) 100 -- -- -- -- -- -- --
McLaughlin 100 2.5 0.096 77 185,458 242 8 123
Pinson (4) (5) 50 0.3 0.051 79 12,098 355 14 63
Marigold (5) 33 1.0 0.029 93 24,485 231 36 46
CANADA
..................................................................................................................................
Eskay Creek (6) (7) 100 0.1 3.382 95 372,279 167 3 43
Williams 50 1.3 0.167 95 205,519 214 8 39
David Bell (8) 50 0.3 0.476 96 109,098 161 11 45
Nickel Plate 100 1.1 0.078 81 70,199 347 -- 46
Snip (6) (9) 100 0.1 0.799 92 101,827 190 -- 151
George Lake / Back River (13) 74 -- -- -- -- -- -- --
AUSTRALIA
..................................................................................................................................
Kalgoorlie 50 6.4 0.067 88 368,816 291 -- 60
Plutonic 100 2.2 0.105 80 183,691 276 -- 44
Darlot / Centenary 100 0.6 0.120 95 62,757 345 -- 52
Lawlers 100 0.7 0.082 90 50,603 417 -- 33
Mt Morgans 80 1.0 0.088 92 75,067 341 -- 125
Peak Hill 67 0.8 0.117 98 60,380 163 -- 133
Other Projects
CHILE
..................................................................................................................................
Agua de la Falda (10) 100 -- -- -- -- -- -- --
..................................................................................................................................
Total Production (11) 2,417,930 $255 $ 6 $ 62
Minority Interests (12) (234,208)
..................................................................................................................................
Homestake's Share of Gold
Production 2,183,722
- ----------------------------------------------------------------------------------------------------------------------------------
Eskay Creek--Silver 1997
1996
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-77
<PAGE>
<TABLE>
<CAPTION>
RESERVES (A) MINERALIZED MATERIAL(B)
- ---------------------------------------
CONTAINED ------------------------
TONS GRADE OUNCES TONS GRADE
(MILLIONS) (OZ/TON) (THOUSANDS) (MILLIONS) (OZ/TON)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------
<CAPTION>
.................................................................
<S> <C> <C> <C> <C>
13.6 0.205 2,786 18.5 0.170
100.3 0.018 1,759 35.6 0.016
7.0 0.098 687 7.2 0.073
13.9 0.061 845 -- --
0.9 0.073 65 -- --
5.1 0.033 168 -- --
.................................................................
0.8 1.693 1,281 0.2 0.587
16.5 0.150 2,465 4.1 0.119
2.6 0.312 804 -- --
0.1 0.678 80 -- 0.751
.................................................................
89.7 0.066 5,924 102.6 0.071
5.2 0.108 567 26.7 0.222
9.4 0.163 1,556 4.0 0.123
1.9 0.134 252 3.8 0.117
3.8 0.023 91 -- --
0.5 0.044 24 -- --
6.6 0.105
.................................................................
0.7 0.167 110 7.7 0.160
.................................................................
272.0 19,464 217.0
.................................................................
- ------------------------------------------------------------------
.................................................................
23.8 0.196 4,662 24.0 0.173
119.2 0.019 2,263 26.5 0.015
7.6 0.099 755 9.2 0.067
16.6 0.063 1,048 -- --
1.3 0.072 92 -- --
6.0 0.034 203 -- --
.................................................................
0.7 1.732 1,224 0.1 0.541
17.7 0.146 2,585 4.3 0.121
3.0 0.288 871 -- --
-- -- -- -- --
0.2 0.722 135 -- 0.555
-- -- -- 2.6 0.322
.................................................................
98.3 0.066 6,446 82.9 0.073
10.2 0.111 1,127 28.2 0.219
3.3 0.143 468 8.5 0.169
1.5 0.137 212 2.8 0.105
5.1 0.047 245 1.0 0.114
1.2 0.053 65 1.6 0.073
0.3 0.277 70 0.5 0.230
.................................................................
0.5 0.181 95 3.0 0.158
.................................................................
316.5 22,566 195.2
.................................................................
- ------------------------------------------------------------------
0.8 78.3 59,208 0.2 11.97
0.7 79.3 56,070 0.1 31.62
- ------------------------------------------------------------------
</TABLE>
DEFINITIONS:
(a) A proven and probable RESERVE is that part of a mineral deposit which could
be extracted or produced economically and legally at the time of the reserve
determination.
(b) MINERALIZED MATERIAL is gold-bearing material that has been physically
delineated by one or more of a number of methods including drilling,
underground work, surface trenching and other types of sampling. This
material has been found to contain a sufficient amount of mineralization of
an average grade of metal or metals to have economic potential that warrants
further exploration evaluation. While this material is not currently or may
never be classified as reserves, it is reported as mineralized material only
if the potential exists for reclassification into the reserves category.
This material has established geologic continuity, but cannot be classified
in the reserves category until final technical, economic and legal factors
have been determined and the project containing the material has been
approved for development.
(c) OPERATING CASH COSTS are costs directly related to the physical activities
of producing gold; includes mining, milling, third-party smelting, and
in-mine drilling expenditures that are related to production.
(d) OTHER CASH COSTS are costs that are not directly related to, but may result
from, gold production; includes production taxes and royalties.
(e) NONCASH COSTS are costs that typically are accounted for ratably over the
life of an operation; includes depreciation, depletion and final
reclamation. Noncash costs do not include amortization of additions to
property resulting from SFAS 109 deferred tax purchase accounting
adjustments, as these additions did not involve any economic resources of
the Company.
NOTES:
(1) Homestake reports per ounce production costs in accordance with the "Gold
Institute Production Cost Standard."
(2) Recovery relates to the reusable pad at the Round Mountain mine.
(3) The Ruby Hill mine commenced commercial production effective January 1,
1998 Costs associated with gold produced during 1997 have been excluded
from cost per ounce calculations.
(4) Homestake increased its interest in the Pinson mine to 50% in December
1996.
(5) Recovery relates to ore milled at the Pinson and Marigold mines.
(6) The Eskay Creek and (effective April 1996) Snip mines are owned 100% by
Prime. Homestake owns 50.6% of Prime. The ownership interests and
production amounts shown are Homestake's consolidated interests without
reduction for minority interests. Production amounts include ounces
contained in ore or concentrates sold to smelters. Reserves and mineralized
material are Homestake's interest after reduction for the 49.4% minority
interests in Prime.
(7) Gold and silver are accounted for as co-products at Eskay Creek. Silver
production is converted into gold equivalent using the ratio of the gold
market price to the silver market price. For the years ended December 31,
1997 and 1996, the ratio was 68.2 and 74.9 ounces of silver equals one
ounce of gold production, respectively. Reserves and mineralized material
relate to gold only. Silver reserves and mineralized material are shown at
the bottom of the chart.
(8) Ounces produced include 11,331 and 11,362 ounces of gold production from
the Quarter Claim in 1997 and 1996, respectively. Reserves include a 25%
net profits interests in Quarter Claim.
(9) Prime purchased the remaining 60% interest in the Snip mine in April 1996.
(10) The Agua de la Falda mine, which commenced commercial production in April
1997, is owned 100% by Agua de la Falda, S.A. ("Agua"). Homestake owns 51%
of Agua. The ownership interest and production amounts shown are
Homestake's consolidated interest without reduction for minority
interests. Reserves and mineralized material are Homestake's interest
after reduction for the 49% minority interests in Agua.
(11) Includes 14,441 ounces and 17,313 ounces of gold produced at the Bellevue
project in Western Australia during 1997 and 1996, respectively, and 507
ounces and 8,274 ounces of gold produced at the El Hueso mine in Chile
during 1997 and 1996, respectively.
(12) Includes minority interests' 49.4% share of Prime's production in 1997 and
1996 and 49% share of Agua's production in 1997.
(13) Homestake completed the sale of its interests in the George Lake and Black
River joint ventures in 1997.
S-78
<PAGE>
The following tables show gold production statistics, total cash costs per
ounce and total costs per ounce for the six months ended June 30, 1998 and 1997.
GOLD PRODUCTION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
1998 1997
------------------------------------- -------------------------------------
TONS AVERAGE OUNCES TONS AVERAGE OUNCES
% PROCESSED GRADE PRODUCED PROCESSED GRADE PRODUCED
INTEREST (THOUSANDS) (OZ/TON) (THOUSANDS) (THOUSANDS) (OZ/TON) (THOUSANDS)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Homestake.......................... 100 1,066 0.146 146.4 1,275 0.167 204.3
Ruby Hill.......................... 100 687 0.100 61.0 -- -- --
McLaughlin......................... 100 1,399 0.081 64.9 1,326 0.077 62.5
Round Mountain..................... 25 6,788 0.016 69.5 5,719 0.016 60.6
Pinson............................. 50 495 0.038 10.9 299 0.049 12.6
Marigold........................... 33 512 0.029 12.2 431 0.032 14.3
CANADA
Eskay Creek(1,2)................... 100 81 3.488 271.1 63 3.451 195.5
Williams........................... 50 687 0.147 95.6 643 0.154 94.2
David Bell......................... 50 124 0.344 41.1 118 0.390 43.8
Quarter Claim...................... 25 -- -- 5.6 -- -- 5.6
Snip(3)............................ 100 79 0.705 50.5 83 0.793 59.5
AUSTRALIA
Kalgoorlie......................... 50 3,199 0.070 198.9 3,472 0.072 215.3
Plutonic........................... 100 1,656 0.078 112.0 1,683 0.094 135.0
Darlot/Centenary................... 100 380 0.085 30.3 270 0.114 29.5
Lawlers............................ 100 313 0.208 62.4 230 0.130 28.2
Mt Morgans......................... 80 456 0.088 34.6 397 0.092 36.6
Peak Hill.......................... 67 231 0.056 12.6 237 0.079 18.4
CHILE
Agua de la Falda................... 100 148 0.198 23.7 100 0.154 8.3
TOTAL PRODUCTION(4)................ 1,303.3 1,237.2
MINORITY INTERESTS................. (170.5) (130.1)
HOMESTAKE'S SHARE.................. 1,132.8 1,107.1
</TABLE>
- ------------------------
(1) Ounces produced are expressed on a gold equivalent basis and in the 1998
period include 143,400 (110,900 in 1997) ounces of gold and 6.3 million (6
million in 1997) ounces of silver contained in ore and concentrates sold to
smelters in the year-to-date period.
(2) Tons processed and average grade at Eskay Creek relate to tons of ore mined
at the average gold equivalent grade during the period. During the period,
81,000 (63,100 in 1997) tons of ore grading 1.931 (2.018 in 1997) ounces of
gold and 76.8 (102.0 in 1997) ounces of silver per ton were mined.
(3) Includes ounces of gold contained in dore and concentrates.
(4) Includes 12,500 ounces of gold produced at the Bellevue project in Western
Australia, and 500 ounces produced at the El Hueso mine in Chile during the
1997 period.
S-79
<PAGE>
COSTS PER OUNCE
<TABLE>
<CAPTION>
CASH COSTS TOTAL COSTS
(US DOLLARS PER (US DOLLARS PER
OUNCE) OUNCE)
-------------------- --------------------
SIX MONTHS ENDED JUNE 30,
------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
UNITED STATES
Homestake..................................... $ 250 $ 323 $ 306 $ 367
Ruby Hill..................................... 126 -- 241 --
McLaughlin.................................... 216 249 338 366
Round Mountain................................ 200 219 251 270
Pinson........................................ 374 342 409 406
Marigold...................................... 253 243 271 274
CANADA
Eskay Creek(1)................................ $ 127 $ 161 $ 158 $ 194
Williams...................................... 226 251 264 293
David Bell.................................... 206 203 248 249
Quarter Claim................................. 170 174 172 175
Snip(1)....................................... 213 210 348 327
AUSTRALIA
Kalgoorlie.................................... 239 276 295 332
Plutonic...................................... 256 243 336 298
Darlot/Centenary.............................. 312 322 347 345
Lawlers....................................... 195 238 217 259
Mt Morgans.................................... 227 386 257 565
Peak Hill..................................... 278 245 296 428
CHILE
Agua de la Falda.............................. 202 203 289 287
WEIGHTED AVERAGE.............................. $ 207 $ 256 $ 263 $ 315
</TABLE>
- ------------------------
(1) For comparison purposes, total cash costs per ounce include estimated
third-party costs incurred by smelter owners and others to produce
marketable gold and silver.
BUSINESS AND PROPERTY DESCRIPTION
UNITED STATES GOLD OPERATIONS
Homestake conducts operations at the Homestake mine in the Black Hills of
South Dakota, at the Ruby Hill mine in Nevada, at the McLaughlin mine in
northern California and at the 50% owned Pinson mine in north central Nevada. In
addition, Homestake owns a 25% interest in the Round Mountain mine in central
Nevada and a 33.3% interest in the Marigold mine in north central Nevada. The
Company's principal exploration office is in Reno, Nevada.
HOMESTAKE MINE
The Homestake gold mine is located in Lawrence County in and near Lead,
South Dakota. The mine has been in operation since 1876. Homestake owns 100% of
the operation. Paved public roads provide access to the operation.
S-80
<PAGE>
The Homestake mine properties cover approximately 11,700 acres, of which
approximately 8,200 acres are owned in fee and the remainder are held as
unpatented mining claims. All mining is conducted on owned property.
The Homestake mine is comprised of underground and open-pit (the "Open Cut")
mining operations, an ore processing plant, final product refinery, a
waste-water treatment plant, and tailings disposal facilities. The underground
mine is serviced by two 5,000-foot vertical shafts from the surface connecting
with internal shafts which provide hoisting and services to the 8,000-foot
level. Ore from underground is hoisted to the surface, crushed and transported
to the nearby processing plant. Open Cut ore is crushed and transported more
than a mile to the processing plant by an enclosed conveyor. The 7,400
tons-per-day ("TPD") capacity processing plant recovers gold through a
combination of gravity, carbon-in-pulp ("CIP") and vat leaching processes.
Recycled process water is pumped through a series of carbon columns to recover
residual gold in solution. The refinery produces 0.997 fine gold bullion.
Process tails are used for underground fill or are deposited in a tailings
impoundment facility three miles from the plant.
The first phase of a major tailings dam lift expansion commenced in 1996.
Construction of an interim raise of eleven feet was completed in 1997 at a cost
of approximately US$11.8 million, and construction of an additional nine foot
lift will be completed in 1998 at a cost of approximately US$3 million. The
expansion will provide tailings storage capacity sufficient to hold projected
mining activity through the year 2002, and additional flood storage capacity.
Facilities and equipment at this operation continue to be upgraded, and during
1997 capital expenditures totaled approximately US$16 million, principally for
the tailings dam lift and electrical facilities upgrades. The facilities and
equipment are generally in good operating condition, but the basic mine and
major facilities have been in service for many years and are less efficient than
mines and facilities developed more recently.
Untreated water for use in the mine's facilities is obtained from local
watersheds under Homestake mine water rights and potable water is purchased from
the Lead/Deadwood Sanitation District. Approximately 80% of the electric power
consumption is purchased under contract from Black Hills Corporation and the
remainder is provided by Homestake-owned hydroelectric facilities.
During 1997, certain Open Cut assets were deemed to be impaired and were
written down, resulting in a pre-tax charge of US$12.8 million. Open Cut mining
was completed in September 1998. Open Cut ore stockpiles will continue to be
processed through the first quarter of 1999.
As underground mining has progressed into the lower levels of the Homestake
mine, the remaining higher-grade ore deposits have become narrower, less
continuous and more difficult to mine, resulting in higher costs. On January 26,
1998, in response to increasing costs for the underground mine and the low gold
price, Homestake began a major restructuring of operations at the Homestake
mine. The new operating plan is expected to reduce costs significantly, so as to
position the mine to continue operating for many additional years. The plan
provides for a substantial reduction in annual production, a major reduction in
the level of employment and a complete reorganization of the methods of
operation. The new operating plan also involves closing parts of the mine and
concentrating on substantially fewer production levels in order to reduce
continuing infrastructure and other operating costs. This new plan, which also
incorporates new capital spending projects, is expected to result in increased
productivity in tons mined per manshift worked and should also result in higher
mined ore grade due to changing the mix of mining methods to be employed in
different parts of the mine. The combined impact of these improvements is
expected to be a significant reduction in production costs per ounce of gold
produced.
To most effectively implement the new operating plan, Homestake suspended
underground mining while it completed the final details of the plan and readied
the underground mine to begin operating on the restructured basis. During the
shutdown period, the mill processed ore from the Open Cut at an accelerated
rate.
S-81
<PAGE>
The new operating plan provides that upon completion of the restructuring of
the mine, production will be reduced to a rate of approximately 150,000 to
180,000 ounces per year by the beginning of 1999. The total cash cost for the
underground mine is expected to be reduced from in excess of US$335 per ounce in
1997 to approximately US$280 per ounce by the end of 1999. To achieve the new
operating plan, Homestake expects to invest up to $30 million by the end of
1999. Before taking into account the proposed Arrangement with Prime, the
restructuring is expected to reduce Homestake's weighted average cash costs by
approximately US$8 per ounce by the end of 1999. Underground crews commenced
returning to work on a limited basis on March 26, 1998, and the remaining
underground work force returned to work on a phased basis. Substantial
development work is continuing in order to prepare the mine to operate under the
new operating plan, and production is continuing to increase each month. The
final underground work force is approximately one-half the size of the
underground work force prior to the shutdown. Milling and other surface
operations are also being reduced to accommodate the reduced size of the
operations.
Although the new operating plan reduces proven and probable gold reserves by
1.5 million ounces (before taking account of 1997 production), the improved per
ounce operating margin on the remaining reserves is expected to increase the
mine's future total cash flow significantly.
Hourly employees at the Homestake mine are represented by the United
Steelworkers of America. A new five-year contract was signed in May 1998.
During 1997, the mine operated in compliance with its environmental permits,
except that in November 1997, the mine had one reportable spill of tailings into
Whitewood Creek. In May 1998, the mine had a reportable spill into Whitewood
Creek that resulted from the erosion and failure of an underground portion of
the sand back-fill system. The Homestake mine is under no regulatory orders of
any kind mandating specific environmental expenditures.
No royalties are payable on production from the Homestake mine. The State of
South Dakota imposes a severance tax of 10% of net profits from the sale of gold
produced in the state, plus US$4 per ounce of gold sold when the price of gold
is US$499 per ounce or less, increasing by US$1 per ounce for each US$100
increment or part thereof in excess of US$499 per ounce.
GEOLOGY
The Homestake mine is the largest known iron formation hosted gold deposit.
In its 122-year life, the mine has produced in excess of 39 million ounces of
gold. The Homestake gold deposit is Proterozoic in age (approximately 1.9
billion years). Mineralization is generally stratabound within the Homestake
Formation, which is a quartz-veined, sulfide-rich sedimentary sequence that has
been complexly deformed by tight folding, faulting and shearing. Ten
southeast-plunging fold structures, locally called ledges, have produced gold
ore over a vertical extent of more than 8,000 feet.
S-82
<PAGE>
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
UNDERGROUND:
Tons of ore (000)........................................................ 11,900 19,764
Ounces of gold per ton................................................... 0.220 0.220
Contained ounces of gold (000)........................................... 2,620 4,345
OPEN CUT:
Tons of ore (000)........................................................ 1,674 3,990
Ounces of gold per ton................................................... 0.099 0.079
Contained ounces of gold (000)........................................... 166 317
TOTAL:
Tons of ore (000)........................................................ 13,574 23,754
Ounces of gold per ton................................................... 0.205 0.196
Contained ounces of gold (000)........................................... 2,786 4,662
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000):
Underground......................................................... 1,359 1,376
Open Cut............................................................ 1,894 1,683
Ore grade mined (oz. gold/ton):
Underground......................................................... 0.195 0.211
Open Cut............................................................ 0.123 0.115
Open Cut stripping ratio (waste:ore).................................. 2.3:1 4.9:1
Tons of ore milled (000).............................................. 2,578 2,566
Mill feed ore grade (oz. gold/ton).................................... 0.163 0.166
Mill recovery (%)..................................................... 94 95
Gold recovered (000 ozs.)............................................. 397 407
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 306 US$ 293
Other cash costs...................................................... 4 11
Noncash costs......................................................... 47 35
--------- ---------
Total production costs................................................ US$ 357 US$ 339
</TABLE>
ROUND MOUNTAIN MINE
The Round Mountain gold mine is an open-pit mine located in Nye County,
Nevada, about 60 miles north of Tonopah. Homestake owns a 25% interest in the
mine. Echo Bay Mines Ltd. owns a 50% interest and is the operator. The remaining
25% interest is owned by Case, Pomeroy & Company, Inc. The mine has been in
operation since 1977. Paved public roads provide access to the operations.
The Round Mountain properties cover approximately 24,968 acres of land, of
which 645 acres are privately owned, 405 acres are under patent application, and
the remainder are held under unpatented mining claims. Approximately 73% of the
total reserves are located on the privately-owned land.
Most of the ore is heap leached, and the remainder, consisting of
higher-grade sulfide ore, is milled in the recently completed mill. Ore is heap
leached using two methods. The higher-grade oxide ore is crushed
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<PAGE>
and processed on reusable heap-leach pads for 100 to 150 days and then hauled to
dedicated pads and releached. Lower grade, uncrushed run-of-mine oxide ore is
heap leached on dedicated pads along with previously leached ore from the
reusable pad.
The reusable pad processing facilities consist of a gyratory crusher, an
intermediate ore storage and a reclamation system, secondary and tertiary cone
crushers and screens, a conveyor system used to transport ore to two asphalt
leach pads, and a solution pumping system. The reusable pads have a total
capacity of approximately three million tons. The separate, dedicated heap-leach
pads and solution pumping system, covering an area of 24.2 million square feet,
have the capacity to process 195 million tons of ore. Construction of an
additional 7.8 million square foot dedicated pad facility and solution pumping
system was completed in February 1998 at a cost of approximately US$13.5 million
(Homestake's share-- US$3.4 million). This expansion will be sufficient for
mining and processing activity through mid-1999. It is anticipated that the
dedicated pad facilities will be expanded to approximately 51.2 million square
feet and 485 million tons over the life of the project. During 1997, total ore
processed averaged 134,300 TPD, the reusable heap-leach pads processed 26,600
TPD and the balance was processed on the dedicated pads. The average ore and
waste mining rate was 197,200 TPD, and the total mining rate, including
stockpiles, was 265,000 TPD.
The gravity mill for processing higher-grade sulfide ores was completed
ahead of schedule in October 1997 and under budget at a cost of US$62.2 million
(Homestake's share--US$15.5 million). The mill provides higher gold recoveries
than otherwise would be obtained by crushing and leaching the higher-grade
sulfide ores on the reusable pad. The mill has a capacity to process 8,000 tons
per day of sulfide ore. Mill tailings are impounded at a newly constructed
tailings facility.
Water is supplied from company-owned wells on the property and from water
reclaimed from tailings dams. Power is purchased under contract from Sierra
Pacific Power Company.
During the third quarter of 1997, a new Round Mountain mining plan was
approved. This new plan was the result of an intensive re-engineering effort and
resulted in moderately lower ore tons but significantly lower waste tons to be
mined. Specifically, the new plan provides for a decrease in the ore reserves of
approximately 1,261,000 ounces (100% basis) at December 31, 1997 (before taking
account of 1997 production) and a decrease in total mining requirements of 260
million tons. The combined effect of these changes is expected to increase the
mine's cash flow and profitability and to reduce total cash costs. The new
schedule and pit design required the movement of a number of shops and other
facilities during 1998. Construction of the new facilities and demolition of the
old facilities is expected to cost approximately US$15.5 million (Homestake's
share--US$3.9 million) and was substantially completed during the third quarter
of 1998.
Homestake's share of total 1997 gold production from the Round Mountain mine
was 119,959 ounces at a total cash cost of US$226 per ounce, compared to 102,744
ounces at a total cash cost of US$256 in 1996. The higher 1997 production is a
result of improved mining efficiency, higher grades and recoveries from the
reusable pads, and an increase in the volume of ore placed on the dedicated pad.
Gold production from gravity treatment of high-grade ores declined to 1,799
ounces (Homestake's share) in 1997 compared to 3,137 ounces in 1996. Homestake's
share of production in the first half of 1998 was 69,500 ounces at a total cash
cost of US$200 per ounce compared to 60,600 ounces at a total cash cost of
US$219 in the first half of 1997. The improved results reflect the benefit of
the new milling facility and the new mining plan.
Pit water discharges began to exceed the permitted levels for arsenic during
1997. A new pit dewatering system has since been designed that utilizes pit
water within the operation, and eliminates pit water discharges outside of the
property. During 1997, one minor air quality citation was issued by the Nevada
Bureau of Air Quality for fugitive dust emissions. During 1998, the mine had six
spills of leach solutions. None of the contamination escaped from the property.
The contaminated soil was removed and
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<PAGE>
placed on the leach pad. Measures have been taken to prevent further spills.
Otherwise, during 1997 and the first half of 1998 the mine operated in
compliance with its permits.
All Round Mountain mine production is subject to a royalty determined by a
complex formula based on the price of gold. The royalties range from
approximately 3.5% of gold revenues at prices of US$320 per ounce of gold to
approximately 6.4% of gold revenues at prices of US$440 per ounce of gold or
more. During 1997, the royalties averaged 3.78% of revenues.
GEOLOGY
The Round Mountain ore body straddles the margin of a volcanic caldera
complex. Gold-bearing hydrothermal fluids were transported along major
structural conduits created by the volcano's collapse and associated faulting.
These ascending fluids deposited gold in permeable zones along a broad northwest
trend. Primary gold mineralization at Round Mountain occurs as electrum, a
natural gold/silver alloy, in association with quartz, adularia and pyrite.
Narrow fractures in shear zones host higher-grade mineralization while porous
sites within the volcanic rocks host the disseminated mineralization. Economic
gold mineralization is found in both the volcanic and surrounding sedimentary
rocks as well as overlying alluvial placers. The oblong open-pit mine is over a
mile at its longest dimension and currently more than 1,200 feet from the
highest working level to the bottom of the pit.
Homestake has a 25% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)....................................................... 401,325 476,509
Ounces of gold per ton.................................................. 0.018 0.019
Contained ounces of gold (000).......................................... 7,037 9,050
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... 32,726 31,947
Stripping ratio (waste:ore)........................................... 1.2:1 0.8:1
Tons of ore crushed (000)............................................. 9,757 9,894
Tons of ore processed (000)........................................... 48,496 40,867
Weighted average ore grade placed on the pads (oz. gold/ton).......... 0.015 0.017
Leach recovery--reusable pads (%)..................................... 75 66
Gold recovered (000 ozs.)............................................. 480 411
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 210 US$ 230
Other cash costs...................................................... 16 26
Noncash costs......................................................... 49 61
--------- ---------
Total production costs................................................ US$ 275 US$ 317
</TABLE>
RUBY HILL MINE
The Ruby Hill mine is located one mile northwest of Eureka, Nevada.
Homestake owns 100% of the operation. Access to the property is by a 1.5 mile
gravel road from U.S. Highway 50.
S-85
<PAGE>
The Ruby Hill properties consist of approximately 24,831 acres, of which
23,386 acres are unpatented mining claims and 1,445 acres are privately owned.
Exploration activities have resulted in the discovery of several mineralized
zones. A positive feasibility study on the West Archimedes deposit was completed
during the fourth quarter of 1995, and construction of a mine, heap-leach pads
and a mill facility commenced in early 1997 and was completed in December 1997.
Total capital cost, including the pre-stripping of the overlying alluvium, was
approximately US$64.7 million.
The operation utilizes conventional open-pit mining methods and heap
leaching. High-grade ore is ground in a ball mill, leached and filtered, and
then combined with the crushed low-grade ore in a rotating agglomeration drum
prior to being placed on the leach pad. The feasibility study estimated that the
mine would produce an average of 105,000 ounces of gold per year over its
six-year life at a total cash cost of approximately US$140 per ounce. The mine,
which poured its first gold on November 6, 1997, produced 16,629 ounces of gold
during 1997. The mine commenced commercial production effective January 1, 1998
and is budgeted to produce 110,000 ounces in 1998 at a total cash cost of US$128
per ounce and a total cost of US$247 per ounce. Through June 30, 1998, the mine
produced 61,028 ounces of gold at a total cash cost of US$126 per ounce and a
total cost of US$241 per ounce.
Water is available from on-site wells and power is available from Mount
Wheeler Power Company.
A production royalty of 3% of net smelter returns is payable on production
over 500,000 ounces of gold.
GEOLOGY
The West Archimedes gold mineralization is hosted primarily within
brecciated jasperoid and decalcified limestones of the uppermost Goodwin and
Antelope Valley units of the Ordovician Pogonip Group. The micron-size gold is
finely disseminated and the ore body is entirely oxidized. Exploration and
delineation drilling are continuing on several surface targets within the Ruby
Hill claim block.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)............................................................ 7,028 7,616
Ounces of gold per ton....................................................... 0.098 0.099
Contained ounces of gold (000)............................................... 687 755
</TABLE>
MCLAUGHLIN MINE
The McLaughlin gold mine is located at the junction of Lake, Napa and Yolo
Counties in northern California. The McLaughlin mine commenced operation in 1985
and is 100% owned by Homestake. Access to the property is by paved road.
The McLaughlin mine properties cover approximately 16,200 acres.
Approximately 15,100 acres are owned and approximately 950 acres are leased. The
Company holds seven unpatented mining claims and six millsite claims covering
the remaining property.
Mining was completed in June 1996 and ore is now sourced exclusively from
lower-grade stockpiles which were built up over the life of the mine. The
autoclave and flotation circuits were decommissioned following the completion of
mining of high-grade ores. The plant now operates as a direct-cyanidation
circuit utilizing cyanide leaching followed by CIP circuits, pressure stripping
and electrowinning. Total mill capacity is approximately 7,600 TPD. In 1996, the
embankment at the tailings impoundment was raised,
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<PAGE>
increasing the impoundment's capacity to allow for the treatment of all but the
lowest-grade ore remaining in the stockpiles. A final tailings dam lift,
currently scheduled to be completed in 1998 at an estimated cost of US$1.7
million, will allow for the processing of the then remaining ore. Facilities are
modern and in good operating condition.
The majority of process water is recycled from the tailings pond. Additional
water is obtained from the Company's reservoir in Yolo County, which has
approximately four years of storage capacity. Electric power is purchased under
interruptible tariff from Pacific Gas and Electric Company.
Gold production, which is expected to continue through approximately 2002,
has declined significantly due to the completion of mining and exhaustion of
high-grade ores. Processing costs also have declined significantly due to the
shutdown of the higher cost autoclave and flotation circuits, allowing economic
treatment of the lower-grade stockpiled ore. During 1996, Homestake entered into
long term hedging contracts to ensure recovery of the remaining investment and
to cover remaining reclamation costs.
During 1997 and the first half of 1998, the mine operated in compliance with
its environmental permits.
McLaughlin mine royalties are equivalent to approximately 2% of revenues.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
STOCKPILED:
Tons of ore (000)........................................................ 13,908 16,627
Ounces of gold per ton................................................... 0.061 0.063
Contained ounces of gold (000)........................................... 845 1,048
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... -- 826
Stripping ratio (waste:ore)........................................... -- 4:1
Tons of ore milled (000).............................................. 2,719 2,485
Mill feed ore grade (oz. gold/ton).................................... 0.075 0.096
Mill recovery (%)..................................................... 58 77
Gold recovered (000 ozs.)............................................. 118 185
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 247 US$ 242
Other cash costs...................................................... 7 8
Noncash costs......................................................... 120 123
--------- ---------
Total production costs................................................ US$ 374 US$ 373
</TABLE>
PINSON MINE
The Pinson gold mine is located in Humboldt County approximately 30 miles
northeast of Winnemucca, Nevada. Homestake has a 50% interest in the Pinson
Partnership and is the operator of the Pinson mine. Barrick Gold Corporation
("Barrick") owns the remaining interest. The mine has operated since 1981.
Access to the property is by paved and gravel roads.
S-87
<PAGE>
The Pinson properties consist of approximately 36,615 acres of which 11,511
acres are held under leases, the terms of which are sufficient to allow for the
mining of all known reserves. The remaining land is comprised of 21,800 acres of
unpatented mining claims and 3,303 acres of primarily fee lands. New leases have
been negotiated for portions of the property where the leases were scheduled to
expire by the year 2000. Homestake and Barrick are conducting an extensive deep
drilling exploration program on the Pinson properties.
Mining is conducted by conventional open-pit methods in several different
areas. The mine has both heap-leaching and conventional milling facilities.
Total material mined averaged approximately 32,510 TPD in 1997. The mill has a
capacity of 1,550 TPD using both CIP and CIL methods. In 1997, 73% of total gold
production was from milled ore. The facilities are in good condition. In
February 1998, milling was suspended and all ore currently is processed by heap
leaching.
Additional ore has been discovered in the existing pits that will extend the
life of current operations until the end of 2001. A contractor will be employed
during the second half of 1998 to assist in pre-stripping of overburden.
Additional capital expenditures for the extended operations are estimated at
US$5.5 million (100% basis).
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
During 1997 and the first half of 1998, the mine operated in compliance with
all of its environmental permits.
Production royalties averaging 3.5% of net smelter returns are currently
payable on the principal producing areas of the property. Overall, the
underlying property ownership is complex, requiring special arrangements with
respect to the commingling of ore from various locations.
Homestake's share of production from the Pinson mine was 25,829 ounces of
gold in 1997 compared to 12,098 ounces in 1996.
As a result of lower gold prices, in the third quarter of 1997 Homestake
reviewed its carrying value of the Pinson mine. Based on its evaluation of the
property at a US$325 gold price, Homestake wrote down the carrying value of its
investment in the Pinson mine to zero. However, Homestake believes the Pinson
property has good exploration potential, and plans to continue with its
exploration program for portions of the property.
During 1998, Homestake and Barrick plan to spend US$3 million collectively
to explore for high-grade mineralized zones at depth.
GEOLOGY
The Pinson deposit includes more than six zones of mineralization largely
hosted in carbonate rocks and calcareous siltstones of the Ordovician Comus
Formation. Ore bodies consist of disseminations of micron-size gold peripheral
to faults in favorable stratigraphy. High-grade stringer zones have been
identified and are the subject of continuing investigations.
Homestake has a 50% share of the following reserves:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)............................................................ 1,783 2,563
Ounces of gold per ton....................................................... 0.073 0.072
Contained ounces of gold (000)............................................... 131 184
</TABLE>
S-88
<PAGE>
Operating data is presented below on a 100% basis. In December 1996,
Homestake increased its interest to 50%. Prior to December 1996, Homestake had a
26.25% share of the following amounts:
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... 1,263 1,257
Stripping ratio (waste:ore)........................................... 8.2:1 6.1:1
Tons of ore milled (000).............................................. 550 549
Ore grade milled (oz. gold/ton)....................................... 0.076 0.077
Mill recovery (%)..................................................... 86 79
Tons of ore leached (000)............................................. 712 669
Ore grade leached (oz. gold/ton)...................................... 0.023 0.030
Gold recovered (000 ozs.)............................................. 52 42
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 334 US$ 355
Other cash costs...................................................... 10 14
Noncash costs......................................................... 54 63
--------- ---------
Total production costs................................................ US$ 398 US$ 432
</TABLE>
MARIGOLD MINE
The Marigold gold mine is located in Humboldt County approximately 40 miles
southeast of Winnemucca, Nevada. Homestake owns a 33.3% interest in the Marigold
partnership. Rayrock Mines, Inc. owns the remaining interest and is the
operator. The mine has operated since 1989. Access to the property is via a
five-mile long gravel road.
The property consists of approximately 3,920 acres of unpatented mining
claims and 14,920 acres held under leases which remain in effect as long as the
mine continues production.
Mining is conducted by conventional open-pit methods. Ore is processed by
heap leaching and milling methods. Mill-grade ore is stockpiled and periodically
processed through the mill to maximize gold recovery. Milling operations are
intermittent. Mine facilities are in good condition.
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
During 1997 and the first half of 1998, the mine operated in compliance with
all its environmental permits.
Production royalties are paid to two lease holders in amounts of 5% of net
smelter returns and 3.5% of net profits.
Homestake's share of production from the Marigold mine was 24,547 ounces of
gold in 1997 compared to 24,485 ounces in 1996.
GEOLOGY
Gold mineralization at the Marigold mine is hosted largely in the Permian
Antler Formation and the Ordovician Valmy Formation and are associated with
broad bands of silicification and local decalcification. Both stratigraphy and
structure control the geometry of the mineralized zones. The ore bodies are
sediment-hosted, disseminated deposits of micron-size gold, and are entirely
oxidized.
S-89
<PAGE>
Homestake has a 33.3% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)........................................................ 15,288 18,068
Ounces of gold per ton................................................... 0.033 0.034
Contained ounces of gold (000)........................................... 504 610
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... 2,583 2,882
Stripping ratio (waste:ore)........................................... 3.3:1 2.9:1
Tons of ore milled (000).............................................. 387 428
Ore grade milled (oz. gold/ton)....................................... 0.082 0.086
Mill recovery (%)..................................................... 95 93
Tons of ore leached (000)............................................. 2,290 2,491
Ore grade leached (oz. gold/ton)...................................... 0.019 0.019
Gold recovered (000 ozs.)............................................. 74 73
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 239 US$ 231
Other cash costs...................................................... 28 36
Noncash costs......................................................... 34 46
--------- ---------
Total production costs................................................ US$ 301 US$ 313
</TABLE>
CANADA
Homestake has a 50.6% interest in Prime, which owns the Eskay Creek and Snip
mines in northwestern British Columbia. Homestake also has a 50% interest in the
Williams and David Bell mines in the Hemlo Gold Camp in Ontario and a 25% net
profits interest in the Quarter Claim adjacent to the David Bell mine. During
1996, mining was completed at Homestake's Nickel Plate mine in south central
British Columbia.
Homestake conducts exploration and investigates mineral acquisition and
development opportunities throughout Canada. Canadian activities are managed
from an office in Vancouver, British Columbia.
ESKAY CREEK AND SNIP MINES
See "Prime Resources Group Inc." for information about the Eskay Creek and
Snip mines.
WILLIAMS MINE
The Williams gold mine is located in the Hemlo Gold Camp 217 miles east of
Thunder Bay, Ontario, adjacent to the TransCanada Highway. The mine is operated
by Williams Operating Corporation ("WOC") with its own personnel. Each of
Homestake and Teck Corporation ("Teck") owns a 50% interest in WOC. The mine
commenced operations in 1985.
The property consists of 11 mining claims covering approximately 380 acres
and one Crown mining lease. Homestake and Teck are required to provide funds
equally to WOC for all costs incurred to operate
S-90
<PAGE>
the mine. Homestake and Teck have mutual rights of first refusal over each
other's interest in the Williams mine and shares of WOC.
The Williams mine is an underground operation which is accessible by a
4,300-foot shaft. The mine utilizes the longhole, open-stope mining method with
cemented and uncemented rock backfill. In addition, 650 to 1,000 TPD of
lower-grade ore is recovered from a nearby open pit. Waste rock from the open
pit is used for backfill in the underground operations. The rated capacity of
the mill is 7,000 TPD. It operated at 7,277 TPD during 1997 with gold recovery
at 94.9%. The Williams and David Bell mines share a tailings basin facility
located approximately two miles from the mill. Cyanidation and the CIP process
are used to recover gold. Water from the tailings basin is treated in an
effluent treatment plant prior to discharge. Both mines recycle mill make-up
water from the tailings pond. The facilities and equipment are modern and in
good condition.
Fresh water for the property is supplied from Cedar Creek and power is
purchased from Ontario Hydro via a long-term contract. Propane for heating mine
air and surface facilities is purchased under contract.
During 1997, ore was mined primarily from the Block 3 and Block 4 zones.
Ground stability problems were experienced during the year limiting access to
high-grade stopes. However, by increasing output from the open pit and other
areas of the mine, ounces produced were as predicted. Ground conditions will
continue to be a concern, but increased use of ground support technology and
careful stope scheduling should help mitigate future problems.
The mine will continue to operate at the average ore reserve grade for the
remaining life of the operation. Approximately 43% of the ounces mined in 1997
were replaced with reserve additions in the Block 3 zone and lower "C" zone.
During 1997, under an agreement with Franco Nevada Ltd. ("Franco"), a drift
was driven, at Franco's expense, from the Williams property onto Franco's
adjacent property to carry out an underground exploration program. The agreement
gives WOC a right of first proposal for any mineralization which Franco may
discover during its exploration activity. During 1997 Franco conducted
approximately 33,000 feet of exploration drilling from the Franco drift.
During 1997, the mine had five minor spills. All incidents were properly
reported and corrective action was taken immediately. No citations have been
issued and none are expected. With these exceptions, during 1997 and the first
half of 1998, the mine operated in compliance with all environmental permits.
The owned property is subject to three net smelter royalties totaling a net
effective rate of 2.08% and the Crown mining lease is subject to a net smelter
royalty of 0.75%.
Homestake's share of production was 201,098 ounces in 1997 at a total cash
cost of US$229 compared to 205,519 ounces in 1996 at a total cash cost of
US$222. Homestake's share of production for the first half of 1998 was 95,600
ounces at a total cash cost of US$226 per ounce, compared to 94,200 ounces at a
total cash cost of US$251 per ounce for the first half of 1997. Improved results
over the prior period reflect improved ground conditions and lower underground
development costs.
GEOLOGY
The Hemlo Gold Camp occurs within the east-west striking Heron Bay belt of
metamorphosed Archean aged rocks (3.5 billion years). The steeply dipping ore
bodies lie along the contact between overlying metasedimentary rocks and
underlying volcanic rocks. Gold mineralization is hosted primarily by a
fine-grained feldspar porphyry unit and is associated with pyrite, barite and
molybdenite.
S-91
<PAGE>
Homestake has a 50% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)......................................... 32,926 35,449
Ounces of gold per ton.................................... 0.150 0.146
Contained ounces of gold (000)............................ 4,929 5,169
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore milled (000).............................................. 2,656 2,583
Mill feed ore grade (oz. gold/ton).................................... 0.160 0.167
Mill recovery (%)..................................................... 95 95
Gold recovered (000 ozs.)............................................. 402 411
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 222 US$ 214
Other cash costs...................................................... 7 8
Noncash costs......................................................... 40 39
--------- ---------
Total production costs................................................ US$ 269 US$ 261
</TABLE>
DAVID BELL MINE
The David Bell gold mine is located in the Hemlo Gold Camp. The mine is
operated by the Teck-Corona Operating Corporation ("TCOC") with TCOC personnel.
Each of Homestake and Teck owns a 50% interest in TCOC. The mine commenced
operations in 1985.
The mine is located on the same ore trend as the Williams mine. The property
consists of approximately 640 acres held under two freehold patents. Homestake
and Teck are required to provide funds equally to TCOC for all costs incurred to
operate the mine. Homestake and Teck have mutual rights of first refusal over
each other's interest in the David Bell mine and shares of TCOC. Each of
Homestake and Teck has a 50% interest in efforts to explore and develop mineral
properties within approximately two miles of the David Bell property.
The David Bell mine is an underground operation which is accessible by a
3,819-foot shaft. Production is from stopes using longhole mining methods, with
cement, tailings, sand and waste rock utilized as backfill. Mill throughput was
1,297 TPD in 1997. Cyanidation and CIP processes are used to recover gold. The
facilities and equipment are modern and in good condition.
In September 1998, TCOC announced that, subject to completion of a detailed
engineering study confirming positive economics, beginning in mid-1999, ore from
the David Bell mine will be processed in the Williams mine mill and milling
operations at the David Bell mine will be discontinued. The inital studies
indicate that closure of the David Bell mill is not expected to result in
decreased production from the mines, and is expected to significantly decrease
future David Bell mine costs.
Water and power supplies are the same as those at the Williams mine. Treated
reclaimed process water is used to service the underground operations.
The average width of ore at the David Bell mine is decreasing as mining
progresses away from the central core of the ore body. In an effort to optimize
ore extraction and to minimize development costs,
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<PAGE>
stoping of narrow-width ore by longitudinal longhole retreat continued during
the year. Production in 1997 decreased by 6% compared to 1996 primarily as a
result of processing lower grade ore. The 1997 ore grade declined, approaching
average life-of-mine reserve grade. This trend has continued in 1998 and is
expected to continue in the future.
Approximately 42% of the ounces mined in 1997 have been replaced with ore
reserve additions despite a 28% increase in the cut-off ore grade.
The hourly work force at David Bell is unionized and the collective
bargaining agreement with the United Steel Workers of America is in effect
through October 1998.
In December 1997, the mine had a minor propane emission. The incident was
properly reported and corrective action was taken immediately. No citation was
issued and none is expected. Except as noted, during 1997 and the first half of
1998, the mine operated in compliance with all of its environmental permits.
The property is subject to a 3% net smelter return royalty.
Homestake's share of production at the David Bell mine was 89,982 ounces in
1997 compared to 97,736 ounces in 1996 at a total cash cost of US$172.
Homestake's share of production for the first half of 1998 was 41,100 ounces at
a total cash cost of US$206 per ounce as compared to 43,800 ounces at a total
cash cost of US$203 in the first half of 1997.
GEOLOGY
See "Williams Mine--Geology."
Homestake has a 50% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)...................................... 4,785 5,574
Ounces of gold per ton................................. 0.316 0.291
Contained ounces of gold (000)......................... 1,512 1,621
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore milled (000).............................................. 473 427
Mill feed ore grade (oz. gold/ton).................................... 0.397 0.476
Mill recovery (%)..................................................... 96 96
Gold recovered (000 ozs.)............................................. 180 195
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 184 US$ 161
Other cash costs...................................................... 10 11
Noncash costs......................................................... 45 45
--------- ---------
Total production costs................................................ US$ 239 US$ 217
</TABLE>
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<PAGE>
QUARTER CLAIM
The Quarter Claim constitutes approximately one-fourth of a mining claim,
which was originally part of the David Bell property, and was optioned to and
subsequently acquired by Battle Mountain Gold Company ("Battle Mountain") in
1982. Battle Mountain developed a shaft on the Quarter Claim and reserved
hoisting and milling capacity of 500 TPD at its mill to process any ore found on
the Quarter Claim. Homestake has a 25% net profits interest in all ore recovered
from the Quarter Claim. The net profits interest is based on a deemed production
rate, deemed production costs and the market price of gold. Until deemed
cumulative production from January 1, 1995 is equal to 95% of the estimated
reserves as of January 1, 1995, the deemed production rate is based upon
committed throughput of 500 TPD multiplied by (a) the average ore grade of the
remaining Quarter Claim reserves, and (b) a recovery factor. Thereafter,
Homestake's interest is reduced to a 20% net profits interest calculated on
actual production.
Homestake's share of production at the Quarter Claim was 11,331 ounces in
1997 compared to 11,362 ounces in 1996.
GEOLOGY
See "Williams Mine--Geology."
Homestake has a 25% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)...................................... 747 930
Ounces of gold per ton................................. 0.258 0.258
Contained ounces of gold (000)......................... 193 240
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore milled (000).............................................. 183 183
Mill feed ore grade (oz. gold/ton).................................... 0.257 0.257
Mill recovery (%)..................................................... 96 96
Gold recovered (000 ozs.)............................................. 45 45
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 162 US$ 156
Other cash costs...................................................... 10 12
Noncash costs......................................................... 1 1
--------- ---------
Total production costs................................................ US$ 173 US$ 169
</TABLE>
NICKEL PLATE MINE
Mining and ore processing at the Nickel Plate mine, located near Hedley,
British Columbia, was completed in 1996. Reclamation of the property, in
accordance with a plan filed with British Columbia's regulatory agencies, is in
progress. At the end of 1997, approximately 79% of the total land affected by
mining activities had been reclaimed. Reclamation work includes sloping,
covering with soil, and seeding all rock dumps. It will also include treating
all water in the tailings impoundment prior to release into the environment. By
June 30, 1998 a total of 104 million gallons of water in the tailings
impoundment had been treated and only 12 million gallons remained. Placement of
a cover on the dried tailings had commenced and should be completed by the end
of 1999. When the water treatment is complete, the plant will be
S-94
<PAGE>
removed and the 80 acre plant site will be reclaimed. During 1997, the property
operated in compliance with all of its environmental permits.
AUSTRALIA
In April 1998, Homestake acquired Plutonic Resources Limited, the third
largest gold mining company in Australia. Homestake operations in Australia are
conducted through Plutonic and HGAL. Homestake owns 50% of Australia's largest
gold mining operations, the surface and underground operations at Kalgoorlie.
Homestake also owns and operates the Plutonic, Darlot/Centenary and Lawlers
mines, owns 66 2/3% of the Peak Hill mine (operated by North Ltd.), and owns 80%
of and operates the Mt Morgans mine. All of the operating mines are located in
Western Australia. Homestake also explores for gold throughout Australia,
principally in Western Australia. Australian activities are managed from the
Homestake office in Perth, Western Australia.
KALGOORLIE OPERATIONS
The Kalgoorlie operations are located 340 miles northeast of Perth, Western
Australia on 164 state leases and licenses covering approximately 30,000 acres
adjacent to the town of Kalgoorlie. The mineral leases were granted for a term
of 21 years on conditions covering rental, royalties, expenditure conditions and
reporting. They are renewable in the final year. Homestake acquired its interest
in the original Kalgoorlie Mining Associates joint venture in 1976. Mining
operations in the Kalgoorlie region date back to 1893. Access to the operations
is by paved road.
Homestake owns a 50% interest in the Kalgoorlie operations. Subsidiaries of
Normandy Mining Limited ("Normandy") own the other 50% interest. Homestake and
Normandy jointly own and control KCGM, which manages the operations under the
direction of a joint management committee. Prior to June 1996, Homestake and
Normandy each paid 50% of the costs but under certain circumstances Normandy was
entitled to more than 50% of the production from one area of the Super Pit (the
"Disproportionate Share"). In June 1996, Homestake purchased Normandy's rights
under the Disproportionate Share and Homestake now shares equally with Normandy
in all gold produced at the Kalgoorlie operations.
The Kalgoorlie operation is comprised of two mines, the Super Pit open-pit
mine and the Mt Charlotte underground gold mine. Ore from both of these
operations is treated at the Fimiston mill. Two smaller facilities, the Mt Percy
and Croesus mills were closed in 1997. The Croesus mill has been demolished and
the Mt Percy mill has been mothballed. Sulfide concentrates produced at the
Fimiston mill are roasted at the Gidji roaster, located 12 miles north of the
main Kalgoorlie operations, prior to final processing at the Fimiston mill. The
facilities and equipment at the Kalgoorlie operations are in good condition.
Ore from the Mt Charlotte mine is conveyed to the Fimiston mill by an open
conveyor. Fresh water is supplied under allocation from the state water system
and is piped 340 miles from Perth. Remaining process water requirements are
satisfied using salt water taken from bores and the underground mine. Until
September 1996, power was purchased under a number of agreements with the state
power authority. Power now is provided under a power supply agreement with
Normandy Power Pty Ltd, a company associated with Normandy.
During 1996, the Kalgoorlie operations had a solutions spill at one of its
tailings ponds. The spill was reported in a timely manner and remediated. During
1997, the operations were cited for the 1996 spill and paid a fine of A$2,000.
During 1997, there was also one instance where KCGM monitoring equipment
determined that sulfur dioxide levels in the Kalgoorlie area exceeded air
quality limits. KCGM reported the reading to the Department of Environmental
Protection ("DEP"). The DEP subsequently filed a charge against KCGM alleging
that KCGM was the source of the excess and that it was a breach of license. KCGM
filed a not guilty plea. The matter is scheduled for a November 1998 court
hearing. Disposition of this matter is not expected to result in any material
adverse consequences. With this possible exception,
S-95
<PAGE>
during 1997 and the first half of 1998 the mine operations were in compliance
with all environmental permits.
Homestake's share of gold production from the consolidated Kalgoorlie
operations was 425,914 ounces in 1997 compared to 368,816 ounces in 1996. Total
cash costs per ounce in 1997 were US$263 compared to US$291 in 1996. Cash costs
were lower in 1997 compared to 1996 primarily due to higher grades, higher
tonnage processed and lower milling costs, partially offset by higher mining
costs. In addition, there was a 5% decline in the average value of the
Australian dollar compared to the US dollar. Homestake's share of gold
production for the first half of 1998 was 198,900 ounces at a total cash cost of
US$239 per ounce, compared to 215,300 ounces in the first half of 1997 at a
total cash cost of US$276. The reduction in cash costs is due primarily to a
decline in the Australian/US dollar exchange rate.
Beginning July 1, 1998, a gold royalty is payable to the State of Western
Australia at a rate of 1.25% on the realized value of gold produced, increasing
to 2.5% on July 1, 2000. Realized value is based on the spot price of gold.
During the period July 1, 2000 through June 30, 2005, the royalty rate is
subject to adjustment to 1.25% during calendar quarters when the spot gold price
is less than A$450 per ounce. There are no other royalties currently payable on
production from the Kalgoorlie mines.
There are a number of native title claims relating to the area of the
Kalgoorlie operations, but the validity of those claims has not been determined.
See "Risk Factors."
SUPER PIT. This large open-pit mine is located along the "Golden Mile" ore
bodies previously mined from underground. Contractors are employed to conduct
the open-pit mining operations, ore and concentrate haulage and some specialized
services. The open-pit mining contract expires in February 1999. KCGM is
currently considering changing to owner mining.
In 1997, 75.9 million tons of material were mined containing 10.8 million
tons of ore, compared to 78.5 million tons of material mined containing 11.8
million tons of ore in 1996. HGAL's share of Super Pit gold production was
343,644 ounces in 1997 and 305,837 ounces in 1996. The increase in production in
1997 primarily was due to increases in throughput, grade and recoveries.
MT CHARLOTTE. This underground mine uses bulk mining methods and large
conventional diesel powered loaders and trucks. The main production level is
3,200 feet below surface. Longhole mass-blast mining techniques are employed.
Ore is crushed underground with primary crushers before being hoisted to the
surface and conveyed to the Fimiston mill. In 1997, a 1.6 mile decline was
constructed from surface at the northern end of the Super Pit to access from
underground the upper level remnants of the Mt Charlotte orebody and the
recently delineated northern orebody. The decline was completed ahead of
schedule and below budget. HGAL's share of the decline's cost was approximately
US$2.6 million.
In 1997, 1.9 million tons of ore were mined from Mt Charlotte compared to
1.7 million tons of ore mined in 1996. HGAL's share of gold production was
81,160 ounces in 1997 and 61,024 ounces in 1996. Ore production and mill
throughput increased by 13% at Mt Charlotte during 1997 due to ore available
from mass blasts that allowed greater flexibility for production.
On September 15, 1998, Homestake and Normandy announced that a revised
mining plan would be implemented for the Mt Charlotte underground mine. The
decision was reached following an evaluation of economic factors and an
accelerated level of ground movement in the mine. Following recent ground
movement, a panel of rock mechanics experts concluded that mining could be
conducted safely by restricting mining to low risk areas of the mine. The new
mine plan contemplates extraction of approximately 1.5 million tons of ore over
the next twelve months. Performance of the mine will be monitored during this
time to determine whether the operation will continue beyond that period. As a
result of the new operating plan, approximately 50% of the Mt Charlotte
employees will be laid off. Homestake expects to record a charge of US$25
million (US$37 million pretax) during the third quarter of 1998 for severance,
unrecovered capital and other costs. In order to offset the loss of ore from Mt
Charlotte, ore production from the Super Pit will be increased. The Fimiston
mill will be modified to increase the capacity to process
S-96
<PAGE>
Super Pit sulfide ore. Ore reserves at Mt Charlotte will be evaluated as a
result of the new mining plan. The amount of reserves that will be reclassified
as mineralized material has not yet been determined.
MT PERCY. The Mt Percy open cuts were mined to their planned economic depth
in July 1992, at which time mining ceased. Previously stockpiled low-grade Mt
Percy ore was blended with non-refractory ore from the Super Pit and treated in
the Mt Percy mill until it was shut down in June 1997. HGAL's share of Mt Percy
gold production was 1,110 ounces in 1997 and 1,955 ounces in 1996.
MILLS. The Fimiston mill is a 35,000-TPD mill with CIP leaching and
refractory sulfide flotation circuits. Approximately US$90 million (100% basis)
was spent during 1995 and 1994 on an expansion program at the Fimiston mill,
including a 5,000-TPD free-milling sulfide circuit to treat Mt Charlotte ore.
Additional capital expenditures (100% basis) of US$4.2 million in 1997 and
US$4.4 million in 1996 were incurred for efficiency improvements at the mill.
The increased capacity improved the mill's efficiency and replaced the capacity
of the Oroya mill, which was dismantled in 1995 to allow for further planned
expansion of the Super Pit. The Fimiston mill processed 11.2 million tons of ore
in 1997 and 10.9 million tons in 1996. During June 1998, cracks were discovered
in the girth gear of the Fimiston SAG mill. Temporary repairs have been made and
the SAG mill currently is being limited to 90% of rated power. A temporary
replacement gear is expected to be available in January 1999 and a permanent
replacement is expected to be available in May 1999. Insurers under property and
business interruption insurance policies have acknowledged liability and the
extent of recovery is now being determined. Possible claims against the
contractor that constructed the SAG mill also are under investigation. Steps are
also being taken to maintain normal throughput, which will, however, increase
milling costs to some extent.
The Gidji roaster complex, which comprises two roasters and a CIP circuit,
processes all sulfide concentrates produced at the Fimiston mill. The Gidji
roaster processed 0.3 million tons of concentrate in 1997 and 0.2 million tons
in 1996.
The Mt Percy mill, a 2,500-TPD mill with a CIP circuit, was mothballed in
June 1997.
GEOLOGY
The ore deposits mined in the Kalgoorlie Goldfields occur within an
intensely mineralized shear zone system in dolerite host rocks, within the
Norseman-Wiluna greenstone belt which is part of the Yilgarn Block of Western
Australia. The rocks are of Archaen age. The favorable structural, metamorphic
and lithologic setting in conjunction with hydrothermal activity controlled gold
mineralization. During its history of operations since 1893, in excess of 48
million ounces of gold have been produced from the Kalgoorlie properties at
depths of up to 4,000 feet from high-grade lodes and adjacent disseminated
mineralization in the Golden Mile Dolerite, and from the large stockwork zones
which characterize the Mt Charlotte and Reward (underground) ore bodies.
HGAL has a 50% share (subject to the Disproportionate Share prior to June
1996) of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)....................................... 179,346 196,589
Ounces of gold per ton.................................. 0.066 0.066
Contained ounces of gold (000).......................... 11,847 12,892
</TABLE>
S-97
<PAGE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
SUPER PIT:
Tons of ore mined (000)............................................... 10,844 11,836
Stripping ratio (waste:ore)........................................... 6.0:1 5.6:1
Tons of ore milled (000).............................................. 11,183 10,926
Mill feed ore grade (oz. gold/ton).................................... 0.069 0.065
Mill recovery (%)..................................................... 88 87
Gold recovered (000 ozs.)............................................. 687 612
MT PERCY:
Tons of stockpiled ore milled (000)................................... 105 200
Mill feed ore grade (oz. gold/ton).................................... 0.025 0.025
Mill recovery (%)..................................................... 83 83
Gold recovered (000 ozs.)............................................. 2 4
MT CHARLOTTE:
Tons of ore mined (000)............................................... 1,919 1,694
Tons of ore milled (000).............................................. 1,931 1,707
Mill feed ore grade (oz. gold/ton).................................... 0.091 0.079
Mill recovery (%)..................................................... 92 91
Gold recovered (000 ozs.)............................................. 163 122
COMBINED PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... 12,763 13,530
Tons of ore milled (000).............................................. 13,219 12,833
Mill feed ore grade (oz. gold/ton).................................... 0.072 0.067
Mill recovery (%)..................................................... 89 88
Gold recovered (000 ozs.)............................................. 852 738
HOMESTAKE'S CONSOLIDATED COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 259 US$ 291
Noncash costs......................................................... 55 60
--------- ---------
Total production costs................................................ US$ 314 US$ 351
</TABLE>
PLUTONIC MINE
The Plutonic mine, 100% owned by Homestake, is located 110 miles north-east
of Meekatharra, Western Australia, approximately 8 miles from the Great Northern
Highway. Tenement holdings (25 mining leases and two prospecting licences) total
46,100 acres. Homestake also holds the pastoral lease on which the mine is
located.
The Main Pit and the underground workings are located on three mining leases
of a group of nine mining leases which are not subject to any non-government
royalty. However, 16 mining leases to the east of the Main Pit which contain a
relatively small proportion of the mine's overall reserves and mineralized
material are subject to a royalty based on tonnage and grade.
The mine commenced production in August 1990 and is operated on a fly-in
fly-out basis by approximately 139 staff employees and 275 contractor personnel
working on a two weeks on and one week off roster. Underground mining is
performed by contractors with technical supervision and control provided by
Homestake employees. All mining is by mechanized trackless systems.
The primary mining area has been transformed from an open pit to an
underground operation, as the Main Pit was mined out in 1997. Initial
underground development commenced early in 1995 and by the end of 1997
approximately 18 miles of development had been completed. Capital expenditures
of approximately A$32.5 million during 1997 on mine development included three
development declines, one
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<PAGE>
ventilation decline and underground pre-production. Underground production for
1997 was approximately 550,000 tons of ore.
The Main Pit was the predominant ore source from the commencement of
operations until its depletion in December 1997. Primary ore is now sourced from
the underground operation and from extensive primary ore and laterite stockpiles
built-up as the Main Pit was mined. Oxide ore is derived from the Perch and
Salmon Pits located on the Freshwater tenements. Production from a new laterite
and oxide ore pit is expected to begin in the fourth quarter of 1998. Open pit
mining with selective mining techniques is undertaken by a mining contractor
utilizing one 110 ton excavator and a fleet of 95-ton trucks.
The underground mine consists of three main working areas, extending to a
depth of 1,400 feet below the surface. The working areas are accessed by two
separate declines. Mining methods vary depending on the particular working area
and include development and uphole retreat open stoping and flat dip room and
pillar mining. Most areas do not require back filling. Ore is hauled to the
surface by 45-ton trucks.
The Plutonic mine mineralization consists of multiple discrete lodes.
Extensive mineralized material has been defined by wide spaced surface drilling
but detailed drilling from underground development openings is required for
conversion of the mineralized material to reserves. Underground access to the
largest zone of mineralization was achieved by decline only in late 1997.
Extensive drilling to define the extent of the lode structure has somewhat
delayed development in this area, although production has now begun. Definition
drilling continues in several areas of the mine to define reserves and
facilitate mine planning.
The mill and treatment facility was upgraded in 1994 and 1997, and now has a
total annual capacity to treat approximately 3.3 million tons of ore per year,
including approximately 1.98 million tons of primary ore and 1.32 million tons
of oxide ore in separate circuits. Both the oxide and sulfide circuits use
crushing, grinding and cyanidation in CIL leach tanks prior to gold recovery.
Oxide ore circuit recovery is approximately 95%. Primary ore circuit recovery
ranges from 83% to 96% depending on the ore source and mineralogy.
Potable quality process water is sourced from two borefields with most
coming from a borefield, located approximately 7.5 miles from the mine.
In 1997, a gas-fired power station with a rated station capacity of 19MW was
put into operation on site at a cost of A$21.7 million. Purchased gas is
provided via a 12.5 mile lateral line from the Goldfields Gas Transmission
pipeline. The change will provide power cost savings.
All plant and equipment is modern and in good condition.
In 1997, the mine was notified by the DEP of non-compliance under four of
its license conditions. All issues were related to inadequate record keeping and
monitoring. During 1998, the Plutonic mine employed an environmental officer to
manage its environmental compliance programs. All non-compliance issues have
been corrected. With these exceptions, during 1997 and the first half of 1998
the mine operated in compliance with all environmental permits. In August 1998,
there were two water leaks near the tailings storage facilities. The cause of
the leaks was identified and remedied.
Production for 1997 was 274,608 ounces at a total cash cost of US$234 per
ounce compared to 1996 production of 183,688 ounces at a total cost of US$276
per ounce. The increased production was due primarily to the first full year's
operation of the expanded mill and treatment plant, with the balance due to the
higher grades derived from the Main Pit and increased production of high grade
underground ore. Production in the first half of 1998 was 112,000 ounces of gold
at a total cash cost of US$256 per ounce, compared to the production in the
first half of 1997 of 135,000 ounces of gold at a total cash cost of US$243 per
ounce. Lode structures in the Northwest extension were flatter and less
continuous than expected, making mining more difficult. However, drilling has
defined higher-grade lode structures in areas where production began in the
third quarter.
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<PAGE>
GEOLOGY
Gold lodes occur predominantly within mafic volcanics in an Archaean
sequence of ultramafic volcanics, mafic volcanics and sediments. The sequence in
the immediate mine area consists of upper and lower ultramafic volcanic units
separated by a dominantly mafic volcanic unit. Gold mineralization occurs within
multiple, sub-parallel, north-west striking lodes, which generally dip in a
north-east direction. The lodes are hosted mainly by the mafic volcanic unit.
Lodes range from three to thirty-five feet thick and display good continuity
often for several hundred feet. Gold is associated with sulphides, particularly
arsenopyrite and pyrrhotite.
YEAR END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)........................................................... 5,250 10,153
Ounces of gold per ton...................................................... 0.108 0.111
Contained ounces of gold (000).............................................. 567 1,127
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... 3,280 3,509
Ore grade mined (oz. gold/ton)........................................ 0.102 0.115
Open pit stripping ratio (waste:ore)..................................
Tons of ore milled (000).............................................. 3,388 2,217
Mill feed ore grade (oz. gold/ton).................................... 0.094 0.105
Mill recovery (%)..................................................... 87.7 80.1
Gold recovered (000 ozs.)............................................. 274.6 183.7
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 234 US$ 276
Noncash costs......................................................... 70 44
--------- ---------
Total production costs................................................ US$ 304 US$ 320
</TABLE>
DARLOT/CENTENARY MINE
The Darlot/Centenary mine is located 70 miles north of Leonora, Western
Australia. Homestake's property covers an extensive gold field discovered more
than 100 years ago.
Modern mining, including development of the Darlot Pit, commenced in 1988.
Mining in the Darlot Pit was completed in 1995 and the mine is now an entirely
underground operation. The mine is a fly-in fly-out operation with about 63
staff employees and 120 contractor personnel working two weeks on and one week
off rotations.
The Darlot/Centenary mine encompasses an area of approximately 34,200 acres,
consisting of 16 mining leases, 32 prospecting licences and one exploration
licence. The tenements are held either 100% by Homestake or in two joint
ventures. Darlot and Centenary orebodies are within a 100% owned mining lease
located on a pastoral lease which is held by Homestake. The mining lease was
granted in 1988 for 21 years and is renewable. With the exception of a
production royalty on one lease, which has no known reserves or mineralized
material, no non-government royalties are payable on production from any of the
Darlot and Centenary tenements.
Mining of the Darlot orebody utilizes mechanized trackless equipment. Access
is via a decline from a portal in the Darlot Pit approximately 375 feet below
the natural surface. During the second quarter of 1996, the mine successfully
completed the transition to a full-scale underground operation. The workings now
extend to about 725 feet below the surface with mining taking place in four
different sub-lode systems
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<PAGE>
within the main Darlot structure. Stoping of the Darlot lodes is by a mixture of
room and pillar mining in the thinner sections of the deposit, generally using
longhole blastholes, while sub-level open stoping techniques are utilized in the
thicker sections. Backfilling is not required. Mining of the Darlot lodes is
expected to be completed in mid-1999.
In August 1996, a vertical exploration drillhole intersected the Centenary
deposit, an undiscovered gold mineralized zone of substantial thickness about
three-fourths of a mile from the Darlot deposit. Follow-up holes confirmed this
discovery and showed the Centenary deposit to be of appreciable lateral extent.
The grade, thickness and continuity of the Centenary mineralization indicate a
capacity to support a substantial, low cost, underground mining operation. Mine
planning and evaluation have indicated that the Centenary deposit is amenable to
low cost bulk stoping, and that there is minimal groundwater. Additionally, the
Centenary mineralization is free milling, as is the Darlot lode.
Access to Centenary is via an extension of the Darlot decline which
intersects the Centenary deposit approximately 1,100 feet below the surface. A
raise bored ventilation shaft recently was commissioned, completing the
Centenary ventilation circuit and also providing emergency egress for the mine.
Work has started on a second decline for access to and ventilation of the deeper
load structures. Initial orebody development and in-fill diamond drilling is in
process but has been delayed by a change of mining contractors. Sub-level
stoping of the thick central section of the Centenary deposit began near the end
of the third quarter of 1998. The thinner extremities of the deposit are
suitable for sub-level open stoping or room and pillar stoping similar to that
successfully utilized at Darlot.
The treatment plant consists of a three stage crushing circuit (which is not
owned by Homestake), primary and secondary ball mills, carbon-in-pulp leaching,
adsorption and gold recovery circuits. Both Darlot and Centenary ores are free
milling with recovery rates of approximately 95%. Coarse gold, which is about
50% of the total production, is recovered within a gravity circuit. Ore
throughput is approximately 700,000 tons per annum. The treatment plant is in
good condition.
Two new generators, commissioned in early 1998, provide all power to the
site.
Water is available from a borefield five miles from the treatment plant.
Production in 1997 was 65,153 ounces at a total cash cost of US$320 per
ounce, compared to the 1996 level of 62,757 ounces at a total cost of US$345 per
ounce. Production in the first half of 1998 was 30,300 ounces of gold at a total
cash cost of US$312 per ounce as compared to 29,500 ounces of gold at a total
cash cost of US$322 per ounce.
In 1997, three small tailing spills occurred, but all remained within
containment and were not reportable to the DEP. The fine ore stockpile has
emitted excess dust on occasion. A telescopic chute will be installed on the
discharge to the fine ore stockpile to rectify this problem. A minor tailings
storage facility seepage is being collected in cut-off drains and returned to
the storage facility as required under the conditions of permit. With these
exceptions, during 1997 and the first half of 1998 the mine operated in
compliance with all environmental permits.
GEOLOGY
Darlot is situated within an Archaean sequence of mostly intrusive and
extrusive mafic rocks, and occurs within a corridor of north-northwest trending
structures. The Darlot orebody is a shear-hosted, gold-mineralized, quartz vein
system about one mile long. The structure is continuous along strike with
mineralization open down dip indicating potential for depth extensions.
The Centenary orebody is a large, structurally controlled, quartz vein
hosted gold deposit. The lode, which extends for more than three-fourths of a
mile, varies from 15 to more than 160 feet in thickness. The full extent of the
lode is not yet known.
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<PAGE>
YEAR END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)....................................................... 9,546 3,272
Ounces of gold per ton.................................................. 0.163 0.143
Contained ounces of gold (000).......................................... 1,556 468
OPERATING DATA
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000) 516 462
Ore grade mined (oz. gold/ton)........................................ 0.10 0.09
Tons of ore milled (000).............................................. 551 504
Mill feed ore grade (oz. gold/ton).................................... 0.114 0.120
Mill recovery (%)..................................................... 95 95
Gold recovered (000 ozs.)............................................. 65.2 62.8
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 320 US$ 345
Noncash costs......................................................... 29 52
--------- ---------
Total production costs................................................ US$ 349 US$ 397
</TABLE>
LAWLERS MINE
The Lawlers mine is located 75 miles north-west of Leonora, Western
Australia. Homestake has a 100% interest in the 100-year-old mine, which was
reopened in 1986. The mine is a fly-in fly-out operation with about 69 staff
employees and 104 contractor personnel working on a two weeks on and one week
off or six weeks on, one week off rotation.
The Lawlers mine property consists of two groups of contiguous tenements
totaling approximately 68,800 acres and consisting of three exploration
licences, 89 prospecting licences and 13 mining leases. All tenements are owned
100% by Homestake. Mining leases vary in date of grant and expiry. One mining
lease from which production is currently derived was granted by the Western
Australian Government after January 1, 1994. See "Risk Factors--Risk of Native
Title Claims." No non-government royalties are payable on production.
During 1997 production was principally derived from the New Holland Pit
where mining is conducted by a contractor operating a 110 ton excavator and a
fleet of 95-ton trucks, under the supervision of Homestake personnel.
Recently, Homestake began underground contract mining of the New Holland
South downward extension of the orebody. Initially mining is by decline on-ore
development, and later will be by room and pillar stoping. During the fourth
quarter of 1997, open pit mining of the Fairyland deposit commenced. Ore haulage
from the New Holland and Fairyland Pits, which are remote from the treatment
plant, is by 110-ton trucks, also provided and operated by contractors. Work has
begun on a second decline to access the deeper lode structure of the New Holland
South Zone.
The treatment plant is capable of treating approximately 550,000 to 770,000
tons per annum of oxide, transition and primary ore, depending on the blend.
Three stage crushing is followed by single stage milling through two parallel
ball mills. The grinding circuit incorporates a gravity circuit for the recovery
of coarse gold. The slurry is then transferred to a conventional carbon-in-pulp
circuit. The gravity component is typically 40%, with total gold recovery in the
range of 90 to 95% depending on ore source. The plant is adequate for its
current level of operations but will need to be upgraded due to wear and tear if
operations
S-102
<PAGE>
continue for a number of years. Power is supplied by contract diesel generators.
Good quality process water is available from a borefield 10 miles northeast of
the plant.
Drilling conducted during 1997 and 1998 has delineated sufficient ore
resources to justify the development of an exploration decline among downward
ore extensions from the Genesis Pit. Exploration results continue to be very
encouraging.
Lawlers has devoted significant effort to correcting earlier environmental
issues, which predated Homestake's acquisition of Plutonic. A previous backlog
of waste dump and tailings storage facility rehabilitation has been brought up
to date. A contaminated groundwater plume exists southwest of the tailing dams.
As required under the permit, monitoring bores pump the contaminated water back
into the tailing facility. A contaminated area of soils exists on the site from
dust that has blown off the tailings facility over the years. A remediation plan
is currently being developed to collect the impacted surface soil and prevent
further contamination. During 1998, an environmental officer has been employed
to manage the environmental compliance program at both Lawlers and Darlot.
Except as noted, the Lawlers mine now is believed to be in compliance with
applicable requirements.
Production in 1997 was 87,481 ounces at a total cash cost of US$260 per
ounce, plus a further 14,441 ounces derived by processing ore from the Bellevue
mine. This compares to production of 50,603 ounces from Lawlers at a total cash
cost of US$417 per ounce, and 17,313 ounces from Bellevue in 1996. The increased
production in 1997 was due almost entirely to the high grade ore sourced from
the New Holland Pit during the year. Production from the Lawlers mine in the
first half of 1998 was well in excess of expectations at 62,400 ounces at a
total cash cost of US$195 per ounce, as compared to 28,200 ounces in the first
half of 1997 at a total cash cost of US$238 per ounce. Ore grades and recovery
rates are higher than anticipated.
GEOLOGY
Gold ore is derived from two distinct geological domains--a western
sedimentary domain (New Holland) and an eastern mafic/ultramafic volcanic domain
(Fairyland).
The western area deposits are high grade ladder quartz veins within
sandstone units enclosed in finer grained sediments. Exploration involves deep,
close-spaced drilling to locate high grade, shallow plunging ore shoots within
the favorable rock unit. The eastern domain is part of the nickeliferous
Agnew-Mt Keith-Yakabindie-Honeymoon Well sequence which hosts major nickel
deposits north of Lawlers.
YEAR END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)....................................................... 1,897 1,547
Ounces of gold per ton.................................................. 0.134 0.137
Contained ounces of gold (000).......................................... 252 212
</TABLE>
S-103
<PAGE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... 896 667
Ore grade mined (oz. gold/ton)........................................ 0.111 0.090
Open pit stripping ratio (waste:ore).................................. 6:55 23:27
Tons of ore milled (000).............................................. 515 690
Mill feed ore grade (oz. gold/ton).................................... 0.178 0.082
Mill recovery (%)..................................................... 96 90
Gold recovered (000 ozs.)............................................. 87.5 50.6
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 260 US$ 417
Noncash costs......................................................... 25 33
--------- ---------
Total production costs................................................ US$ 285 US$ 450
</TABLE>
MT MORGANS MINE
The Mt Morgans mine is located 30 miles west of Laverton, Western Australia.
The Mt Morgans goldfield has been operated intermittently since 1896 and has
produced in excess of 1.2 million ounces. The property is operated on a fly-in
fly-out basis with about 27 staff employees and 74 contractor personnel working
a two weeks on and one week off rotation.
The Mt Morgans operation, which is jointly owned by Homestake (80%) and
Abednego Nickel Limited (20%), is operated on a joint venture basis by the Mt
Morgans Joint Venture ("MMJV"). Homestake manages all mining and exploration
activities on behalf of the MMJV. All known economic mineralization is on
tenements owned by the MMJV which has interests of various types in four joint
venture properties within an area of influence surrounding the MMJV-owned
properties.
The MMJV holds six exploration licences, 117 prospecting licences and 27
mining leases totaling approximately 113,700 acres. Principal mining leases were
all granted prior to January 1, 1994.
Mining has ceased and processing of stockpiles will continue until the last
quarter of 1998. Active exploration continues on the property, and recent
exploration results in the Just-in-Case target area have been very promising.
The treatment plant, capable of treating 1.1 million tons per annum of hard
rock, consists of a primary crusher, open stockpile, SAG mill, pebble crusher
and secondary ball mill grinding circuit, followed by a conventional
carbon-in-pulp leach/adsorption section. Metallurgical recovery at Mt Morgans
ranged from 85% to 90%. The plant will require upgrading if significant amounts
of new ore are discovered.
Power is supplied by diesel generators owned by the MMJV, while process
water is sourced from a borefield located five miles from the plant. The power
station underwent a major upgrade in late 1996.
Production in 1997 was 91,985 ounces (100% basis) which is similar to the
1996 production.
In 1997, a leak occurred in the wall of the tailings storage facility. An
external containment dam was constructed to contain all discharge, the facility
was decommissioned and tailings are now contained in a depleted open pit. A
contaminated groundwater plume from this deactivated tailing storage facility
exists. However, monitoring bores contain the plume and are returning the water
to compliance levels by pumping the contaminated water back into the tailings
facility.
S-104
<PAGE>
During 1998, a tailings spill occurred that discharged beyond containment
and was reportable to the DEP. A remediation program was approved by the DEP and
is now progressing to remove all contamination from the spill.
Except for the foregoing, the mine operated in compliance with applicable
requirements in 1997 and the first half of 1998. In 1997 the site was awarded a
Golden Gecko Certificate of Merit for Environmental Excellence by the Western
Australia Department of Minerals and Energy.
The Mt Morgans mine will be closed and decommissioned beginning in the
fourth quarter of 1998. The final closure plan is being finalized for approval
by regulatory agencies.
GEOLOGY
Most production has come from lodes in intensely folded Archaean banded iron
formation, which are hosted in an Archaean sequence of ultramatic volcanics and
sediment.
Homestake has an 80% share of the following amounts:
YEAR END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)....................................................... 4,744 6,355
Ounces of gold per ton.................................................. 0.023 0.047
Contained ounces of gold (000).......................................... 114 306
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................................... 580 1,429
Ore grade mined (oz. gold/ton)........................................ 0.038 0.097
Tons of ore milled (000).............................................. 1,037 976
Mill feed ore grade (oz. gold/ton).................................... 0.093 0.088
Mill recovery (%)..................................................... 88 92
Gold recovered (000 ozs.)............................................. 92 93.8
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................................................. US$ 374 US$ 341
Other cash costs...................................................... 6 --
Noncash costs......................................................... 85 125
--------- ---------
Total production costs................................................ US$ 465 US$ 466
</TABLE>
PEAK HILL MINE
The Peak Hill mine is situated 80 miles north of Meekatharra, Western
Australia.
The Peak Hill gold field is more than 100 years old, but modern operations
commenced only in 1988.
The Peak Hill operation is owned by a joint venture (Homestake 66.67%, North
Limited 33.33%) and managed by North Limited. Exploration of the joint venture's
tenements is managed by Homestake which also has extensive non-joint venture
exploration interests in the region surrounding the Peak Hill mine.
The mine is a fly-in fly-out operation with approximately 20 staff employees
and 11 contractor personnel working a two weeks on and one week off roster.
S-105
<PAGE>
The Peak Hill tenements which are owned by the Homestake-North joint venture
are two exploration licences, 41 prospecting licences and 18 mining leases
totaling approximately 44,200 acres. Homestake, either by itself or in joint
ventures, has interests in surrounding tenements. In all, Homestake has thirteen
projects in the Peak Hill District (8 joint ventures) totaling approximately
137,800 acres in 101 tenements.
Open pit mining at the Harmony Pit, located 6 miles west of the plant, was
completed in November 1997. Processing of stockpiled ore is expected to continue
until September 1999, and Homestake is actively engaged in exploration in the
vicinity of the mine.
The plant has a capacity of 660,000 tons per annum of soft oxide ore. Hard
primary ore is blended or fine crushed to maintain this rate. There is a
SAG/ball mill grinding circuit with a conventional carbon-in-pulp and pressure
Zadra elution circuit. The gold recovery has varied from 93% to 98% over the
past ten years.
Power is generated by diesel generators. Good quality water is available
from a borefield 7 miles northeast of the plant.
The Peak Hill mine has a contaminated groundwater plume from the tailings
storage facility. Contaminated water is collected and pumped back to the
tailings facility to improve water quality. In other respects, during 1997 and
the first half of 1998, the operation was in compliance with all environmental
requirements.
GEOLOGY
Gold mineralization occurs as multiple lodes within altered Proterozoic
mafic volcanics. Weathering extends to 100 meters beneath a well-developed
laterite profile.
Homestake has a 66 2/3% share of the following amounts:
YEAR END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)........................................................... 799 1,800
Ounces of gold per ton...................................................... 0.044 0.053
Contained ounces of gold (000).............................................. 35.8 97.8
OPERATING DATA (100% BASIS)
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)................................................... 390 1,403
Ore grade mined (oz. gold/ton)............................................ 0.077 0.128
Tons of ore milled (000).................................................. 730 790
Mill feed ore grade (oz. gold/ton)........................................ 0.069 0.117
Mill recovery (%)......................................................... 97 98
Gold recovered (000 ozs.)................................................. 49.7 90.7
</TABLE>
<TABLE>
<S> <C> <C>
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs................................... US$269 US$163
Noncash costs.......................................... 151 133
--------- ---------
Total production costs................................. US$420 US$296
</TABLE>
S-106
<PAGE>
BELLEVUE OPERATION
The Bellevue property is located 110 miles north of Leonora and 75 miles
south of Wiluna, Western Australia. The property was placed on care and
maintenance in April 1997 following some 10 years of modern underground and open
pit production. The area has been mined since 1896, producing approximately
750,000 ounces of gold, mostly in recent years. The property is 100% owned by
Homestake.
The Bellevue tenements comprise nine mining leases, eight prospecting
licences and two exploration licences. Four mining leases were granted prior to
January 1, 1994.
Treatment at Bellevue ceased in August 1996. Ore produced after August 1996
was trucked to the nearby Lawlers plant for treatment. Mining was completed in
April 1997 at which time the operation was placed on care and maintenance.
The Bellevue property is prospective for both gold and nickel
mineralization. Homestake has an agreement with its 81% owned subsidiary,
Lachlan Resources, NL, under which Lachlan has acquired the rights to non-gold
mineralization on 23 of the Bellevue tenements subject to a 25% net profits
interest to Homestake.
At the time of closure in mid-1997, all rehabilitation was up to date with
open pit dumps contoured and the filled No. 1 tailings storage facility has been
capped. The partially filled No. 2 tailings storage facility has not been capped
pending further exploration and a decision on permanent mine closure.
MEEKATHARRA OPERATION
Operations at Meekatharra's Paddys Flat mining camp ceased in October 1995
after 100 years of intermittant gold production. Historic and recent production
totalled nearly two million ounces of gold with a further one million ounces
remaining in mineralized material. Although the tenements have been extensively
explored, the potential remains for further discoveries of small to medium size
shallower deposits and larger deeper deposits amenable to underground
exploitation. Drilling of deeper targets will commence shortly.
The infrastructure required to re-establish production at Meekatharra is
largely in place. However, the crushing and grinding circuit has been relocated.
All access to open pits has been blocked and all rock waste dumps have been
rehabilitated, which involved contouring and seeding with native vegetation.
LACHLAN RESOURCES NL
Homestake holds 81.2% of Lachlan Resources NL, a publicly traded company in
Australia. Lachlan has interests in and is exploring a number of base metal
properties in Australia. Homestake manages Lachlan's business.
CHILE
Homestake conducts exploration programs throughout Chile. Homestake's office
is in Santiago, Chile.
In July 1996, Homestake and Corporacion Nacional del Cobre Chile, a
state-owned mining company in Chile ("Codelco"), formed a new company, Agua de
la Falda S.A. ("La Falda"), to explore near Homestake's former El Hueso mine in
northern Chile. Homestake and Codelco contributed property interests in the area
to the new company. In addition, Codelco contributed the existing El Hueso plant
which had been under lease to Homestake. Homestake owns 51% of the corporation
and Codelco owns the remaining 49% interest in La Falda.
S-107
<PAGE>
La Falda holds mining properties covering approximately 8,336 acres.
Included within those properties is the new Agua de la Falda mine that was
developed, and is operated by La Falda, to mine the 187,000 ounces of oxide
reserves discovered on the property by Homestake. The Agua de la Falda mine is
located approximately three miles northeast of the former El Hueso mine, in the
Maricunga District of Chile about 600 miles north of Santiago at an elevation of
approximately 12,500 feet. Access to the property is by 14 miles of dirt road.
Construction of facilities and underground mine development for the Agua de
la Falda mine commenced in late 1996. Construction was completed ahead of
schedule and below budget at a total cost of approximately US$6.5 million.
Mining commenced in January 1997 and gold production began in April 1997. The
operation utilizes both room-and-pillar and post-pillar underground mining
methods. The existing El Hueso facility is used to heap leach the Agua de la
Falda ore using the Merrill Crowe process to recover the gold from solution.
Production in 1997 was 31,417 ounces. Production is expected to average 40,000
to 45,000 ounces annually during 1998 through 2001.
Water and power is purchased from Codelco.
Exploration drilling conducted in 1997 encountered an additional oxide ore
zone, adding 300,000 tons at a grade of 0.18 ounces of gold per ton to proven
and probable reserves. This additional ore will be mined through the La Falda
mine.
No royalties are payable on the production from the current Agua de la Falda
reserves. However, any ores which may be extracted from the northern area of the
property are subject to royalty payment of 1.5% of net smelter returns on
production of over one million ounces.
Drilling and metallurgical testing continues on the much larger Jeronimo
deposit, where to date approximately 15 million tons of unoxidized mineralized
material (100% basis), at an average grade of 0.160 ounces per ton, have been
outlined. Metallugical testwork is underway to develop an economic treatment
method. A decline has been completed to access the deeper sulfide ore so that a
large sample of the ore can be obtained for large scale metallurgical testing.
In February 1995, the El Hueso mine closed as reserves were depleted.
Reclamation of the El Hueso mine site continued during 1997. There is little
flora or fauna present in the Maricunga District, and no water sources are
located nearby. Nonetheless, continued environmental monitoring will be carried
out for a period of time.
GEOLOGY
The La Falda property is located within the Potrerillos porphyry copper
district and comprises Mesozoic marine sediments that have been overlain by
Tertiary volcanics and intruded by Tertiary porphyries. Gold mineralization has
been mined historically in sediments and volcanics but the Agua de la Falda and
Jeronimo deposits are hosted largely by a single, permeable, gently dipping
carbonate unit.
Homestake has a 51% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of ore (000)............................................................ 1,290 1,032
Ounces of gold per ton....................................................... 0.167 0.181
Contained ounces of gold (000)............................................... 215 187
</TABLE>
S-108
<PAGE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
PRODUCTION STATISTICS:
Tons of ore leached (000)........................................................ 281
Ore grade (oz. gold/ton)......................................................... 0.172
Recovery (%)..................................................................... 65
Gold recovered (000 ozs.)........................................................ 31
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs............................................................. US$ 213
Noncash costs.................................................................... 82
---------
Total production costs......................................................... US$ 295
</TABLE>
BULGARIA
During 1997, Homestake entered into agreements with Navan Resources Plc, an
Irish public company ("Navan"), with regard to the Chelopech mine and
exploration activities in Bulgaria. In November 1997, Homestake purchased a 20%
interest in Navan Bulgarian Mining BV, a Netherlands company ("Navan BV") that
was formerly a wholly-owned subsidiary of Navan. Homestake's initial debt and
equity investment in Navan BV was US$12 million. Navan BV owns a 68% interest in
Bimak AD, a Bulgarian company that owns and operates the surface facilities at
the Chelopech copper-gold mine near Sofia, Bulgaria. The other 32% of Bimak is
owned by Chelopech EAD, a government-owned corporation that owns and operates
the Chelopech mine. Bimak AD provides consulting services to Chelopech and
purchases the ore from the Chelopech mine at cost plus a 1% gross royalty.
Homestake has agreed, under certain circumstances, to invest an additional
US$18 million in debt and equity of Navan BV, which would result in Homestake
owning 51% of Navan BV, and give Homestake the right to become operator of the
project. The investment of the additional US$18 million is dependent on
satisfactory outcome of the Chelopech EAD privatization and concession grant
discussions described below, approval by Homestake and Navan of an expansion
plan for the mine and mill, and receipt of financial commitments from lenders
for additional funding for the expansion plan. Under certain circumstances, (i)
each of Homestake and Navan will severally guarantee up to US$10 million of
financing for an expansion and (ii) Homestake will provide up to an additional
US$10 million if financing of up to US$20 million from third-party lenders is
not available.
Production at the Chelopech mine in 1996 was 629,600 tons of ore at an
average grade of 0.106 ounces of gold per ton and 1.10% copper, and production
for 1997 was 655,544 tons of ore at an average grade of 0.10 ounces per ton of
gold and 1.20% copper. Production from the Bimak mill, including recoverable
gold and copper contained in concentrates and black sands sold to others for
processing,was 56,604 ounces of gold and 11.0 million pounds of copper in 1996
and 55,106 ounces of gold and 12.9 million pounds of copper in 1997. Mineralized
material at the Chelopech mine is estimated at approximately 28.7 million tons
of ore at an average grade of 0.11 ounces of gold per ton and 1.40% copper.
Homestake and Navan are now engaged in discussion with the Bulgarian
government regarding the privatization of Chelopech EAD and the confirmation of
secure concession rights in mineralization in and around the mine for the
privatized company. Those discussions contemplate that Navan BV or Bimak (or
other company owned by Homestake and Navan) would acquire a minimum of 80% of
Chelopech EAD, with up to 20% to be made available principally to employees of
Chelopech. Homestake is also engaged in the development of an expansion plan for
the Chelopech mine and the related Bimak mill and facilities, the implementation
of which would be dependent upon the outcome of the privatization discussions
with the Bulgarian government.
S-109
<PAGE>
During November 1997, Homestake bought a 32% interest in Navan's Bulgarian
exploration projects and program for US$4 million. Homestake is obligated to
invest an additional US$4 million in the exploration program during the three
years ending in November 2000, which will result in Homestake's owning a 50%
interest in and having the right to become the operator of the exploration
program.
SULFUR
Homestake owns an undivided 16.7% interest in the Main Pass 299 sulfur
deposit, which at December 31, 1997 contained proven recoverable reserves of
approximately 64.3 million long tons of sulfur. Freeport-McMoRan Sulphur Inc.
("FMS") owns the remaining 83.3% of the deposit and is the operator under a
joint operating agreement.
The sulfur deposit is located in the Gulf of Mexico approximately 36 miles
east of Venice, Louisiana, in water approximately 210 feet deep. The deposit is
approximately 1,500 feet below the sea floor. A royalty of 12.5% of the wellhead
value is payable under the terms of the federal sulfur leases.
The operating agreement provides that each participant pays its share of
capital and operating costs, and has the right to take its share of production
in kind in proportion to its undivided interest.
The sulfur deposit is being mined using the Frasch process, a method of
extraction which injects high-temperature sea water to liquefy the sulfur, which
is then pumped to surface. Initial sulfur production commenced in 1992 and full
sulfur production levels of 5,500 TPD were reached in December 1993. Sulfur
production averaged 5,200 TPD during 1997, down from 5,500 TPD in 1996. The
reduction was a planned response to a weakening sulfur market. Based on current
reserve estimates, projected costs and prices, annual production (100% basis) is
expected to average two million long tons over a remaining reserve life
currently in excess of 30 years.
FMS filters, blends, markets and delivers Homestake's share of sulfur
production under an agreement having an initial term of ten years from
commencement of production in 1992. Homestake can terminate the agreement by
giving FMS two years' notice.
Homestake's realized sales price for sulfur is a blend of various market
prices, including the Tampa market, and is net of a 2.625% marketing fee.
In the third quarter of 1997, due to a prolonged period of low sulfur prices
and Homestake's current assessment of estimated future cash flows, Homestake
wrote off its entire remaining US$107.8 million investment in the Main Pass 299
sulfur mine. As a result, Homestake's carrying value of the Main Pass 299 sulfur
mine was reduced to zero at September 30, 1997.
During sulfur exploration, oil and gas were discovered overlying the sulfur
deposit. In 1990, the participants acquired the oil and gas rights from Chevron
USA Inc.
The federal oil and gas lease requires a 16.7% royalty payment based on
wellhead value. In addition, Chevron retained the right to share in the proceeds
of future production should the price or volume realized exceed those which were
used by the parties as the basis for determining the purchase price.
Oil and gas production, which peaked during 1992, is expected to continue to
decline over the next few years. Oil production (100% basis) totaled 3.3 million
barrels in 1997 compared to 3.9 million barrels in 1996. Homestake's share of
remaining recoverable oil reserves at December 31, 1997 is estimated to be 1.1
million barrels after adjusting for the federal royalty and future production
due to Chevron. The remaining carrying value of Homestake's investment in the
Main Pass 299 oil and gas property was US$3.8 million at December 31, 1997.
S-110
<PAGE>
Homestake has a 16.7% share of the following amounts:
YEAR-END PROVEN AND RECOVERABLE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of sulfur (000)....................................................... 64,287 66,182
Barrels of oil (000)....................................................... 8,738 12,751
</TABLE>
PRODUCTION STATISTICS (100% BASIS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tons of sulfur (000)......................................................... 1,894 1,950
Barrels of oil (000)......................................................... 3,298 3,900
</TABLE>
HOMESTAKE'S PER UNIT DATA
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
AVERAGE SALES REALIZATION:
Per ton of sulfur....................................................... US$ 59 US$ 60
Per barrel of oil....................................................... 18 19
PRODUCTION COSTS:
Sulfur cash operating costs per ton..................................... US$ 66 US$ 57
Sulfur noncash costs per ton............................................ 8 11
--------- ---------
Total production costs................................................ US$ 74 US$ 68
Oil cash operating costs per barrel..................................... US$ 10 US$ 5
Oil noncash costs per barrel............................................ 7 7
--------- ---------
Total production costs................................................ US$ 17 US$ 12
</TABLE>
MINERAL EXPLORATION AND DEVELOPMENT
Total exploration expenses, including in-mine grass roots exploration at
Homestake's operating mines, were US$65.2 million in 1997 and US$67.4 million in
1996. The 1997 expenditures do not include US$7 million of capitalized
development drilling mainly at Centenary. Expenses related to the in-mine
definition drilling at Homestake's operating mines totaled an additional US$4
million in 1997 and US$5 million in 1996. In-mine definition drilling expenses
are included in the individual mine property operating expenses and cost per
ounce calculations.
Homestake expects to spend approximately US$58 million for exploration in
1998. Approximately 30% is allocated to North America and 50% is being spent in
Australia. Homestake plans to continue to focus on its best prospects,
particularly the Australian properties recently acquired by Homestake through
its acquisition of Plutonic and the immediate vicinity of the Eskay Creek mine.
S-111
<PAGE>
UNITED STATES
United States exploration expenses totaled approximately US$13.9 million in
1997 and US$11.9 million in 1996. Domestic exploration expenses in 1998 are
budgeted to be US$10.3 million.
Exploration of a deep sulfide gold system beneath the Ruby Hill open pit
established that the mineralization occurs in two zones of altered carbonate
rocks. Delineation drilling of the East Archimedes deposit completed in 1997
indicates mineralization of 7.2 million tons at an average grade of 0.073 ounces
of gold per ton. Evaluation and testing of this deposit will continue in 1998.
Exploration plans for 1998 include several wide-spaced deep holes to search for
larger concentrations of higher-grade mineralization and the testing of
additional shallow targets to search for more oxide reserves. Exploration
expenditures totaled US$2.4 million during 1997 and US$1.7 million of work is
planned for 1998.
At the Pinson property, 50% owned by each of Homestake and Barrick and
managed by Homestake, 1997 expenditures totaled US$4.8 million (100% basis),
including US$1.4 million (100% basis) of in-mine target drilling. Drilling of
deep target zones in 1997 yielded several holes of possible interest that are
being followed up in 1998. Homestake has budgeted US$1.5 million for its share
of 1998 exploration expenditures.
Drill testing in the old Pioche mining district of eastern Nevada has been
disappointing and drilling has ceased.
In-mine target exploration at the Round Mountain mine (25% owned by
Homestake) expanded in 1997, and Homestake's share of expenditures was US$0.5
million. A similar level of expenditures is underway for 1998.
At the Homestake mine, exploration for new targets within the mine has
resumed, and two areas of prospective iron formation have been selected for test
drilling. Total expenditures for new target testing and in-mine resource
drilling in 1997 were US$1.9 million. Expenditures for 1998 are estimated at
US$1.1 million.
INTERNATIONAL
Homestake conducts gold exploration in a number of countries outside of the
United States. International exploration expenses totaled approximately US$51.3
million in 1997 and US$55.5 million in 1996, and US$47.1 million of expenses are
planned for 1998.
In Canada, Homestake's exploration is conducted jointly with Prime
(Homestake 51%, Prime 49%). The agreement renews automatically on an annual
basis unless either party terminates by giving six months' prior notice. This
venture excludes properties in the vicinity of Prime's and Homestake's existing
operations, such as Prime's Eskay Creek and Snip properties and Homestake's
Hemlo properties. Prime has a 100% interest in exploration in the vicinity of
the Eskay Creek and Snip mines, and Homestake has a 100% interest in exploration
in the vicinity of the Williams and David Bell mines.
At Eskay Creek, surface and in-mine target drilling in 1997 discovered
additional mineralization outside the existing reserves and mineralized
material. At the northern end of the 21B orebody, two down-plunge exploration
holes encountered significant gold intercepts. These intercepts will be followed
up with future underground drilling. In mid-1997 an exploration agreement was
signed on the Corey property, located 8 miles south of the Eskay Creek mine and
covering similar geology. The 1997 exploration program for the Eskay Creek
district totaled US$3.6 million, and 1998 expenditures are budgeted at US$3.5
million.
Homestake explores for gold in several geologic belts in the Andes, with
emphasis on northern Chile, northern Argentina and central Peru. In Chile, gold
production commenced in 1997 from the oxide portion of the Jeronimo deposit on
the Agua de la Falda property. Drilling and metallurgical testing continues on
the much larger, refractory portion of the Jeronimo deposit where, to date,
approximately 15 million tons of unoxidized mineralized material, at an average
grade of 0.16 ounces of gold per ton, has been outlined.
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Metallurgical testwork is underway to develop an economic treatment method.
Drill testing of several other targets is ongoing. Exploration expenditures on
the property were US$2 million in 1997 and are budgeted to be similar in 1998.
In the northern part of South America, exploration in Venezuela and French
Guiana was disappointing, and has been discontinued. Homestake has acquired a
large land package in northern Brazil in a poorly explored gold belt, which will
be Homestake's exploration focus in Brazil for 1998. Total exploration
expenditures for the northern part of South America were US$8.4 million in 1997
and are budgeted to decrease to US$2.2 million in 1998.
Homestake explores for gold in several areas of Australia. During 1997, a
discovery of poly-metallic mineralization was made at the Kundip project in the
southern part of Western Australia. The project is at an early stage and work is
continuing to identify additional soil anomolies for drill testing. Exploration
expenditures in Australia, including Homestake's 50% share of exploration
expenditures at Kalgoorlie, were US$27.5 million in 1997 and are budgeted at
US$28 million for 1998. With Homestake's acquisition of Plutonic in April 1998,
a substantially larger portion of Homestake's exploration budget will be spent
in Australia over the next few years. This will include major programs at
promising exploration projects such as the Twin Hills joint venture in Central
Queensland and around existing operations, particularly at the Darlot/Centenary,
Lawlers, Mt Morgans and Plutonic mines.
Exploration potential in the extensive properties surrounding the Plutonic
mine is very good. The lode system is open in several directions, and
exploration drilling is underway to test for both shallow oxide deposits and
deeper sulfide mineralization. A program in the Centenary East area at the
Darlot/Centenary mine was begun in the second quarter of 1998 seeking to extend
mineralization at depth. An exploration program is underway at Peak Hill to test
for deeper, high grade extensions down dip from the main pit. A comprehensive
exploration program is underway to drill test several targets on the Mt Morgans
tenements and to assess the significance of some recent ore-grade intercepts in
the Just-in Case target area. Recent diamond drilling has returned encouraging
results. At Lawlers a drilling program at Leviathan North has defined a strong
mineralized trend with a strike length of 4,000 feet, also with encouraging
results.
During 1997, Homestake significantly increased its involvement and
commitment in Eastern Europe. Homestake acquired a 32% interest in Navan's
Bulgarian exploration concessions for US$4 million. Over the period ending
November 2000, Homestake will fund up to US$4 million of exploration
expenditures, which will give Homestake a 50% interest in the project. Homestake
is also exploring several concessions in western Poland with FX Energy Inc. and
investigating other properties in Hungary and Romania. Expenditures were US$1.4
million in 1997 and are budgeted to increase to US$4.2 million in 1998.
INFORMATION ON RESERVES
GOLD
The proven and probable gold ore reserves stated in this Supplement reflect
estimated quantities and grades of gold in in-situ deposits and in stockpiles of
mined material that Homestake believes can be recovered and sold at prices
sufficient to recover the estimated future cash costs of production and
remaining investment. The estimates of cash costs of production are based on
current and projected costs. Estimated mining dilution has been factored into
the reserve calculation. Homestake used a price of US$325 per ounce of gold in
its mine-by-mine evaluation of short-lived properties and a price of US$350 per
ounce of gold for its other gold mining properties at December 31, 1997.
Homestake used a price of US$375 per ounce of gold in calculating reserves at
December 31, 1996.
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SILVER
The proven and probable silver ore reserves have been calculated on the same
basis as gold ore reserves, except that silver reserves at December 31, 1997 and
1996 are based on an assumed price of US$5 per ounce.
SULFUR
Homestake's proven sulfur reserves represent the quantity of sulfur in the
Main Pass 299 deposit for which geological, engineering and marketing data give
reasonable assurance of recovery and sale under projected economic and operating
conditions. As noted above, in the third quarter of 1997, Homestake wrote down
its investment in the Main Pass 299 sulfur assets to zero.
OIL
Homestake's proved oil reserves at Main Pass 299 are the estimated quantity
of crude oil and condensate which geological and engineering data give
reasonable assurance of recovery and sale under projected operating conditions
at prices sufficient to cover the estimated future cash costs of production and
the remaining investment. The estimate is based on limited reservoir and
engineering data.
ESTIMATION OF RESERVES
Gold and silver reserves are estimated for each of the properties operated
by Homestake based upon factors relevant to each deposit. Gold ore reserves for
those properties not operated by Homestake are based on reserve information
provided to Homestake by the operator. Homestake has reviewed but has not
independently confirmed the information provided by these operators.
The sulfur and oil reserves at Main Pass 299 are based on information
provided by the operator. Homestake reviewed the initial reserve data with
independent consultants. Homestake has reviewed subsequent adjustments to these
reserves but has not independently confirmed the reserve adjustments provided by
the operator.
OTHER INFORMATION
Ore reserves are reported as general indicators of the life of mineral
deposits. Changes in reserves generally reflect (i) efforts to develop
additional reserves; (ii) depletion of existing reserves through production;
(iii) actual mining experience; and (iv) price forecasts. Grades of ore actually
processed from time to time may be different from stated reserve grades because
of geologic variation in different areas mined, mining dilution, losses in
processing and other factors. Recovery rates vary with the metallurgical and
other characteristics and grade of ore processed.
Neither reserves nor projections of future operations should be interpreted
as assurances of the economic life of mineral deposits or of the profitability
of future operations.
ENVIRONMENTAL MATTERS
GENERAL
Homestake has a policy of conducting extensive environmental audits of its
operations in order to minimize the impact of its operations on the environment
and to monitor compliance with applicable environmental laws and regulations. A
committee of the Homestake Board oversees the establishment and implementation
of environmental policy. Environmental audits are conducted on a regular basis
with the objective of auditing each operation at least once every three years.
Homestake has made significant capital expenditures to minimize the effects
of its operations on the environment. Capital expenditures primarily are for the
purchase or development of environmental
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monitoring equipment and containment of tailings and waste rock. In 1997, these
expenditures totaled approximately US$18 million compared to US$7 million in
1996. Homestake estimates that during 1998 capital expenditures for such
purposes will be approximately US$7 million and that during the five years
ending December 31, 2002, such capital expenditures will be approximately US$20
million.
Homestake also incurs significant operating costs in order to protect the
environment. Operating costs include current reclamation costs, costs for
environmental monitoring and studies to identify and quantify environmental
impacts, if any, and accruals for future reclamation expenditures. Such
additional costs totaled approximately US$30 million in 1997, compared with
approximately US$18 million in 1996, not including related depreciation expense
of US$2 million and US$3 million, respectively. Homestake estimates that
environmental and related operating and depreciation costs in 1998 will be
approximately US$18 million and US$3 million, respectively. The above amounts
exclude expenditures related to the Company's discontinued uranium operations.
Under applicable law and the terms of permits under which Homestake
operates, Homestake is required to reclaim land disturbed by its operations. In
the mining industry, most reclamation work takes place after mining and related
operations terminate. With respect to nonoperating properties, Homestake
believes that it has fully provided for all remediation liabilities and for
estimated reclamation and site restoration costs. Homestake's provisions are
evaluated regularly and adjusted when necessary. At September 30, 1997,
Homestake determined that it was necessary to increase the reclamation accruals
at certain of its nonoperating properties including the Sante Fe mine in Nevada,
the Nickel Plate mine in Canada and the Grants uranium complex in New Mexico to
reflect revised estimates, changed conditions and more stringent future
reclamation requirements. Accordingly, a charge of US$29.1 million was recorded
at that time. Homestake charges reclamation costs incurred in connection with
its exploration activities as expenses in the year in which incurred. For mining
operations, Homestake provides for final reclamation on a units-of-production
basis over the individual operating mine lives. In addition, Homestake has
adopted a policy of conducting reclamation concurrently with mining operations
where practical. As a result, an increasing amount of reclamation is being
conducted simultaneously with mining. At December 31, 1997, Homestake had
accrued a total of US$92 million for future reclamation and related costs.
Homestake's operations are conducted under permits issued by regulatory
agencies. Many permits require periodic renewal or review of their conditions.
Homestake cannot predict whether it will be able to renew such permits or
whether material changes in permit conditions will be imposed.
RCRA
The United States Environmental Protection Agency ("EPA") has not yet issued
final regulations for management of mining wastes under the United States
Resource Conservation and Recovery Act ("RCRA"). The ultimate effects and costs
of compliance with RCRA cannot be estimated at this time.
CERCLA
The United States Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") imposes heavy liabilities on any person who is
responsible for an actual or threatened release of any hazardous substance,
including liability for oversight costs incurred by the EPA. Legislative
proposals and congressional hearings for CERCLA reauthorization have occurred in
1994 through 1997. CERCLA reauthorization is expected to be enacted in 1998.
WHITEWOOD CREEK
Mining companies operating in the Black Hills of South Dakota, including
Homestake, placed mine tailings in Whitewood Creek in Western South Dakota
beginning in the nineteenth century. Some tailings placed in Whitewood Creek
eventually flowed into the Belle Fourche River, the Cheyenne River and
downstream therefrom. Placement of mine tailings into Whitewood Creek was
authorized by the laws of
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the United States, the Dakota territory and the State of South Dakota, and
Whitewood Creek was later specifically designated by the State of South Dakota
as a disposal stream for mine tailings and for the disposal of raw sewage and
other municipal waste. Consequently, all mine tailings placed by Homestake in
Whitewood Creek were placed there with the consent and encouragement of the
State of South Dakota and the United States government and in compliance with
applicable laws. In response to changes in legal requirements, Homestake ceased
the placement of mine tailings into Whitewood Creek in 1977 and for more than 20
years the Homestake mine has impounded all mine tailings that are not
redeposited in the mine.
In 1983, the EPA designated an 18-mile stretch of Whitewood Creek and
adjacent land as a superfund site and placed it on the National Priorities List
("NPL") under CERCLA. The EPA asserted that the discharges of tailings by mining
companies, including Homestake, contaminated the soil and stream bed. During the
period from 1982 through 1990, extensive studies of the superfund site were
conducted at Homestake's expense to identify any public health and environmental
issues related to the site and appropriate remedial action. In August 1990,
Homestake signed a consent decree with the EPA in UNITED STATES OF AMERICA V.
HOMESTAKE MINING COMPANY OF CALIFORNIA, U.S. Dist. Ct., W.D.S.D., Civ. Action
No. 90-5101. Under the consent decree, Homestake conducted remedial work at its
expense and also reimbursed the EPA for its oversight costs. Remedial field work
was completed in 1993. The decree also provided for the three counties in which
the property is located to enact institutional controls which would limit the
future use of the property included within the area of the superfund site.
Institutional controls were adopted in all three counties. In addition,
Homestake offered to purchase all properties along Whitewood Creek that were
affected by the institutional controls. Approximately US$3 million has been
spent to date to acquire property along Whitewood Creek and the Company
estimates that the total cost for purchasing all of the remaining affected
property would be an additional US$3 million. These costs are expensed as and
when incurred.
The consent decree was terminated by the court on January 10, 1996. The
Whitewood Creek site was deleted from the NPL on August 13, 1996. In the
deletion notice, the EPA stated that "EPA, in consultation with the State of
South Dakota, have determined that the Site poses no significant threat to
public health or the environment." Whitewood Creek now supports a thriving trout
fishery and the adjacent area provides significant wildlife habitat for a number
of species, as well as water and grazing for cattle and other farm animals.
In July 1997, Homestake received a letter from the United States Fish and
Wildlife Service and the Cheyenne River Sioux Tribe stating that the Department
of the Interior intended to file suit against Homestake to recover alleged
natural resource damages and assessment costs under CERCLA and the Clean Water
Act with respect to alleged releases of hazardous substances at Whitewood Creek.
Homestake agreed to a limited waiver of statutes of limitations until November
25, 1997, to facilitate settlement discussion.
On September 25, 1997 the State of South Dakota filed an action against
Homestake, STATE OF SOUTH DAKOTA V. HOMESTAKE MINING COMPANY OF CALIFORNIA, U.S.
Dist. Ct., W.D.S.D., Civ. Action No. 97-5078. The action relates to the same
general matter which is the subject of the above referenced letter--placement of
mine tailings in Whitewood Creek. In the complaint, the State of South Dakota
alleged that Homestake disposed of mine tailings in Whitewood Creek and that
such disposal resulted in injuries to natural resources in Whitewood Creek and
downstream in the Belle Fourche River, the Cheyenne River and Lake Oahe on the
Missouri River (the "NRD Site"). The complaint also alleged that the State of
South Dakota incurred assessment costs. The State of South Dakota claims that it
is a trustee authorized under CERCLA to bring such action. The complaint also
contained a pendent state law claim, alleging that the tailings placed in
Whitewood Creek constitute a continuing public nuisance in and around the NRD
Site downstream from Whitewood Creek. The complaint asks for abatement of the
nuisance, damages in an unascertained amount, costs and interest.
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In its answer to the state complaint, Homestake denied that there has been
any continuing damage to natural resources or nuisance caused by Homestake as a
result of the placement of tailings in Whitewood Creek. Among other defenses, it
is also the position of Homestake that as a result of the State of South
Dakota's ownership of Whitewood Creek and designation of Whitewood Creek as an
authorized disposal site under state authority, the State of South Dakota was
and is the owner and operator of the waste disposal facility and is responsible
for all past and future damages and any continuing nuisance resulting therefrom.
Homestake has also counterclaimed against the State of South Dakota seeking cost
recoupment, contribution and indemnity from the State of South Dakota, in its
capacity as an owner and operator of a disposal facility, and for expenses
previously incurred and to be incurred in the future with respect to Whitewood
Creek and downstream areas.
On November 25, 1997, the United States government and the Cheyenne River
Sioux Tribe (the "Federal Trustees") filed an action against Homestake, UNITED
STATES OF AMERICA ET AL. V. HOMESTAKE MINING COMPANY OF CALIFORNIA, U.S. Dist.
Ct, W.D.S.D., Civ. Action No. 97-5100. This action relates to the matters
referenced in the letter described above and which are the subject of the
federal cause of action brought by the State of South Dakota, described above,
with respect to the NRD Site. The complaint seeks response costs and damages in
unspecified amounts, costs and attorneys fees.
In its answer to the complaint by the Federal Trustees, Homestake denied
that there has been any continuing damage to natural resources. Among other
defenses, it is also the position of Homestake that the United States government
approved and authorized deposit of tailings in Whitewood Creek, including
designation of Whitewood Creek as a disposal site under federal authority, and
is therefore responsible for any past and future damages, and that the matters
at issue have been previously litigated and are the subject of a prior final
judgment between Homestake and the United States government. Homestake has also
counterclaimed against the Federal Trustees seeking cost recoupment,
contribution and indemnity.
In the opinion of Homestake, there is no basis for the claims by the State
of South Dakota or by the federal government and the Cheyenne River Sioux Tribe.
Homestake is also of the opinion that it has valid defenses and counterclaims
against the State of South Dakota, the United States government and the Cheyenne
River Sioux Tribe, as well as potential counterclaims and crossclaims against
other governmental entities and agencies, and other persons who participated in
ownership and/or operation or otherwise encouraged use of Whitewood Creek as a
waste disposal site, who disposed of waste in the NRD Site, or who have owned
property or otherwise conducted activity within the NRD Site which may have
contributed to any alleged damage. Homestake does not believe that resolution of
these matters will have a material adverse effect on its business or financial
condition or results of operations.
Homestake, the State of South Dakota and the Federal Trustees are engaged in
settlement discussion with respect to these actions. If settlement is not
achieved, Homestake intends to vigorously defend these actions and to seek cost
recoupment, contribution and indemnity from the State of South Dakota, federal,
state and other government entities and agencies, and other persons who
participated in ownership and/or operation or otherwise encouraged use of
Whitewood Creek as a waste disposal site, who disposed of waste in Whitewood
Creek or its receiving waters, or who have owned property or otherwise conducted
activities which may have contributed to any alleged damage in the NRD Site.
GRANTS TAILINGS
Homestake's closed uranium mill site near Grants, New Mexico is listed on
the NPL. The EPA asserted that leachate from the tailings contaminated a shallow
aquifer used by some of the residents in adjacent residential subdivisions.
Homestake paid the cost of extending the municipal water supply to the
subdivisions. Homestake also has operated a water injection and collection
system since 1976 that has significantly improved the quality of the aquifer.
The estimated costs of continued remediation are included in the accrued
reclamation liability. Homestake has settled with the EPA concerning its
oversight costs for this site. Homestake signed a Consent Decree with the EPA
related to the ground water issues
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and an Administrative Order on Consent ("AOC") for radon studies of the adjacent
subdivisions. The radon studies in the subdivisions determined that there was no
contamination or impact. The work required by the Consent Decree and AOC has
been completed and both have been terminated.
Under Nuclear Regulatory Commission ("NRC") regulations, the decommissioning
of the uranium mill tailings facilities is in accordance with the provisions of
the facility's license. The facility license sets the closure of the two
tailings impoundments as 2004 and 2013, subject to extension under certain
circumstances. The NRC and EPA signed a Memorandum of Understanding in 1993
which has established the NRC as the oversight and enforcement agency for
decommissioning and reclamation of the site. Mill decommissioning was completed
in 1994 and final closure of the Grants large tailings site is scheduled for
completion in 2003. During 1997, Homestake incurred approximately US$3 million
of reclamation expenditures at the Grants facility and an additional US$3.7
million is planned to be expended during 1998.
Title X of the Energy Policy Act of 1992 (the "Energy Policy Act") and
subsequent amendments to the Energy Policy Act authorized appropriations of $335
million to cover the Federal Government's share of certain costs of reclamation,
decommissioning and remedial action for by-product material (primarily tailings)
generated by certain licensees as an incident of uranium sales to the federal
government. Reimbursement is subject to compliance with regulations of the
Department of Energy ("DOE"), which were issued in 1994. Pursuant to the Energy
Policy Act, the DOE is responsible for 51.2% of the past and future costs of
reclaiming the Grants site in accordance with NRC license requirements. Through
June 30, 1998 Homestake has received US$26 million from the DOE and the balance
sheet at June 30, 1998 includes an additional receivable of US$6.3 million for
the DOE's share of reclamation expenditures made by Homestake through 1997.
Homestake believes that its share of the estimated remaining cost of reclaiming
the Grants facility is fully provided in the financial statements at December
31, 1997.
In 1983, the State of New Mexico filed claims against Homestake for natural
resource damages resulting from the Grants site. The State has taken no action
to pursue the claims.
LEAD
Prior to May 1986, Homestake Lead Company of Missouri ("HLCM"), a
wholly-owned subsidiary of Homestake, was a joint venturer and partner with
subsidiaries of AMAX, Inc. ("AMAX") in the production of lead metal and lead
concentrates in Missouri. In May 1986, HLCM acquired AMAX's interest in the
Missouri facilities and operations and agreed to assume certain limited
liabilities of AMAX in connection with the Missouri facilities. In June 1991,
HLCM and AMAX were notified of a potential claim by the Jackson County,
Mississippi Port Authority for contamination of soil and water alleged to have
resulted from storage and shipment of lead dross at the Port of Pascagoula prior
to May 1986. Since that time, a number of other lead producers and former lead
producers have also been so notified. The Port of Pascagoula is taking primary
responsibility for conducting an investigation of the site, but the Port of
Pascagoula also has made claims for reimbursement against customers whose
material was stored at and shipped through the site. As a result of subsequent
investigations conducted by Homestake and others, Homestake believes that most
of the material at the Pascagoula site, as well as the material primarily
responsible for any contamination, is lead concentrate. Based on a review of
shipping records to date, less than half of the lead concentrate shipped through
the Port of Pascagoula was produced and sold for the account of Homestake. The
State of Mississippi Department of Environmental Quality is reviewing the
investigation efforts and remediation plans that are being developed by the Port
Authority. Based on information currently available, Homestake believes the
remediation costs should not exceed US$1 million. Homestake's position is that
the Port Authority is primarily responsible for the cost of remediation as owner
of the property and as lessor with the ability to control the activities of the
stevedoring company, and also because the Port Authority contributed to the
contamination by moving stored material from a storage building and depositing
it on the ground. Homestake believes that any future costs it may incur in
connection with this matter will not be material.
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FOREIGN OPERATIONS
Except for isolated instances described above in respect of the individual
properties, Homestake believes that its foreign operations comply with
applicable laws, regulations and permit conditions and has no knowledge of any
significant environmental liability or contingent liability resulting from its
foreign operations. Homestake expects that environmental constraints in foreign
countries will become increasingly strict.
CUSTOMERS
Sales to individual customers exceeding 10% of Homestake's consolidated
revenues are stated below. Homestake believes that the loss of any of these
customers would not have a material adverse impact on Homestake because of the
active worldwide market for gold.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(US$ IN THOUSANDS)
<S> <C> <C>
Customer A............................................................ $ 143,000 $ 117,000
B............................................................. 104,500 42,700
C............................................................. 100,000 129,000
D............................................................. 96,200 140,400
</TABLE>
EMPLOYEES
The number of full-time employees (excluding contractors' employees) at June
30, 1998 of Homestake and its subsidiaries was:
<TABLE>
<CAPTION>
<S> <C>
Homestake mine(1)..................................................................... 405
McLaughlin mine....................................................................... 104
Ruby Hill mine........................................................................ 92
Santa Fe mine......................................................................... 1
Nickel Plate mine..................................................................... 12
Eskay Creek mine...................................................................... 100
Snip mine............................................................................. 167
Plutonic mine......................................................................... 139
Darlot/Centenary mine................................................................. 63
Lawlers mine.......................................................................... 69
Agua de la Falda mine(1).............................................................. 46
El Hueso mine......................................................................... 2
United States corporate staff and other............................................... 79
Canada exploration and corporate staff................................................ 31
Australian exploration and corporate staff............................................ 34
United States exploration staff....................................................... 23
Uranium............................................................................... 8
Chile exploration and corporate staff................................................. 22
---------
Total............................................................................... 1,397
</TABLE>
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The number of full-time employees (excluding contractors' employees) at June
30, 1998 in jointly-owned operations in which Homestake participates was:
<TABLE>
<CAPTION>
<S> <C>
Kalgoorlie Consolidated Gold Mines Pty Ltd(1)......................................... 505
Williams Operating Corporation........................................................ 598
Round Mountain mine................................................................... 676
Teck-Corona Operating Corporation(1).................................................. 250
Pinson Mining Company................................................................. 84
Marigold Mining Company............................................................... 87
Main Pass 299......................................................................... 139
Mt Morgans mine....................................................................... 32
Peak Hill mine........................................................................ 20
---------
Total............................................................................... 2,391
</TABLE>
- ------------------------
(1) Operations where a portion of the employees are represented by a labor
union.
Labor relations at all locations are believed to be good. A new five year
collective bargaining agreement was signed at Lead in May 1998. The union
contract at David Bell will expire in October 1998.
LEGAL PROCEEDINGS
Certain environmental proceedings in which Homestake or its subsidiaries are
or may become parties are discussed under the caption "--Environmental Matters."
In October 1997, HCI and Prime entered into an agreement with Inmet Mining
Corporation ("Inmet") to purchase (HCI as to 51% and Prime as to 49%) the
Troilus mine in Quebec for US$110 million plus working capital. In December
1997, HCI and Prime terminated the agreement after determining that, on the
basis of due diligence studies, conditions to closing the arrangement would not
be satisfied. On February 23, 1998, Inmet filed suit against Prime and HCI in
the British Columbia Supreme Court, disputing the termination of the agreement,
and alleging that Prime and HCI had breached the agreement. Inmet seeks specific
performance or, in the alternative, equitable damages. Prime and Homestake
believe that the agreement with Inmet was terminated properly by Prime and HCI
and that the action by Inmet is without merit. Prime and Homestake intend to
defend this action vigorously.
Homestake and its subsidiaries are defendants in various legal actions in
the ordinary course of business. In the opinion of management, such matters will
be resolved without material adverse effect on the Homestake's financial
condition, results of operations or cash flow.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements have been prepared by Homestake to illustrate the estimated effects
of the proposed acquisition of the shares of Prime not presently owned by
Homestake pursuant to the Arrangement. The Arrangement will be accounted for as
a purchase under U.S. GAAP. The Pro Forma Condensed Consolidated Financial
Statements include a Pro Forma Condensed Consolidated Balance Sheet as of June
30, 1998 assuming the Arrangement occurred as of that date, and Pro Forma
Condensed Consolidated Statements of Operations for the six months ended June
30, 1998 and the year ended December 31, 1997, assuming that the Arrangement
occurred as of the beginning of each period.
If the Arrangement is approved by the Prime Shareholders and the British
Columbia Supreme Court, and if the Homestake Stockholders adopt the Restated
Certificate, Prime Shareholders (other than HCI) who do not exercise dissenters'
appraisal rights will have the option to receive 0.74 of a share of Homestake
Common Stock or 0.74 of an HCI Exchangeable Share for each Prime Common Share.
Each HCI Exchangeable Share is exchangeable at any time for one share of
Homestake Common Stock and has essentially the same rights as one share of
Homestake Common Stock.
The Pro Forma Condensed Consolidated Financial Statements are presented
utilizing the purchase method of accounting whereby the cost of acquiring the
49.4% of Prime not already owned by Homestake is determined by the value of the
shares of Homestake Common Stock issuable in the transaction or in exchange for
HCI Exchangeable Shares, plus the direct costs associated with the Arrangement,
which are estimated to be approximately US$5 million. All amounts in the Pro
Forma Condensed Consolidated Financial Statements are stated in US dollars. The
Pro Forma Condensed Consolidated Financial Statements do not purport to
represent what the financial position or results of operations actually would
have been if the Arrangement had occurred at the beginning of the periods or to
project the financial position or results of operations for any future date or
period.
The Pro Forma Condensed Consolidated Financial Statements should be read in
conjunction with the Homestake Consolidated Financial Statements, including the
notes thereto, prepared in accordance with U.S. GAAP, which are included in
Appendix J to the Supplement. The Pro Forma Condensed Consolidated Financial
Statements also include pro forma adjustments which are based on available
information and certain assumptions that management of Homestake believes are
reasonable in the circumstances. Such pro forma adjustments reflect the effects
of the acquisition of all of the Prime Shares not already owned by Homestake for
either Homestake Common Stock or HCI Exchangeable Shares. Each HCI Exchangeable
Share will have dividend and voting rights equivalent to those of one share of
Homestake Common Stock and will be exchangeable for one share of Homestake
Common Stock at any time at the option of the holder. Therefore, the value of an
HCI Exchangeable Share is expected to be equivalent to the value of a share of
Homestake Common Stock and, for the purpose of these Pro Forma Condensed
Consolidated Financial Statements, any HCI Exchangeable Shares to be issued have
been reflected as shares of Homestake Common Stock.
S-121
<PAGE>
HOMESTAKE MINING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLAR AMOUNTS ARE IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
HOMESTAKE PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ --------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents............................................... $ 134,219 $ (5,000)(A) $ 129,219
Short-term investments............................................. 149,699 149,699
Receivables........................................................ 48,711 48,711
Inventories........................................................ 83,431 83,431
Deferred income and mining taxes................................... 26,465 26,465
Other.............................................................. 7,669 7,669
------------ --------------- ------------
Total current assets............................................. 450,194 (5,000) 445,194
------------ --------------- ------------
Property, plant and equipment--net................................... 932,734 350,701(A) 1,283,435
------------ --------------- ------------
Investments and other assets
Noncurrent investments............................................. 33,054 33,054
Other assets....................................................... 89,479 89,479
------------ --------------- ------------
Total investments and other assets............................... 122,533 122,533
------------ --------------- ------------
$ 1,505,461 $ 345,701 $ 1,851,162
------------ --------------- ------------
------------ --------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities.................................................. $ 142,436 $ 142,436
------------ ------------
Long-term liabilities
Long-term debt..................................................... 356,069 356,069
Other long-term obligations........................................ 143,871 143,871
------------ ------------
Total long-term liabilities...................................... 499,940 499,940
------------ ------------
Deferred income and mining taxes..................................... 146,105 $ 115,647(A) 261,752
------------ --------------- ------------
Minority interests in consolidated subsidiaries...................... 112,232 (99,946)(A) 12,286
------------ --------------- ------------
Shareholders' equity................................................. 604,748 330,000(A) 934,748
------------ --------------- ------------
$ 1,505,461 $ 345,701 $ 1,851,162
------------ --------------- ------------
------------ --------------- ------------
</TABLE>
- ------------------------
(A) Assuming the issuance of 27,811,000 shares of Homestake Common Stock valued
at $330,000 plus acquisition and related costs of $5,000, to reflect the
acquisition of the 37,583,000 Prime Common Shares that Homestake does not
presently own. Accordingly, the total pro forma acquisition cost is $335,000
compared to the book value for the Prime minority interests of $99,946. As
discussed below, it is Homestake's opinion that substantially all of the
purchase price in excess of the net book value of the Prime minority
interests is attributable to the Eskay Creek mineral property interests held
by
S-122
<PAGE>
Prime. The excess purchase price paid over the net book value of assets
acquired and related deferred taxes is allocated as follows:
<TABLE>
<S> <C>
Total Purchase Price............................................. $ 335,000
Net Book Value of Prime Minority Interests at June 30, 1998...... 99,946
---------
Excess of Purchase Price Paid over Net Book Value of Assets
Acquired Attributed to Eskay Creek Mineral Properties.......... 235,054
Increase in Eskay Creek Mineral Properties Due to the Recognition
of the Deferred Tax Consequences of Differences Between the
Assigned Values and Tax Bases of the Net Assets Acquired....... 115,647
---------
Total Increase in Property, Plant and Equipment.................. 350,701
Increase in Deferred Taxes....................................... (115,647)
---------
Excess of Purchase Price Paid over Net Book Value of Assets
Acquired....................................................... $ 235,054
---------
---------
</TABLE>
With the exception of property, plant and equipment, the assets and
liabilities of Prime included in Homestake's consolidated financial statements
consist primarily of working capital items, the carrying values of which are
substantially at fair market value. Homestake has allocated the excess purchase
price to the Eskay Creek mineral properties. Homestake made this allocation
based on the analysis undertaken in connection with its decision to acquire the
additional 49.4% of Prime, Homestake's experience in ownership and operation at
Eskay Creek and other mines, and the history of the Eskay Creek property and the
identification and development of mineral deposits and their conversion to ore
reserves. This analysis indicated that $50,000 ($74,600 including the increase
related to deferred taxes) of the purchase price allocated to mineral properties
is attributable to Eskay Creek mineral exploration properties and the remainder
is attributable to Eskay Creek reserves.
The final allocation of the purchase price will be made when the Arrangement
is completed and when Homestake completes its annual detailed analysis of
reserves as of December 31, 1998. However, management does not expect the final
actual allocation of the purchase price to be materially different from the pro
forma balance sheet.
S-123
<PAGE>
HOMESTAKE MINING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLAR AMOUNTS ARE IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HOMESTAKE PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- -----------
<S> <C> <C> <C>
Revenues
Product sales......................................................... $ 416,824 $ 416,824
Interest income....................................................... 9,477 $ (150)(A) 9,327
Other income.......................................................... (14,799) (14,799)
----------- --------------- -----------
411,502 (150) 411,352
----------- --------------- -----------
Costs and Expenses
Production costs...................................................... 278,306 278,306
Depreciation, depletion and amortization.............................. 73,492 19,448(B) 92,940
Administrative and general expense.................................... 23,837 23,837
Exploration expense................................................... 21,806 21,806
Interest expense...................................................... 10,328 10,328
Write-downs and other unusual charges................................. 11,784 11,784
Business combination and integration costs............................ 20,710 20,710
Other expense......................................................... 798 798
----------- --------------- -----------
441,061 19,448 460,509
----------- --------------- -----------
Loss Before Taxes and Minority Interests................................ (29,559) (19,598) (49,157)
Income and Mining Taxes................................................. (2,342) 6,443(C) 4,101
Minority Interests...................................................... (5,616) 7,084(D) 1,468
----------- --------------- -----------
Net Loss................................................................ $ (37,517) $ (6,071) $ (43,588)
----------- --------------- -----------
----------- --------------- -----------
Net Loss Per Share--Basic and Diluted................................... $ (0.18) $ (0.18)
----------- -----------
----------- -----------
Average Shares Used in the Computation (thousands)...................... 210,860 27,811 238,671
----------- --------------- -----------
----------- --------------- -----------
</TABLE>
- ------------------------
(A) To eliminate interest income, based on an average earnings rate of
approximately 6% per annum, in respect of the assumed cash component of the
Prime purchase price in the amount of $5,000.
S-124
<PAGE>
(B) To record amortization of the excess purchase price paid over the net book
value of assets acquired, using the units-of-production method, as follows:
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER OUNCE AMOUNT)
<TABLE>
<S> <C> <C>
1) Excess purchase price allocated to proven and probable
reserves....................................................... $ 276,101
---------
2) Estimate of equivalent payable ounces of gold based on the
estimate of 4,051 equivalent ounces contained in Eskay Creek
reserves and an estimated recovery rate of 95%................. 3,848
---------
3) Estimate of recoverable ounces attributed to minority interests
(49.4% of (2))................................................. 1,901
---------
4) Amortization rate per ounce ((1) divided by (3))............... $ 145.24
5) Equivalent ounces of gold produced at Eskay Creek during the
six months ended June 30, 1998................................. 271.1
---------
6) Minority interests' share of year-to-date June 1998 Eskay Creek
gold production (49.4% of (5))................................. 133.9
---------
7) Pro forma amortization adjustment ((4) times (6)).............. $ 19,448
</TABLE>
(C) To record the tax effects of adjustments (A) and (B) above.
(D) To eliminate the minority interests' share of Prime's earnings.
S-125
<PAGE>
HOMESTAKE MINING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLAR AMOUNTS ARE IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HOMESTAKE PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Revenues
Product sales........................................................ $ 890,449 $ 890,449
Interest income...................................................... 17,320 $ (300)(A) 17,020
Gain on termination of Santa Fe merger............................... 62,925 62,925
Other income......................................................... 721 721
------------ ----------- ------------
971,415 (300) 971,115
------------ ----------- ------------
Costs and Expenses
Production costs..................................................... 627,639 627,639
Depreciation, depletion and amortization............................. 162,781 29,934(B) 192,715
Administrative and general expense................................... 48,905 48,905
Exploration expense.................................................. 65,238 65,238
Interest expense..................................................... 20,756 20,756
Write-downs and other unusual charges................................ 285,315 285,315
Other expense........................................................ 6,836 6,836
------------ ----------- ------------
1,217,470 29,934 1,247,404
------------ ----------- ------------
Loss Before Taxes and Minority Interests............................... (246,055) (30,234) (276,289)
Income and Mining Taxes................................................ 19,458 9,931(C) 29,389
Minority Interests..................................................... (4,009) 11,756(D) 7,747
------------ ----------- ------------
Net Loss............................................................... $ (230,606) $ (8,547) $ (239,153)
------------ ----------- ------------
------------ ----------- ------------
Net Loss Per Share--Basic and Diluted.................................. $ (1.10) $ (1.00)
------------ ------------
------------ ------------
Average Shares Used in the Computation (thousands)..................... 210,537 27,811 238,348
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
- ------------------------
(A) To eliminate interest income, based on an average earnings rate of
approximately 6% per annum, in respect of the assumed cash component of the
Prime purchase price in the amount of $5,000.
S-126
<PAGE>
(B) To record amortization of the excess purchase price paid over the net book
value of assets acquired, using the units-of-production method, as follows:
<TABLE>
<S> <C> <C>
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER OUNCE AMOUNT)
1) Excess purchase price allocated to proven and probable
reserves.................................................... $ 276,101
---------
2) Estimate of equivalent payable ounces of gold based on the
estimate of 4,051 equivalent ounces contained in Eskay Creek
reserves and an estimated recovery rate of 95%.............. 3,848
---------
3) Estimate of recoverable ounces attributed to minority
interests (49.4% of (2)).................................... 1,901
---------
4) Amortization rate per ounce ((1) divided by (3)).............. $ 145.24
5) Equivalent ounces of gold produced at Eskay Creek during
1997........................................................ 417.3
6) Minority interests' share of 1997 Eskay Creek gold production
(49.4% of (5)).............................................. 206.1
---------
7) Pro forma amortization adjustment ((4) times (6))............. $ 29,934
</TABLE>
(C) To record the tax effects of adjustments (A) and (B) above.
(D) To eliminate the minority interests' share of Prime's earnings.
S-127
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents Homestake's and Prime's historical per share
data and Homestake's pro forma per share data for the six months ended June 30,
1998 and for the year ended December 31, 1997. The pro forma data gives effect
to the Arrangement and accounts for the Arrangement as a purchase, based upon
the Prime Financial Statements, the Homestake Consolidated Financial Statements
and the Unaudited Pro Forma Condensed Consolidated Financial Statements.
The information presented below should be read in conjunction with (i) the
Prime Financial Statements, including the notes thereto, which are set forth in
Appendix I, (ii) the Homestake Consolidated Financial Statements, including the
notes thereto, which are set forth in Appendix J, (iii) the Unaudited Pro Forma
Condensed Consolidated Financial Statements, which are included elsewhere in
this Supplement.
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
--------------------- -------------------
<S> <C> <C>
HISTORICAL:
Per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts in US dollars)
Book value(1)........................................................ $ 2.86 $ 3.24
Cash dividends....................................................... 0.05 0.15
Net loss(2).......................................................... (0.18) (1.10)
Per Prime Common Share:
(Prepared in accordance with Canadian GAAP; amounts in Canadian
dollars)
Book value(1)........................................................ $ 4.34 $ 4.12
Cash dividends....................................................... 0.04 0.08
Net income(2)........................................................ 0.26 0.40
Per Prime Common Share:
(Prepared in accordance with U.S. GAAP; amounts in Canadian dollars)
Book value(1)........................................................ $ 3.91 $ 3.67
Cash dividends....................................................... 0.04 0.08
Net income(2)........................................................ 0.27 0.43
PRO FORMA:
Per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts in US dollars)
Book value(1)........................................................ $ 3.91 $ 4.25
Cash dividends....................................................... 0.05 0.15
Net loss(2).......................................................... (0.18) (1.00)
Per Prime Common Share equivalent(3)
(Prepared in accordance with U.S. GAAP; amounts in US dollars)
Book value(1)........................................................ $ 2.89 $ 3.14
Cash dividends....................................................... 0.04 0.11
Net loss(2).......................................................... (0.13) (0.74)
</TABLE>
- --------------------------
(1) Book value per share is shareholders' equity divided by common shares
outstanding at June 30, 1998 and December 31, 1997.
(2) Basic and diluted earnings per share.
(3) Pro forma per Prime Common Share equivalent information reflects the pro
forma per share of Homestake Common Stock amount multiplied by the Exchange
Ratio of 0.74 shares of Homestake Common Stock for each Prime Common Share.
S-128
<PAGE>
HOMESTAKE MANAGEMENT
DIRECTORS
The following persons are the directors of Homestake and are expected to
serve as directors of Homestake following the Effective Date.
<TABLE>
<CAPTION>
AGE AT SEPTEMBER DIRECTOR
DIRECTOR 30, 1998 SINCE BIOGRAPHICAL INFORMATION
- ----------------------------- ------------------- ----------- ---------------------------------------------------------
<S> <C> <C> <C>
Gerhard Ammann (1)........... 54 1998 Mr. Ammann, a chartered accountant, has been a partner
with Deloitte and Touche Experts Ltd. (a consulting firm)
since 1993.
</TABLE>
<TABLE>
<S> <C> <C> <C>
M. Norman Anderson........ 67 1992 Mr. Anderson is President of Norman Anderson &
Associates Ltd (mining consultants). Mr. Anderson
was a director of HCI from 1987 to 1993, and was
the Chairman of the Board of Directors of HCI from
February 1991 to July 1992, when Homestake acquired
the outstanding voting shares of HCI. He is a
director of Prime, Solv-ex Corporation (tar sands
processing), Finning International (construction
equipment sales and service), Buenaventura S.A.
(gold and silver mining) and The Toronto Dominion
Bank.
Richard R. Burt........... 51 1997 Mr. Burt has been the Chairman of IEP Advisors,
Inc. (strategic and financial advisory services)
since June 1993. He is also Chairman of Powerhouse
Technologies, Inc. (gaming software design) and
Weirton Steel Company (integrated steel producer).
From April 1991 to June 1993, he was a partner in
McKinsey & Company (management consultants). Mr.
Burt was the United States Ambassador to the
Federal Republic of Germany from 1985 to 1989. He
is a director of Archer Daniels Midland Company
(processing and sales of agricultural commodities)
and Hollinger International Inc. (publishing).
Robert H. Clark, Jr....... 57 1984 Mr. Clark has been Chief Executive Officer since
1993, President since 1983, and a director since
1968, of Case, Pomeroy & Company, Inc. (mining, oil
and gas, real estate). Mr. Clark is a director of
FINOVA Group Inc. (financial services).
</TABLE>
- --------------------------
(1) Mr. Ammann was proposed as a director by August von Finck, Homestake's
largest stockholder, and was elected to the Homestake Board on September 25,
1998.
S-129
<PAGE>
<TABLE>
<CAPTION>
AGE AT SEPTEMBER DIRECTOR
DIRECTOR 30, 1998 SINCE BIOGRAPHICAL INFORMATION
- -------------------------- ----------------- ----------- ---------------------------------------------------
<S> <C> <C> <C> <C>
G. Robert Durham............. 69 1990 In May 1996, Mr. Durham retired as Chairman of the Board,
Chief Executive Officer and a director of Walter
Industries, Inc. (building materials, home building,
mortgage financing and natural resources development). He
was Chief Executive Officer and a director of Walter
Industries, Inc. from June 1991, and Chairman from
October 1995, until his retirement. He was also President
from June 1991 until October 1995. Mr. Durham was
Chairman of the Board and President of Phelps Dodge
Corporation (mining) from 1987 to 1989 and President and
Chief Operating Officer from 1985 to 1987, and he held
other executive positions with Phelps Dodge Corporation
or affiliated corporations beginning in 1977. He is a
director of FINOVA Group Inc. (financial services), and
Amphenol Corp. (manufacturer of electronic connectors and
coaxial cables), and a trustee of Mutual Life Insurance
Company of New York.
Douglas W. Fuerstenau........ 69 1977 Mr. Fuerstenau has been a Professor of Metallurgy,
Department of Materials Science and Mineral Engineering,
University of California, Berkeley from 1959 to 1992. He
was P. Malozemoff Professor of Mineral Engineering from
1987 to 1993, and has been a professor emeritus since
1993 and has been a professor in the Graduate School
since July 1994.
Paul McClintock.............. 49 1998 Mr. McClintock has been a director of McClintock
Associates Pty. Limited (investment banking) since 1985.
He was the chairman of Plutonic from 1996 until April
1998, when Homestake acquired Plutonic. He is a director
of Ashton Mining Limited (diamond mining) and Tower
Australia Limited (life insurance and financial
services).
John Neerhout, Jr............ 67 1989 Mr. Neerhout has been the Managing Director of Union
Railways Limited (rail transportation) since April 1997,
and a director of London and Continental Railways Ltd.
since March 1997. He has been a director of The Energy
Group PLC (gas and coal production, power generation and
sales) since February 1997. Mr. Neerhout retired as
Executive Vice President of Bechtel Group Inc.
(engineering and construction) in October 1996, a
position he held since 1986. Mr. Neerhout was also a
director of and held executive positions with Bechtel
Group Inc. and other of its affiliated companies prior to
his retirement.
</TABLE>
S-130
<PAGE>
<TABLE>
<CAPTION>
AGE AT SEPTEMBER DIRECTOR
DIRECTOR 30, 1998 SINCE BIOGRAPHICAL INFORMATION
- ----------------------------- ------------------- ----------- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Peter J. Neff................ 59 1998 Mr. Neff currently serves as a consultant to Rhone-
Poulenc Inc. (chemicals and pharmaceuticals). He joined
Rhone-Poulenc in 1987 as President and Chief Operating
Officer and was elected Chief Executive Officer in 1991
and served as President and Chief Executive Officer until
his retirement in December 1997. Mr. Neff is a director
of UST Inc. (tobacco and wine manufacturer and
distributor) and Envirogen, Inc. (environmental services)
and is Chairman of the Board of Trustees of Rider
University.
Stuart T. Peeler............. 68 1981 Mr. Peeler has been a petroleum industry consultant since
1989. From 1982 until 1988 he was Chairman of the Board
and Chief Executive Officer of Statex Petroleum, Inc.
(oil and gas production). He is a director of CalMat
Company (aggregates, asphalt, and property development),
Chieftain International, Inc. (oil and gas exploration
and production) and Chieftain International Funding Corp.
(financial services).
Carol A. Rae................. 51 1995 Ms. Rae has been the President and Chief Executive
Officer of Integrated Media and Marketing, LLC (producer
of educational video and multimedia products) since 1995,
and the President of MedVal Technologies International,
Inc. (manufacturer of orthopedic splints) since 1984. She
has been a member of the Board of Directors of the U.S.
Chamber of Commerce since 1994. She was Senior Vice
President and General Manager of the Refractive Division
of Chiron Vision Corporation (manufacturer of ophthalmic
intraocular lenses) from 1994 until 1995 and Senior Vice
President of Government Affairs of Chiron Vision from
1995 until 1997. She was President and Chief Executive
Officer of Magnum Diamond Corporation (manufacturer of
surgical instruments) from 1989 to 1995.
Jack E. Thompson............. 48 1994 Mr. Thompson has been the Chairman since July 1998, the
Chief Executive Officer since May 1996, and President and
a director of Homestake since August 1994. He was
Executive Vice President--Canada of Homestake and
President and Chief Executive Officer of Prime and HCI
from July 1992 until August 1994. He was President of
Homestake Mineral Development Company and of North
American Metals Corp. (gold mining) from 1988 until 1992.
Jeffrey L. Zelms............. 54 1997 Mr. Zelms has been the President since 1986 and the Chief
Executive Officer since 1992 of the Doe Run Company
(lead, zinc and copper mining, lead fabrication and
recycling). He is a director of the Phoenix Textile
Corporation (linen supplier for the health industry).
</TABLE>
S-131
<PAGE>
EXECUTIVE OFFICERS
The executive officers of Homestake, their ages at September 30, 1998, their
business experiences and principal occupations during the last five years and
their business backgrounds are as follows. All are expected to be the executive
officers of Homestake following the Effective Date.
Jack E. Thompson--Chairman since July 1998, Chief Executive Officer since
May 1996 and President since August 1994, age 48. He was Chief Operating Officer
of Homestake from August 1994 until May 1996, and from August 1994 to June 1995,
he was also Chairman of Prime. He was Executive Vice President, Canada of
Homestake and President of Prime from 1992 through August 1994. He also was
President of North American Metals Corp. from 1988 until 1993. He is a mining
engineer with over 27 years of experience in mining and mine management.
Gene G. Elam--Vice President, Finance and Chief Financial Officer since
September 1990, age 59. Before joining Homestake, he was Senior Vice President,
Administrative Services of Pacific Gas and Electric Company from April 1989
through August 1990, and Vice President and Controller of Pacific Gas and
Electric Company from January 1987 to March 1989. He was President and Chief
Executive Officer of The Pacific Lumber Company from 1982 to 1986, President in
1980 and 1981, and Chief Financial Officer from 1972 until 1980. He is a
certified public accountant with over 36 years of experience in accounting and
finance.
Lee A. Graber--Vice President, Corporate Development since 1983, age 51.
From 1980 to 1983, he was Manager, Corporate Development and Planning. He has
over 27 years of experience in finance and corporate development.
Wayne Kirk--Vice President, General Counsel and Secretary since September
1992, age 55. He was a partner in Thelen, Marrin, Johnson & Bridges from 1976 to
1992. He has practiced law for more than 29 years.
Gregory A. Lang--Vice President, U.S. and International Operations since
August 1998, age 43. He was Vice President, Development from March 1997 until
August 1998. He was Vice President of Homestake International Minerals Limited
from June 1996 until March 1997, and was General Manager, Project Development
from January 1996 until June 1996 as well as General Manager of the Ruby Hill
project from October 1994 through June 1996. He was General Manager of the
Nickel Plate mine from 1993 until October 1994. He joined Homestake in 1992 as
Resident Manager of the Santa Fe mine, a position he had held with International
Corona Corporation since 1988. He is a mining engineer with over 20 years of
experience in mining and mine management.
Gillyeard J. Leathley--Senior Vice President, Operations since July 1997,
age 61. He was acting President and Chief Executive Officer of Prime from
February until April 1998. He was Vice President, Operations of Homestake from
May 1995 until July 1997. He joined Homestake in 1992 as Vice President,
Canadian Operations. Prior to joining Homestake, he was Senior Vice President,
Operations for International Corona Corporation from 1986 to September 1992. He
has over 40 years of experience in mining and mine management.
Donald W. T. Lewis--Vice President, Evaluations since March 1997, age 40. He
was Director, North American Exploration/Evaluations from January 1996 until
March 1997. He joined Homestake in 1992 as Director, Project Generation. Prior
to joining Homestake he was Exploration Manager--Western Canada for
International Corona Corporation from 1989 until 1992. He is a geologist with
more than 18 years of professional experience.
William F. Lindqvist--Vice President, Exploration since August 1995, age 56.
He rejoined Homestake from Newcrest Mining Company, where he was Executive
General Manager, Exploration. He was Vice President, Exploration at Homestake
from 1990 to 1992. He is a geologist with more than 27 years of professional
experience.
Stephen A. Orr--Vice President, Investor Relations since August 1998, age
42. He was Vice President, U.S. Operations from December 1996 until August 1998,
General Manager of the Homestake
S-132
<PAGE>
mine from January 1995 until December 1996, and Operations Manager of the
Homestake mine from 1993 to 1995 and Manager, Mine Engineering of the Homestake
mine from 1992 to 1993. He was a Financial Analyst in the Corporate Finance
Department from 1990 to 1992. He has been with Homestake since 1981 and has over
20 years of experience in mining and mine management.
David W. Peat--Vice President and Controller since December 1995, age 46. He
was Controller of Homestake from 1992 through November 1995. Prior to joining
Homestake in 1992, he was Vice President, Controller for International Corona
Corporation. He is a chartered accountant with over 21 years of accounting and
finance experience.
Walter T. Segsworth--Vice President, Canada since April 1998, age 49. He
also has been President and Chief Executive Officer of HCI and President, Chief
Executive Officer and Director of Prime since April 1998. Prior to joining
Homestake and Prime, he was President, Chief Executive Officer and director of
Westmin Resources Limited in Vancouver until it was acquired in early 1998.
Before joining Westmin in 1990 he was employed by Noranda Limited in a number of
positions of increasing responsibility. He is a mining engineer with more than
25 years of professional experience.
Richard A. Tastula--Vice President, Australia since August 1995, age 55. He
has been Managing Director of Homestake Gold of Australia Limited since 1993,
and was Director of Operations from 1991 to 1993. For 23 years prior to that
time, he held various positions with Western Mining Corporation. He became
Managing Director of Plutonic in April 1998 when Homestake acquired Plutonic. He
also became Managing Director of Lachlam Resources NL, 81% owned by Homestake,
in May 1998. He has over 32 years of experience in mining and mine management.
Michael L. Carroll--Treasurer since April 1997, age 45. He has been with
Homestake since 1991, originally as Director of Taxes. Prior to joining
Homestake he was Assistant Vice President of Bond International Gold Inc. Before
joining Bond, he was Director of Taxes for St. Joe Minerals Corporation. He has
over 20 years of accounting, finance and tax experience.
S-133
<PAGE>
HOMESTAKE EXECUTIVE COMPENSATION
ALL DOLLAR AMOUNTS IN THIS SECTION ARE IN US DOLLARS, UNLESS OTHERWISE
INDICATED.
COMPENSATION OF DIRECTORS
An Outside Director currently receives an annual cash retainer of $16,000,
and each Outside Director who is chairman of a committee of the Homestake Board
receives an additional annual cash retainer of $2,000. The Homestake Board
recently amended the directors' compensation program to increase meeting
attendance fees to $1,000 for each Homestake Board and committee meeting.
Attendance fees are payable to Outside Directors and also to employee directors.
The Homestake Board recently also approved an additional fee of $1,500 payable
each time an Outside Director who is resident on another continent travels to
North America to attend Homestake Board or committee meetings.
Outside Directors are entitled to defer compensation under Homestake's
Deferred Compensation Plan in an amount not less than $2,000 per year nor more
than 100% of compensation for the year. Amounts deferred are credited with
interest in an amount equivalent to (i) 120% of the monthly Moody's Corporate
Bond Yield Average as published by Moody's Investors Service, Inc. and (ii) such
additional amount as the Compensation Committee of the Homestake Board
determines to be appropriate.
Under the Homestake Stock Option and Share Rights Plan--1996 (the "1996
Plan"), share rights automatically are granted to Outside Directors. For each
year that the 1996 Plan is in effect, on the eighth business day after
Homestake's annual earnings for the preceding year are released, each Outside
Director in office on that date is granted share rights entitling him or her to
receive Homestake Common Stock for no consideration, which stock is
distributable on the date he or she ceases to serve as a director. The number of
shares covered by each annual share rights grant is calculated by dividing 10
percent of the compensation received for services as a director of Homestake for
the preceding calendar year by the average fair market value of one share of
Homestake Common Stock for the third through seventh business day following
release of Homestake's earnings for the preceding calendar year. Share rights
are canceled if an individual ceases to serve as a director within three years
of the date of grant other than by reason of death, disability, retirement at
mandatory retirement age for directors, or termination within one year following
a Change of Control as defined in the 1996 Plan. For 1997, a total of 3,775
share rights were granted under the 1996 Plan. No director was credited with
more than 493 share rights for 1997.
Homestake has a retirement plan for qualifying Outside Directors
("Directors' Retirement Plan"). Under the Directors' Retirement Plan, Outside
Directors who do not have a fully vested interest under any tax-qualified
Homestake retirement plan are eligible to receive benefits. The retirement
benefit payable is an amount equal to the annual retainer payable to Outside
Directors at the date of retirement (presently $16,000 per year) multiplied by
the number of years such retiring director was a qualifying Outside Director.
The retirement benefit is payable in monthly installments over the number of
months the retiring Outside Director served as a qualifying Outside Director,
beginning on the later of retirement or attaining age 70 (later of retirement or
age 65 in the case of a qualifying Outside Director who has served at least 10
years). Benefits payable to a participant who dies prior to completion of payout
are payable to the participant's spouse.
In addition, subject to the approval of the Homestake Stockholders, the
Homestake Board has adopted the 1998 Outside Directors' Stock Compensation Plan
(the "Plan"). Under the Plan, the annual retainer payable to Outside Directors
will be paid 50% in cash and 50% in Homestake Common Stock. An Outside Director
may elect to take some or all of the cash portion of the retainer in Homestake
Common Stock and will receive an additional 25% increase in the number of shares
of Homestake Common Stock payable in lieu of the cash portion of the retainer.
The Plan also provides for a one-time grant of 2,000 shares of Homestake Common
Stock when an Outside Director joins the Homestake Board, and an
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annual share rights grant of 1,000 shares to Outside Directors. The Plan
provides for the issuance of a maximum of 250,000 shares of Homestake Common
Stock.
Prime pays directors who are not employees of Homestake or its subsidiaries
an annual retainer of C$10,000 per year, C$1,000 for each meeting of the Prime
Board or any committee which they attend in person, and C$750 for telephone
meetings. Prime pays directors who are employees of Homestake or its
subsidiaries C$1,000 for meetings attended in person and C$750 for telephone
meetings. M. Norman Anderson, an Outside Director of Homestake and Prime,
received C$21,500 in directors fees from Prime for 1997.
In May 1996, upon Harry M. Conger's retirement as Chief Executive Officer of
Homestake, Homestake entered into a consulting agreement with Mr. Conger under
which he agreed to act as a consultant to the Board and the Chief Executive
Officer of Homestake for one year, subject to renewal for an additional year.
The consulting agreement was renewed in 1997 at the request of Homestake for an
additional year. Mr. Conger agreed to provide at least 500 hours of consulting
services, including continuing to act as a director and nonexecutive Chairman of
the Board. Mr. Conger was paid a total of $150,000 per year, which was in lieu
of any other payments, including directors fees, that would otherwise have been
payable to him for his services as a director. Homestake also agreed to provide
Mr. Conger office facilities. For the year 1997, Mr. Conger received a total of
$151,500 in compensation ($1,500 was 1996 compensation paid to Mr. Conger in
1997) and $20,945 in office facilities expense reimbursement. Mr. Conger retired
as a director in July 1998 and this consulting agreement was terminated.
In July 1992, Homestake entered into a consulting agreement with Stuart T.
Peeler under which Mr. Peeler provides advisory services to Homestake with
respect to its investment in the Main Pass 299 oil and sulphur project in the
Gulf of Mexico. The agreement is terminable by either party on 30 days' notice.
Mr. Peeler receives compensation at a rate of $1,000 for each day of service
under the agreement. For 1997, Homestake paid $11,844 to Mr. Peeler under the
agreement.
COMPENSATION OF EXECUTIVE OFFICERS
The following table discloses, for the years indicated, compensation
received by Homestake's executive officers named therein (the "Named Executive
Officers") for the fiscal years ended December 31, 1997, 1996 and 1995. Such
officers served as Chief Executive Officer or were among the four most highly
compensated executive officers (other than the Chief Executive Officer) for the
fiscal year ended December 31, 1997.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
--------------------------------------- RESTRICTED SECURITIES ---------------
NAME AND OTHER ANNUAL STOCK AWARD UNDERLYING LTIP
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) ($)(2) OPTIONS(#) PAYOUTS ($)
- ----------------------------- --------- --------- --------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack E. Thompson............. 1997 $ 475,000 $ 142,500 $ 18,778(4) $ 475,950(5) 133,400 $ 0
President and Chief 136,810(7)
Executive Officer(3) 213,738(8)
1996 422,452 225,000 25,212(9) 56,100 0
1995 336,000 68,000 29,146(10) 31,100 0
Gene G. Elam................. 1997 283,000 98,900 5,213(11) 178,125(5) 57,100 0
Vice President, Finance and 44,250(7)
Chief Financial Officer 22,501(8)
1996 272,000 95,700 24,167(13) 17,900 0
1995 261,000 41,000 8,150(14) 16,100 0
Wayne Kirk................... 1997 354,000 138,700 5,076(15) 223,725(5) 71,300 0
Vice President, General 31,738(7)
Counsel and Corporate 15,000(8)
Secretary
1996 340,000 121,400 1,110(17) 22,300 0
1995 326,000 52,000 0 20,100 0
Gillyeard J. Leathley........ 1997 223,606 76,800 19,556(19) 136,800(5) 43,600 0
Senior Vice President, 14,371(7)
Operations(18) 45,000(8)
1996 208,000 71,700 18,995(21) 15,400 0
1995 198,088 30,000 49,571(22) 21,500 0
William F. Lindqvist......... 1997 233,000 93,800 13,615(24) 146,775(5) 47,000 0
Vice President, 1996 224,000 77,300 19,731(26) 16,500 0
Exploration(23) 1995 91,667 12,000 125,525(27) 30,000 0
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION
- ----------------------------- -------------
<S> <C>
Jack E. Thompson............. $ 15,874(6)
President and Chief
Executive Officer(3)
12,044
9,174
Gene G. Elam................. 13,906(12)
Vice President, Finance and
Chief Financial Officer
11,546
9,010
Wayne Kirk................... 12,790(16)
Vice President, General
Counsel and Corporate
Secretary
10,908
9,010
Gillyeard J. Leathley........ 14,975(20)
Senior Vice President,
Operations(18)
10,438
10,655
William F. Lindqvist......... 13,926(25)
Vice President, 10,916
Exploration(23) 3,663
</TABLE>
- ------------------------
(1) In accordance with the rules of the SEC, Homestake is not required to
report the value of personal benefits for any year unless the aggregate
dollar value exceeds the lesser of 10 percent of the executive officer's
salary and bonus or $50,000.
(2) In March 1997, the Compensation Committee adopted three restricted stock
programs (described in notes 5, 7 and 8 below) for the members of
Homestake's senior management as a further means of aligning management's
long-term interests with the interests of Homestake's shareholders, as a
means of providing additional incentives and to encourage members of
senior management to increase their ownership in Homestake and to remain
with Homestake.
(3) Mr. Thompson served as President and Chief Operating Officer until May
1996, when he was appointed President and Chief Executive Officer.
(4) Consists of $1,178 (financial planning) and $17,600 (directors' fees).
(5) Value at date of grant of restricted stock granted under the Performance
Based Program. Under the Performance Based Program, the Compensation
Committee grants restricted stock to members of the senior management
which vest over time and which vest depending on achievement of
performance goals over the life of the Performance Based Stock Rights. The
employees must continue to be employed on the vesting date.
(6) Consists of $9,500 (matching contribution to savings plan), $2,223
(imputed income on split dollar life insurance), $2,254 (tax gross-up
related to split dollar life insurance), $838 (reimbursement for spousal
travel, expense and tax gross-up) and $1,059 (above market component of
interest paid on deferred compensation plan).
(7) Value at date of grant of restricted stock granted under the Matching
Stock Award Program. Under the Matching Stock Award Program, the
Compensation Committee grants restricted stock to senior managers on the
basis of one restricted share for each three shares owned by the senior
managers that are "enrolled" by the senior manager. The enrolled shares
must be held for five years and the employee must continue to be employed
on the vesting date for the matching shares to vest.
(8) Value at date of grant of restricted stock granted under the Bonus Stock
Program. Under the Bonus Stock Program, the Compensation Committee
provides senior managers with an opportunity to exchange a portion of
their annual cash bonuses for awards of restricted stock. The shares
awarded are equal to 150% of the cash foregone, and the shares vest over
time. The employee must continue to be employed on the vesting dates to
receive the shares. If not, the unvested shares and cash foregone are
forfeited.
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<PAGE>
(9) Consists of $6,012 (financial planning) and $19,200 (directors' fees).
(10) Consists of $17,500 (directors' fees), $11,030 (financial planning) and
$616 (tax gross-up for payment made in connection with the sale of Mr.
Thompson's Canadian residence in 1994).
(11) Consists of $880 (financial planning) and $4,333 (directors' fees paid by
publicly held subsidiary).
(12) Consists of $9,500 (matching contribution to savings plan), $1,459
(imputed income on split dollar life insurance), $1,480 (tax gross-up
related to split dollar life insurance), $884 (reimbursement for spousal
travel, expense and tax gross-up) and $583 (above market component of
interest paid on deferred compensation plan).
(13) Consists of $1,620 (financial planning) and $22,547 (directors' fees paid
by publicly held subsidiary).
(14) Consists of $7,200 (directors' fees paid by publicly held subsidiary) and
$950 (financial planning).
(15) Directors' fees paid by publicly held subsidiary.
(16) Consists of $9,500 (matching contribution to savings plan), $1,204
(imputed income on split dollar life insurance), $1,221 (tax gross-up
related to split dollar life insurance), $768 (reimbursement for spousal
travel, expense and tax gross-up) and $97 (above market component of
interest paid on deferred compensation plan).
(17) Directors' fees paid by publicly held subsidiary.
(18) Mr. Leathley served as Vice President, Canadian Operations, during a
portion of 1995 and was a Canadian resident. Accordingly, a portion of
Mr. Leathley's 1995 Annual Compensation and All Other Compensation was
paid in Canadian dollars. The conversion rate used to convert such
amounts was 0.7324. Mr. Leathley became Vice President, Operations, of
Homestake in May 1995.
(19) Consists of $5,021 (financial planning), $4,535 (directors' fees paid by
publicly held subsidiary) and $10,000 (forgiveness of relocation loan).
(20) Consists of $9,500 (matching contribution to savings plan), $1,221
(imputed income on split dollar life insurance), $1,168 (tax gross-up
related to split dollar life insurance), $823 (reimbursement for spousal
travel, expense and tax gross-up), $1,790 (above market component of
interest paid on deferred compensation plan) and $473 (interest in
Canadian retirement account).
(21) Consists of $4,967 (financial planning), $563 (directors' fees paid by
publicly held subsidiary), $10,000 (forgiveness of relocation loan) and
$3,465 (tax gross-up related to relocation expenses).
(22) Consists of $717 (premiums paid on life and accidental death and
dismemberment policy), $39,600 (relocation expenses paid by or on behalf
of Mr. Leathley) and $9,254 (tax gross-up for relocation expenses). In
connection with his appointment as Vice President, Operations, Mr.
Leathley relocated from Canada to the San Francisco area.
(23) Mr. Lindqvist became an employee of Homestake on June 30, 1995.
(24) Consists of $3,615 (financial planning) and $10,000 (forgiveness of
relocation loan).
(25) Consists of $9,500 (matching contribution to savings plan), $881 (imputed
income on split dollar life insurance), $973 (tax gross-up related to
split dollar life insurance) and $2,572 (above market component of
interest paid on deferred compensation plan).
(26) Consists of $6,497 (financial planning), $10,000 (forgiveness of
relocation loan) and $3,234 (tax gross-up related to relocation
expenses).
(27) Consists of $91,394 (relocation expenses for move from Australia to the
San Francisco area) and $34,131 (tax gross-up related to relocation
expenses).
Under Homestake's Deferred Compensation Plan, directors, officers and other
key employees selected by the Compensation Committee are permitted to defer
income. Under Homestake's Deferred Compensation Plan, participants may elect to
defer each year an amount not less than $2,000 nor more than 100% of
compensation. Amounts deferred are credited with interest in an amount
equivalent to (i) 120% of the monthly Moody's Corporate Bond Yield Average as
published by Moody's Investors Service, Inc. and (ii) such additional amount as
the Compensation Committee determines to be appropriate.
STOCK OPTION PLANS
OPTIONS GRANTED
The following table sets forth certain information with respect to options
to acquire Homestake Common Stock that were granted during 1997 to each Named
Executive Officer under Homestake's stock option plans.
S-137
<PAGE>
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NO. OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ------------------------
NAME (1) YEAR ($/SH) DATE 5%(2) 10%(2)
- ------------------------------------------ ----------- ------------- --------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Thompson.......................... 64,500 8.12% $ 15.225 Feb. 19, 2007 $ 672,740 $ 1,652,905
68,900 8.68 14.900 April 4, 2007 621,780 1,598,176
Gene G. Elam.............................. 20,500 2.58 15.225 Feb. 19, 2007 213,816 525,342
36,600 4.61 14.900 April 4, 2007 330,292 848,958
Wayne Kirk................................ 25,600 3.22 15.225 Feb. 19, 2007 267,010 656,037
45,700 5.75 14.900 April 4, 2007 412,414 1,060,039
Gillyeard J. Leathley..................... 17,600 2.22 15.225 Feb. 19, 2007 183,569 451,025
26,000 3.27 14.900 April 4, 2007 234,634 603,085
William F. Lindqvist...................... 19,000 2.39 15.225 Feb. 19, 2007 198,172 486,902
28,000 3.53 14.900 April 4, 2007 252,683 649,477
</TABLE>
- ------------------------
(1) Granted at fair market value. Granted on February 19, 1997 and April 4, 1997
and vesting in 25 percent increments on the first through fourth
anniversaries of the grant date. Vesting of options is accelerated in
specified circumstances, including upon certain reorganizations and the
commencement of certain tender offers.
(2) Compounded annually.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information with respect to options
exercised during 1997 by each Named Executive Officer and option values at 1997
year end.
AGGREGATED OPTION EXERCISES IN 1997
AND OPTION VALUES AT 1997 YEAR END
<TABLE>
<CAPTION>
VALUE OF
NO. OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
NO. OF SHARES AT FISCAL YEAR-END YEAR-END
ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C>
Jack E. Thompson............................................ 0 119,225/198,450 $ 0/0
Gene G. Elam................................................ 0 96,675/81,875 0/0
Wayne Kirk.................................................. 0 72,950/102,200 0/0
Gillyeard J. Leathley....................................... 0 39,875/68,325 0/0
William F. Lindqvist........................................ 0 70,425/69,375 0/0
</TABLE>
RETIREMENT PROGRAMS
HOMESTAKE RETIREMENT PLAN
In general, all full-time, nonunion U.S. employees of Homestake
(approximately 476 persons at December 31, 1997) participate in the Homestake
Retirement Plan, a noncontributory defined benefit plan (the "Homestake
Retirement Plan").
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<PAGE>
Under the Homestake Retirement Plan, participants accrue benefits at the
rate of 2% per year of service during the first 25 years and 1/2% for each year
of service thereafter. Normal retirement age under the Homestake Retirement Plan
is 65. Early retirement, with reduced benefits, is permitted after age 55 with
five years of service. The Homestake Retirement Plan is integrated with Social
Security. For a participant who retires at age 65 with 25 years of service, the
monthly benefit payable will be 50% of the average monthly compensation during
the 60 consecutive months of highest compensation (salary and bonus), less
one-half of the participant's Social Security benefits. Benefits paid upon
retirement are subject to a cost-of-living increase, up to a maximum of 3% per
year. Vesting requires five years of service. Homestake makes annual actuarially
determined contributions to the Homestake Retirement Plan. Funding contributions
are not segregated as to individual employees.
The following table shows selected estimated annual benefits payable upon
retirement at age 65 under the Homestake Retirement Plan for persons having
specified years of service and the indicated remuneration. The table includes
amounts that may be payable under the Supplemental Retirement Plan described
below (the "Homestake SRP"). Amounts shown are calculated on a straight life
annuity basis and are shown before deduction for one-half of Social Security
benefits. For purposes of the Homestake Retirement Plan and the Homestake SRP,
the years of service as of December 31, 1997, for Messrs. Elam, Kirk, Leathley,
Lindqvist and Thompson are 7 years, 5 years, 11 years, 5 years and 16 years,
respectively. For purposes of these plans, earnings include salary and bonus but
exclude directors' fees and other benefits that are included in the Summary
Compensation Table.
HOMESTAKE RETIREMENT PLAN
<TABLE>
<CAPTION>
AVERAGE ANNUAL
EARNINGS (60 YEARS OF SERVICE
CONSECUTIVE ----------------------------------------------------------------------
HIGHEST MONTHS) 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- --------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
15$0,000...... $ 30,000 $ 45,000 $ 60,000 $ 75,000 $ 78,750 $ 82,500
200,000...... 40,000 60,000 80,000 100,000 105,000 110,000
250,000...... 50,000 75,000 100,000 125,000 131,250 137,500
300,000...... 60,000 90,000 120,000 150,000 157,500 165,000
350,000...... 70,000 105,000 140,000 175,000 183,750 192,500
400,000...... 80,000 120,000 160,000 200,000 210,000 220,000
450,000...... 90,000 135,000 180,000 225,000 236,250 247,500
500,000...... 100,000 150,000 200,000 250,000 262,500 275,000
550,000...... 110,000 165,000 220,000 275,000 288,750 302,500
600,000...... 120,000 180,000 240,000 300,000 315,000 330,000
</TABLE>
HOMESTAKE SUPPLEMENTAL RETIREMENT PLAN
The Code imposes a maximum limit on annual retirement benefits payable under
qualified retirement plans. For 1997, that annual limit was $125,000. In
addition, the Code limits the amount of annual compensation that may be
considered under qualified retirement plans. In 1997, that annual limit was
$160,000. Under the Homestake SRP, executive officers and key employees selected
by the Compensation Committee will be entitled to a supplemental retirement
benefit equal to the difference between the full amount of their pension
benefits determined under the Homestake Retirement Plan and the maximum amount
permitted to be paid under the Employee Retirement Income Security Act of 1974
("ERISA") and the Code. The Homestake SRP is funded by Homestake contributions
into a "rabbi trust." All of the officers identified in the Summary Compensation
Table are participants in the Homestake SRP.
HOMESTAKE EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
Homestake has established the Homestake Executive Supplemental Retirement
Plan (the "Homestake ESRP") for executive officers and key employees selected by
the Compensation Committee. Under
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<PAGE>
the Homestake ESRP, participants accrue benefits under the following formula.
Service credit is determined by multiplying 4 1/3% by years of service, up to a
maximum of 15 years. Service credit is then multiplied by average monthly
compensation during the 36 consecutive months of highest compensation (salary
and bonus) to determine a monthly retirement benefit. The monthly benefit is
reduced by benefits payable under all other Homestake retirement plans (except
the Homestake Mining Company Savings Plan) and, commencing at age 65, by
one-half of Social Security and comparable foreign social security plan
benefits. Retirement is permitted at age 62 after 10 continuous years of
service, although a participant who has attained age 55 and 10 years of service
may elect early retirement and receive a reduced benefit if approved by the
Compensation Committee. The Homestake ESRP is funded by Homestake contributions
into a "rabbi trust." The following table shows selected estimated annual
benefits payable under the Homestake ESRP, calculated on a straight life annuity
basis, assuming retirement at age 62, to persons having the specified years of
service and the indicated average earnings before reductions for integration
with Social Security and comparable foreign plans, and also before reduction for
other Homestake retirement plans (except the Homestake Mining Company Savings
Plan). Payments under the Homestake ESRP are not limited by ERISA or the Code.
All of the officers identified in the Homestake Summary Compensation Table are
participants in the Homestake ESRP. For purposes of the Homestake ESRP, the
years of service as of December 31, 1997, for Messrs. Elam, Kirk, Leathley and
Thompson are 11 years, 5 years, 11 years and 15 years, respectively. Mr.
Lindqvist was previously employed by Homestake and following Homestake's 1992
acquisition of International Corona Corporation, Mr. Lindqvist was fully vested
in his benefits under the Homestake ESRP with 15 years of deemed service. In
connection with his reemployment by Homestake in 1995, Homestake agreed to
recalculate Mr. Lindqvist's Homestake ESRP benefits based on the 36 consecutive
months of highest compensation following the date of reemployment, subject
however to his completing five years of service from the date of reemployment,
unless his employment is terminated by Homestake for reasons other than cause.
HOMESTAKE EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
<TABLE>
<CAPTION>
AVERAGE ANNUAL
EARNINGS YEARS OF SERVICE
(36 CONSECUTIVE ----------------------------------
HIGHEST MONTHS) 10 YEARS 13 YEARS 15 YEARS
- --------------- ---------- ---------- ----------
<S> <C> <C> <C>
$ 150,000 $ 65,000 $ 84,500 $ 97,500
200,000 86,667 112,667 130,000
250,000 108,333 140,833 162,500
300,000 130,000 169,000 195,000
350,000 151,667 197,167 227,500
400,000 173,333 225,333 260,000
450,000 195,000 253,500 292,500
500,000 216,667 281,667 325,000
550,000 238,333 309,833 357,500
600,000 260,000 338,000 390,000
</TABLE>
SEVERANCE AGREEMENTS
Homestake has severance agreements with Messrs. Elam, Kirk, Leathley,
Lindqvist and Thompson under which they are entitled to benefits in the event of
a change of control followed by certain events. A change of control is defined
as any of the following events: (i) Homestake is a party to a merger or
combination under the terms of which less than 75% of the shares in the
resulting company are owned by the shareholders of Homestake immediately
preceding such event; (ii) at least 75% of fair market value of Homestake's
assets are sold; or (iii) at least 25% in voting power in election of directors
of Homestake's capital stock is acquired by any one person or group as that term
is used in Rule 13d-5 under the Exchange Act. Entitlement to benefits arises if
within three years following such a change of control, the executive's
employment is terminated (other than for cause) or if he elects to terminate his
employment following (i) a
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<PAGE>
reduction in salary or certain other benefits, (ii) a change in location of
employment, (iii) a change in position, duties, responsibilities or status
inconsistent with the executive's prior position or (iv) a reduction in
responsibilities, titles, or offices as in effect immediately before such change
of control. Benefits payable under the agreements consist of (i) a lump sum cash
payment equal to two times the highest annual salary and bonus, including
deferred compensation, during the three-year period preceding termination, (ii)
continuation of participation in insurance and certain other fringe benefits for
two years, (iii) full vesting in Homestake's Executive Supplemental Retirement
Plan described above under "Retirement Plans," (iv) continued vesting of stock
options, and (v) relocation assistance to the extent not provided by another
employer. Benefits payable under the agreements are in lieu of any severance
benefits under Homestake's general severance policy.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on Homestake common stock for the five years ended December 31, 1997,
based on the market price of the Homestake Common Stock and assuming
reinvestment of dividends, with the cumulative total return of companies
included in the Standard & Poor's 500 Index and the Standard & Poor's Gold &
Precious Metals Mining Index.
THE PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE
INTO ANY FILING BY HOMESTAKE UNDER THE SECURITIES ACT OR THE EXCHANGE ACT.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG HOMESTAKE MINING COMPANY, THE S&P 500 INDEX
AND THE S&P GOLD & PRECIOUS METALS MINING INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HOMESTAKE S & P S & P GOLD
DATE MINING COMPANY 500 & PRECIOUS METALS MINING
<S> <C> <C> <C>
12-92 $100.00 $100.00 $100.00
12-93 $201.27 $110.08 $183.19
12-94 $158.07 $111.53 $148.01
12-95 $144.79 $153.45 $166.58
12-96 $134.66 $188.68 $165.34
12-97 $84.83 $251.64 $108.59
* $100 INVESTED ON 12/31/92 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
</TABLE>
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COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee of the Homestake Board is comprised of five
Outside Directors, none of whom is an employee or former employee and none of
whom has any consulting or other services arrangement with Homestake. The
Compensation Committee is responsible for the development of Homestake's
executive compensation policies and the administration of those policies. The
Compensation Committee evaluates the performance of management and recommends to
the full Homestake Board the compensation level for all officers and key
employees. The Compensation Committee also administers Homestake's stock option
and other stock based compensation plans and determines the amount of stock
options and other stock-based incentives granted to officers and key employees,
the Deferred Compensation Plan, the Supplemental Retirement Plan and the
Executive Supplemental Retirement Plan.
Homestake's executive compensation program has the following objectives:
- Attract and retain key executives critical to the long-term success of
Homestake by offering competitive compensation packages.
- Make a significant portion of compensation variable, rewarding superior
performance.
- Align the interests of Homestake's management with the interests of
Homestake's stockholders by developing compensation programs that link
compensation directly to increases in shareholder value.
- Maintain an appropriate balance between base salary and performance-based
compensation, with a higher proportion of compensation being
performance-based as salary grade increases.
The basic compensation program consists of both cash and long-term,
equity-based compensation. In addition, officers and key employees may
participate in Homestake's Savings Plan, which is generally available to all
salaried employees and which provides for Homestake matching contributions with
employee contributions, and Homestake's Retirement Plan, the Supplemental
Retirement Plan, and the Executive Supplemental Retirement Plan. Officers and
key employees may also defer income under the Deferred Compensation Plan.
ANNUAL CASH COMPENSATION. Annual cash compensation consists primarily of a
base salary and an annual bonus under Homestake's Bonus Plan. Homestake's
objective is to provide a level of compensation that will enable Homestake to
offer a competitive compensation package, but one that emphasizes and rewards
performance and success. With this objective in mind, Homestake's policy is to
pay base salaries that are generally competitive with the median of base
salaries paid by comparable companies. The Compensation Committee determines and
recommends to the Homestake Board a base salary for each of the officers and key
employees, based upon individual performance, level of responsibility,
experience and competitive factors. Competitive factors include general
compensation levels in other businesses, particularly in the mining industry, in
the countries where Homestake has operations. To that end, Homestake, under the
direction of the Compensation Committee, participates in several surveys
conducted by outside executive compensation consultants. In addition, Homestake
conducts a separate annual survey of salary increases in the mining industry.
For 1997, this survey included Amax Gold, Barrick Gold, Battle Mountain Gold,
BHP, Cyprus, Echo Bay Mines, Hecla Mining, Kennecott, Kinross, Newmont Mining,
Phelps Dodge, Placer Dome, Santa Fe Pacific Gold, Teck Mining and TVX. The
Compensation Committee uses all of this information in recommending base salary
levels, but does not assign specific weight to any particular factor.
The variable component of annual compensation is paid in the form of an
annual bonus. Homestake's Bonus Plan takes into consideration both Homestake's
performance and the individual and (where appropriate) the departmental
performance for each individual. Under the Bonus Plan, each officer and
- ------------------------
(1) The Compensation Committee Report shall not be deemed to be incorporated by
reference in any filings of Homestake under the Securities Act or the
Exchange Act.
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key employee is assigned a target bonus amount at the beginning of each year
based on the individual's salary grade, ranging from 20% to 50% of base salary.
In addition, at the beginning of each year, both (i) Corporate Performance
Objectives and (ii) Department and Individual Performance Objectives are
established. The relative importance of each of the Corporate Performance
Objectives and the Department and Individual Performance Objectives is
identified by a weighting percentage assigned to the objective. To determine the
recommended bonus, the "performance factor" for each of the Corporate
Performance Objectives and the Department and Individual Performance Objectives
is multiplied by the weight assigned to each, with the product multiplied by the
target bonus amount. If results significantly exceed the Corporate Performance
Objective, and the Department and Individual Performance Objectives, it is
possible to earn a bonus which is up to two times the target bonus. As a result
bonuses payable to particular individuals could equal as much as 40% to 100% of
base salary. Based upon this analysis, the Compensation Committee then
recommends the bonuses for approval by the Homestake Board.
For 1997, the Corporate Performance Objectives included (i) improved stock
market capitalization per ounce of production relative to that of the S&P Gold
and Precious Metals Index (40%), (ii) significant growth in reserves, resources
and annual production (30%), (iii) achievement of specified improvements in
production, cost targets and environmental, health and safety performance (20%),
and (iv) achievement of other specified corporate objectives (10%). Also for
1997, 50% of each Bonus Plan participant's bonus was based on the achievement of
the Corporate Performance Objectives, and 50% was based on the achievement of
that participant's Department and Individual Performance Objectives. In November
1997, after review of the year's performance by Homestake, the Compensation
Committee approved a 120% performance factor in respect of the achievement of
the Corporate Performance Objectives. Also in November 1997, the Compensation
Committee approved performance factors for achievement of Department and
Individual Performance Objectives by Bonus Plan participants ranging from 98% to
150%.
LONG-TERM, EQUITY-BASED COMPENSATION. Homestake's executive compensation
program also provides for equity related compensation. The purpose is to provide
officers and key employees with an incentive to continue as employees of
Homestake over a long term, and to align their long-range interests with those
of the shareholders by providing the opportunity to have a stake in Homestake
and to receive share based value which will increase as the value of Homestake's
stock increases. The Compensation Committee believes that equity-based
compensation programs encourage key employees to maintain a long-term
perspective.
In 1996, the Homestake Stockholders approved the 1996 Plan, which authorizes
the issuance of stock options and other stock-based incentives, such as
performance based and other types of restricted stock awards.
For many years, including 1997, Homestake has used stock options to provide
equity-based compensation. The Compensation Committee has the authority to
determine the recipients of stock option awards, the terms of options, and the
number of shares subject to options. The Compensation Committee has limited the
grant of stock options to those employees whom the Compensation Committee
believes can have a significant influence on Homestake policies and performance.
Consequently, in 1997, a total of 52 employees (approximately 3.3% of total
Homestake employees) were granted stock options. The Compensation Committee also
believes that the number of options granted should be sufficient in amount to
provide a strong incentive to increase share value, with the number of options
increasing in proportion to the relative potential influence of the employee on
overall Homestake performance.
In the first quarter of each year, the Compensation Committee awards stock
options to officers and key employees of Homestake and its subsidiaries. For
each optionee, an annual target gain is established based on salary and a
subjective evaluation of the perceived impact that the optionee may have on
Homestake's success through performance of his or her responsibilities. The
number of options awarded in February 1997 was based on a formula that had been
in effect for many years. In March 1997, based on the recommendation of
Compensation Resource Group, Inc., an executive compensation consulting firm,
the
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Compensation Committee adopted the Black-Scholes option valuation formula for
use in determining the appropriate number of stock options to be granted. The
Black-Scholes valuation formula is widely used by publicly held companies in the
United States in granting stock options. The Compensation Committee then
reexamined the stock option grants that had been made earlier in 1997 and
determined that the number of options granted was less than would have been
granted had the Black-Scholes valuation formula been used in determining the
number of options granted. The Compensation Committee then determined to grant
additional options so that the total number of options granted for 1997 would be
in accordance with the Black-Scholes option valuation formula.
The Compensation Committee does not consider the number of outstanding
options in determining annual option awards. The exercise price for options
generally is determined by averaging the closing prices of Homestake Common
Stock on the NYSE for the five trading days preceding the grant date. Stock
options generally vest over a four-year period and have a 10-year term. In
addition to annual grants in the first quarter of each year, from time to time
the Compensation Committee grants additional options to particular individuals
in connection with significant promotions of such individuals. Such grants are
in recognition of the fact that those persons have been identified as having the
potential to have a greater impact on Homestake's future success.
In March 1997, the Compensation Committee established stock ownership
guidelines for the members of Homestake's senior management as a further means
of aligning management's long-term interests with the interests of Homestake's
Stockholders. The Compensation Committee also determined that in the future it
would also use restricted stock grants as a part of Homestake's equity-based
compensation system, as a means of providing additional incentives and to
encourage members of senior management to increase their ownership in Homestake
and to remain with Homestake. Accordingly, in March 1997 the Compensation
Committee adopted three restricted stock programs.
- Under the first program, the Compensation Committee makes restricted stock
grants to members of senior management which vest over time and which are
dependent on achievement of one or more performance goals including, for
example, improvements in earnings per share, increases in the value of
Homestake's stock relative to other gold mining companies, and return on
shareholders' equity. In 1997, restricted stock grants for a total of
125,400 shares were made to twelve senior managers, under which annual
achievement goals were established for each of December 31, 1997, 1998,
1999 and 2000. The annual achievement goals are to close the gap between
Homestake's average market capitalization per ounce of production and that
average for the companies comprising the S&P Gold and Precious Metals
Index by specific amounts each year. The twelve senior managers can earn
25% of the shares subject to the restricted stock grants on each
measurement date on which the annual achievement goals are met, plus any
shares subject to the restricted stock awards that were not earned at a
prior measurement date because the annual achievement goal for that
measurement date was not met. The annual achievement goal of December 31,
1997 was not met and none of the performance based restricted stock
vested.
- Under the second program, the Compensation Committee grants matching
restricted stock to senior managers on the basis of one restricted share
for each three shares owned by the senior managers that are "enrolled" by
the senior manager for matching grants. The matching grants vest after a
number of years, but only to the extent the senior manager maintains
ownership of the "enrolled" shares throughout the vesting period. Matching
stock grants were made in 1997 to seven senior managers for a total of
23,587 shares, and those managers are required to hold the enrolled shares
and continue in the employment of Homestake for five years in order to
qualify and receive the matching stock.
- Under the third program, the Compensation Committee provides senior
managers with an opportunity to exchange a portion of their annual cash
bonuses for awards of restricted stock. The restricted stock awards are
equal to 1.5 times the amount of the cash bonus to be exchanged, divided
by the
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market value of Homestake's shares on the date of grant. The restricted
stock awards vests over a number of years, and the grantees must continue
to be employed by Homestake during the vesting period. In 1997, eight
senior managers elected to forego $253,700 in cash bonuses in exchange for
the award of 33,638 shares of restricted stock. A total of 50% of the
shares will vest after one year, an additional 25% after two years, and
the remaining 25% after three years, provided that the senior manager
continues to be an employee on the vesting date. The senior manager
forfeits unvested shares if he or she does not continue to be employed on
the relevant vesting dates.
The Compensation Committee will continue to regularly review Homestake's
executive compensation program to ensure that Homestake's program continues to
be competitive with those of other companies that compete with Homestake for
executive personnel.
CHIEF EXECUTIVE OFFICER'S 1997 COMPENSATION. Evaluation of the Chief
Executive Officer's compensation is conducted by the Compensation Committee
without the Chief Executive Officer or any other officer being present. In
November 1996, after reviewing the proposed levels of 1997 compensation for
other mining company executives and also considering Homestake's 1996
performance, the Compensation Committee determined that it would be appropriate
for the 1996 base salary for Jack E. Thompson, the Chief Executive Officer, to
be increased from an annual rate of $450,000 to $475,000, and that
recommendation was accepted by the Homestake Board.
In November 1996, the Compensation Committee set a target bonus for Mr.
Thompson at 50% of his annual base salary, and also determined that one-half of
his bonus would be based on the extent of the achievement of the Corporate
Performance Objectives and one-half on the extent of the achievement of Mr.
Thompson's Individual Performance Objectives. In November 1997, the Compensation
Committee made its annual bonus recommendations. As noted above, the
Compensation Committee approved a 120% performance factor in respect of the
achievement of the 1997 Corporate Performance Objectives. After evaluating the
Individual Performance Objectives established for Mr. Thompson in 1996, and
after considering his performance during the year, including the leadership
ability shown by Mr. Thompson as Chief Executive Officer, the Compensation
Committee approved a 120% performance factor in respect of Mr. Thompson's
achievement of his Individual Performance Objectives, resulting in a recommended
bonus of $285,000. That recommendation was accepted by the Homestake Board.
OTHER EXECUTIVE OFFICERS' 1997 COMPENSATION. In November 1996, after
reviewing the proposed levels of 1997 compensation for other mining company
executives and also considering Homestake's 1996 performance, the Compensation
Committee determined that it would be appropriate for the 1997 base salary for
all executive officers (other than the Chief Executive Officer) to be increased
in amounts ranging from 4% to 18.5% of 1996 base salary (including increases
attributable to promotions), and that recommendation was accepted by the
Homestake Board. In November 1996, the Compensation Committee set target bonuses
for executive officers (other than Mr. Thompson) at 25% to 50% of their annual
base salaries. The Compensation Committee also determined that one-half of each
executive officer's bonus would be based on the achievement of the Corporate
Performance Objectives and that one-half of each executive officer's bonus would
be based on the achievement of such executive officer's Department and
Individual Performance Objectives. In November 1997, the Compensation Committee
made its annual bonus recommendations. As noted above, the Compensation
Committee approved a 120% performance factor in respect of the achievement of
the 1997 Corporate Performance Objectives. Evaluation of the Department and
Individual Performance Objectives established for each executive officer in
November 1996 was made by Homestake, and the Committee subsequently approved
Department and Individual Performance factors for executive officers ranging
from 98% to 150%. The resulting bonus recommendations ranged from 109% to 135%
of the target bonuses for the executive officers, and those recommendations were
accepted by the Homestake Board.
LIMITATION ON DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Code
limits the deductibility of compensation of the Chief Executive Officer and four
other highest paid executive officers to $1,000,000
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per year (subject to certain exceptions). None of Homestake's officers receive
annual compensation in excess of the maximum deductible amount. If, because of
competitive factors and individual performance, the Compensation Committee
should determine that it is appropriate to pay one or more executive officers in
excess of the annual maximum deductible amount, the Compensation Committee would
expect to recommend such compensation.
May 12, 1998
COMPENSATION COMMITTEE
G. Robert Durham
Douglas W. Fuerstenau
Henry G. Grundstedt
John Neerhout, Jr.
Jeffrey L. Zelms
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DESCRIPTION OF HOMESTAKE CAPITAL STOCK
The Homestake Certificate currently authorizes the issuance of 250,000,000
shares of Homestake Common Stock and 10,000,000 shares of Homestake Preferred
Stock. After giving effect to adoption of the proposed Restated Certificate,
Homestake will be authorized to issue 450,000,000 shares of Homestake Common
Stock, 10,000,000 shares of Homestake Preferred Stock (including 4,500,000
shares of Series A Preferred Stock) and one share of Special Voting Stock.
The information below assumes the Restated Certificate has been adopted and
is in effect.
HOMESTAKE COMMON STOCK
The Homestake Common Stock is listed on the NYSE under the symbol "HM," on
the Australian Stock Exchange and on Swiss Stock Exchanges (Basel, Geneva and
Zurich). The transfer agent and registrar for Homestake Common Stock is
BankBoston N.A.
Holders of Homestake Common Stock are entitled to one vote per share on all
matters requiring their vote. Since Homestake does not have cumulative voting,
the record holders of a majority of the votes entitled to be cast in respect of
shares represented at a meeting of Homestake Stockholders will be able to elect
all directors to be elected at such meeting.
Holders of Homestake Common Stock are entitled to receive dividends when and
as declared by the Homestake Board from funds legally available therefor,
subject to the dividend rights of holders of any Homestake Preferred Stock that
may be issued in the future.
The Homestake Common Stock is not redeemable and does not have conversion or
pre-emptive rights.
HOMESTAKE PREFERRED STOCK
Homestake Preferred Stock may be issued in one or more series in the
discretion of the Homestake Board, with such voting powers, designations,
preferences and relative, participating, optional or other rights, if any, and
such qualifications, limitations or restrictions, as the Homestake Board may in
its discretion establish at the time of creation of such series. There currently
are no outstanding shares of Homestake Preferred Stock.
SPECIAL VOTING STOCK
A single share of Special Voting Stock will be authorized for issuance.
Except as otherwise required by law or the Restated Certificate, the Special
Voting Stock will be entitled to a number of votes equal to the number of HCI
Exchangeable Shares outstanding on the applicable record date and not owned by
Homestake or subsidiaries of Homestake, and may be voted in the election of
directors and on all other matters submitted to a vote of the holders of
Homestake Common Stock. The holders of Homestake Common Stock and the holder of
the Special Voting Stock will vote together as a single class on all matters,
except to the extent voting as a separate class is required by applicable law or
the Restated Certificate. In the event of any liquidation, dissolution or
winding up of Homestake, the holder of the Special Voting Stock will not be
entitled to receive any assets of Homestake available for distribution to its
stockholders. The holder of the Special Voting Stock will not be entitled to
receive dividends. Pursuant to the Arrangement Agreement, the Special Voting
Stock will be issued to the Trustee appointed under the Trust Agreement. See
"Mechanics of the Arrangement--Trust Agreement."
At such time as there are no HCI Exchangeable Shares outstanding (other than
shares owned by Homestake or subsidiaries of Homestake), and there are no shares
of stock, debt, options or other agreements that could give rise to the issuance
of any HCI Exchangeable Shares to any person (other than Homestake or
subsidiaries of Homestake), the Special Voting Stock will automatically be
redeemed for US$1.00 and thereupon will be deemed retired and cancelled and may
not be reissued.
"FAIR PRICE" CHARTER PROVISION
The Homestake Certificate contains a "Fair Price" provision which applies to
mergers and certain other types of business combinations with "Related Persons."
The Fair Price provision defines "Related
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Person" to include any person who, together with any affiliate or associate,
beneficially owns (or within the preceding five years owned) 10% or more of the
Homestake Common Stock outstanding or of the voting stock of Homestake
outstanding. The Fair Price provision defines "Business Combination" to include
mergers, reorganizations, sales of assets, issuances of securities, mortgages,
leases, and a variety of transactions that involve the securities or assets of
Homestake.
The Fair Price provision requires that a Business Combination between
Homestake and a Related Person meet certain alternative criteria. If none of the
alternative criteria are met, such transactions must be approved by (1) not less
than 80% of the total voting power of Homestake stock entitled to vote on the
matter and (2) not less than 50% of the voting power held by holders other than
the Related Person and its affiliates and associates. The alternative criteria,
one of which must be met to avoid the special voting requirements, are the
following:
(a) if the Business Combination is approved by the Homestake Board
before the Related Person first became a Related Person;
(b) if the Homestake Board unanimously approves in advance the Related
Person becoming a Related Person and the Business Combination is then
approved by the Homestake Board after the Related Person became a Related
Person;
(c) if the Business Combination involves solely Homestake and one of its
subsidiaries (50% or more of the voting stock of which is owned by Homestake
and none of which is owned by a Related Person) and all stockholders are
treated equally and receive or retain common stock in the surviving
corporation or other party to the Business Combination; or
(d) if all of the following conditions are satisfied:
(1) the per share consideration to be received by holders of the
Homestake Common Stock in the Business Combination (other than the
Related Person) is not less than the higher of (i) the highest per share
price paid by such Related Person in acquiring any of the Homestake
Common Stock or (ii) a percentage premium over the market price of
Homestake Common Stock immediately prior to the announcement of such
Business Combination which is at least as high as the percentage premium
paid by the Related Person over the market price of the Homestake Common
Stock immediately prior to the commencement of the acquisition of
Homestake Common Stock by such Related Person, but in no event in excess
of two times the highest per share price determined under (i) above;
(2) after becoming a Related Person and prior to the consummation of
such Business Combination, (i) such Related Person must not have acquired
any newly issued shares from Homestake (except upon conversion of
convertible securities acquired prior to becoming a Related Person or
upon compliance with the Fair Price provision or as a result of a pro
rata stock dividend or stock split) and (ii) such Related Person must not
have received the benefit, directly or indirectly (except proportionately
as a stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or tax credits provided by Homestake, or made any
major change in Homestake's business or equity capital structure; and
(3) a proxy statement meeting the requirements of the United States
federal securities laws must be used for the purpose of soliciting
stockholder approval of such Business Combination. The proxy statement
must also contain (i) any recommendation as to the advisability of the
Business Combination which any continuing or independent or "outside"
directors may choose to state, and (ii) the opinion of a reputable
national investment banking firm in the United States as to the fairness
of the terms of such Business Combination from the point of view of the
remaining public stockholders of Homestake. The investment banking firm
must be engaged solely on behalf of the public stockholders and must be
selected by a majority of any continuing directors and outside directors.
The Fair Price provision further provides that if there is a Related Person,
the Fair Price provision cannot be amended or repealed unless such a change is
approved by at least 80% of the total voting power
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of Homestake stock and also by a majority of the total voting power of Homestake
stock held by holders who are independent of the Related Person.
All of the foregoing could discourage, delay or prevent certain types of
transactions involving an actual or potential change in control of Homestake,
including transactions in which stockholders might otherwise receive a premium
for their shares over current market prices, and could therefore have a negative
impact on the price of the Homestake Common Stock.
The Fair Price provision does not apply to the Arrangement.
HOMESTAKE RIGHTS AGREEMENT
On October 16, 1987, Homestake issued one Homestake Right for each issued
and outstanding share of Homestake Common Stock. On October 15, 1997, the
Homestake Board amended the Homestake Rights Agreement and extended its
expiration date to October 15, 2007. Pursuant to the Homestake Rights Agreement,
each share of Homestake Common Stock is accompanied by one Homestake Right. Each
Homestake Right entitles the holder thereof to purchase one one-hundredth of a
share of Series A Preferred Stock at a price of US$75, subject to adjustment
(the "Purchase Price"). Each one one-hundredth of a share of Series A Preferred
Stock is equivalent to one share of Homestake Common Stock with respect to
voting and liquidation rights and dividends or distributions.
The Homestake Rights are not exercisable until the "Distribution Date" and
will expire on October 15, 2007 (the "Expiration Date"), unless they are earlier
redeemed by Homestake. The Distribution Date is defined to be the earlier of (i)
such time as Homestake learns that a person or group, together with affiliates
or associates, acquired or obtained the right to acquire beneficial ownership of
more than 15% of the Homestake Common Stock outstanding and HCI Exchangeable
Shares outstanding, considered as a single class (an "Acquiring Person") and
(ii) such date, as may be designated by the Homestake Board following the
commencement of, or first public disclosure of an intent to commence, a tender
or exchange offer for Homestake Common Stock and/or HCI Exchangeable Shares
outstanding, if upon consummation such person could be an Acquiring Person.
Upon a person becoming an Acquiring Person, a holder of a Homestake Right
(except Acquiring Persons) may exercise the right by purchasing for the Purchase
Price such number of one-hundredths of a share of Series A Preferred Stock equal
to the result obtained by multiplying the Purchase Price by a fraction, the
numerator of which is one and the denominator of which is 50% of the market
value of the Homestake Common Stock on the date on which such person became an
Acquiring Person.
The Homestake Board may, at its option, at any time after a person becomes
an Acquiring Person exchange all or part of the then outstanding and exercisable
Homestake Rights (other than Homestake Rights held by an Acquiring Person) for
consideration per Homestake Right consisting of one-half of the securities that
would be otherwise issuable upon the exercise of a Homestake Right, as described
above, or Homestake Common Stock having a value equal to the Purchase Price.
In the event that, following the Distribution Date, Homestake is acquired in
any merger or other business combination by an Acquiring Person (or such
Acquiring Person is merged into Homestake) or 50% or more of Homestake's assets
or assets representing 50% or more of its earning power are sold, leased,
exchanged or otherwise transferred to an Acquiring Person and such surviving
corporation or Acquiring Person is a publicly traded corporation, each Homestake
Right will entitle its holder to purchase for the Purchase Price the number of
common shares of the surviving corporation or the Acquiring Person which at the
time of the transaction would have a market value of twice the Purchase Price.
In the event that the surviving corporation or the Acquiring Person is not a
publicly traded corporation, each Homestake Right will entitle its holder to
purchase for the Purchase Price, at such holder's option (i) that number of
shares of such entity which at the time of the transaction would have a book
value of twice the Purchase Price or (ii) if such entity has an affiliate which
has publicly traded common shares, that number of shares of such affiliate which
at the time of the transaction would have a market value of twice the Purchase
Price.
Any Homestake Rights that are at any time beneficially owned by an Acquiring
Person will become null and void and any holder of any such right will be unable
to exercise any such right.
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The Homestake Board may redeem the Homestake Rights at any time prior to the
earliest of such time as a person becomes an Acquiring Person and the Expiration
Date for cash or securities equivalent to US$0.01 per Homestake Right. Until a
Homestake Right is exercised, the holder will have no rights as a stockholder of
Homestake with respect to the shares purchasable upon exercise of the Homestake
Right.
All of the foregoing could discourage, delay or prevent certain types of
transactions involving an actual or potential change in control of Homestake,
including transactions in which stockholders might otherwise receive a premium
for their shares over current market prices, and could therefore have a negative
impact on the price of the Homestake Common Stock.
The Homestake Rights Agreement does not apply to the Arrangement.
Each HCI Exchangeable Share will trade with an HCI Right issued under an HCI
Rights Agreement. The HCI Rights will entitle their holders to acquire
additional HCI Exchangeable Shares at the same price and in the same amounts and
circumstances in which holders of Homestake Rights are entitled to acquire
Homestake shares.
DESCRIPTION OF HCI SHARE CAPITAL
The share capital of HCI is as summarized below. This summary is qualified
in its entirety by reference to the HCI Articles, the HCI Exchangeable Share
Provisions (attached as Appendix D to this Supplement) and Schedule 3 to the
Arrangement Agreement (attached as Appendix B to this Supplement) and assumes
that the modifications to HCI's share capital reflected in those appendices have
been made.
HCI EXCHANGEABLE SHARES
See "The Mechanics of the Arrangement--HCI Exchangeable Shares,"
"--Retraction, Redemption and Call Rights" and "--Trust Agreement."
HCI COMMON SHARES
The holders of HCI Common Shares are entitled to receive notice of and to
attend all meetings of the shareholders of HCI and are entitled to one vote for
each share held of record on all matters submitted to a vote of holders of HCI
Common Shares. Subject to the prior rights of the holders of the HCI
Exchangeable Shares and any other shares ranking senior to the HCI Common Shares
with respect to priority in the payment of dividends, the holders of HCI Common
Shares are entitled to receive such dividends as may be declared by the HCI
Board of Directors out of funds legally available therefor. Holders of HCI
Common Shares are entitled upon any liquidation, dissolution or winding up of
HCI, subject to the prior rights of the holders of the HCI Exchangeable Shares
and to any other shares ranking senior to the HCI Common Shares, to receive the
remaining property and assets of HCI.
Homestake California owns all of the HCI Common Shares currently
outstanding. Following the Effective Date, HCH will own all of the HCI Common
Shares outstanding and Homestake California will own all of the shares of HCH
outstanding.
HCI PREFERENCE SHARES
The Third Preference Shares of HCI may be issued in one or more series in
the discretion of the Board of Directors of HCI with such designation, rights,
privileges, restrictions and conditions as the Board of Directors of HCI may in
its discretion establish at the time of creation of such series. The Third
Preference Shares rank senior to the HCI Common Shares and the HCI Exchangeable
Shares with respect to priority in the payment of dividends and the distribution
of assets in the event of any liquidation, dissolution or winding-up of HCI,
whether voluntary or involuntary, or any other distribution of the assets of HCI
for the purpose of winding-up its affairs. The Third Preference Shares of any
series shall also be entitled to such other preferences, not inconsistent with
these provisions, over the HCI Common Shares, the HCI Exchangeable Shares and
the shares of any other class ranking junior to the Third Preference Shares.
The first series of Third Preference Shares consists of 10,000,000 Third
Preference Shares, which shares are designated as Third Preference Shares,
Series I. There are 105,500 Third Preference Shares,
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Series I outstanding with a stated capital of C$55,354,000, all of which are
owned by Homestake California. The Third Preference Shares, Series I are
non-voting and entitled to receive such non-cumulative dividends as may be
declared by the HCI Board of Directors out of funds legally therefor which in
any event shall not exceed C$50 per Series I Share in any calendar year. The
Third Preference Shares, Series I are redeemable at the option of HCI and
retractable at the option of their holder at an amount of C$524.68 per Series I
Share, together with all declared and unpaid dividends. So long as any Third
Preference Shares, Series I are outstanding, HCI shall not, without the prior
approval of the holders of such Series I Shares, among other things redeem,
purchase or otherwise retire any HCI Common Shares, HCI Exchangeable Shares or
other shares ranking junior to the Series I Shares unless after giving effect to
such redemption, purchase or retirement, the realizable value of the assets of
HCI would not be less than the sum of the liabilities of HCI plus the amount
that would be required to give effect to the rights of holders of shares (other
than Series I Shares) ranking ratably with the Series I Shares plus the amount
required to redeem all outstanding Series I Shares.
HCI RIGHTS AGREEMENT
Each HCI Exchangeable Share issued in the Arrangement will be accompanied by
and trade with an associated right pursuant to the HCI Rights Agreement
entitling the holder of such HCI Exchangeable Share to acquire additional HCI
Exchangeable Shares in certain circumstances (including acquisitions by certain
persons of beneficial ownership of Homestake Common Stock or HCI Exchangeable
Shares in excess of specified percentages or certain tender or exchange offers).
The HCI Rights are intended to have characteristics essentially equivalent in
economic effect to the Homestake Rights under the Homestake Rights Agreement.
The HCI Rights Agreement is attached as Schedule 6 to the Arrangement Agreement,
which is attached as Appendix B to this Supplement. For a description of the
Homestake Rights, see "Description of Homestake Capital Stock--Homestake Rights
Agreement."
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RESALE OF HCI EXCHANGEABLE SHARES AND HOMESTAKE COMMON STOCK
RECEIVED IN THE ARRANGEMENT
UNITED STATES
The issuance of shares of Homestake Common Stock and HCI Exchangeable Shares
to Prime Shareholders will not be registered under the Securities Act. Those
shares will be issued in reliance upon the exemption provided by Section
3(a)(10) of the Securities Act. Section 3(a)(10) exempts from the general
requirement of registration securities issued in an exchange for one or more
outstanding securities where the terms and conditions of the issuance and
exchange of such securities have been approved by a court of competent
jurisdiction, after a hearing upon the fairness of the terms and conditions of
the issuance and exchange at which all persons to whom such securities will be
issued have the right to appear. The British Columbia Supreme Court is
authorized to conduct a hearing to determine the fairness of the terms and
conditions of the Arrangement, including the proposed issuance of HCI
Exchangeable Shares and Homestake Common Stock in exchange for Prime Common
Shares. The British Columbia Supreme Court issued the Interim Order on - ,
1998 and, subject to the approval of the Arrangement by the Prime Shareholders
at the Prime Special Meeting and the adoption of the Restated Certificate by the
Homestake Stockholders, will hold a hearing on the fairness of the terms and
conditions of the Arrangement on - , 1998.
The HCI Exchangeable Shares and shares of Homestake Common Stock issued in
exchange for Prime Common Shares in the Arrangement will be freely transferable
under U.S. federal securities laws, except when held by "affiliates" of Prime or
Homestake. Persons who may be deemed to be affiliates of an issuer generally
include individuals or entities that control, are controlled by, or are under
common control with, the issuer and may include certain officers and directors
of the issuer as well as principal shareholders of the issuer.
The issuance of shares of Homestake Common Stock from time to time in
exchange for the HCI Exchangeable Shares will not be registered. Those shares
will be issued in reliance upon the exemption provided by Section 3(a)(9) of the
Securities Act. Section 3(a)(9) exempts from the general requirement of
registration securities issued in exchange solely for other securities of the
same issuer. Since the HCI Exchangeable Shares have essentially all of the
rights of Homestake Common Stock, for purposes of Section 3(a)(9) they are
treated as the equivalent of Homestake Common Stock.
CANADA
Homestake and HCI have applied for rulings or orders of certain provincial
securities regulatory authorities in Canada to exempt the issuance to Prime
Shareholders of shares of Homestake Common Stock and the HCI Exchangeable Shares
from the prospectus and registration requirements of applicable securities
legislation. Application has also been made to permit resale of those shares in
such provinces without substantive restriction by a shareholder other than a
"control person," provided that no unusual effort is made to prepare the market
for any such resale or to create a demand for the securities which are the
subject of any such resale and no extraordinary commission or consideration is
paid in respect thereof. Applicable Canadian securities legislation provides a
rebuttable presumption that a person or company is a control person in relation
to an issuer where the person or company alone or in combination with others
holds more than 20 percent of the outstanding voting securities of the issuer.
Homestake and HCI have also applied for rulings or orders of certain
provincial securities regulatory authorities in Canada to permit the issuance on
an exempt basis of Homestake Common Stock to holders of HCI Exchangeable Shares,
and to permit the resale of Homestake Common Stock by such holders on the same
terms as set out above.
ONGOING HCI OBLIGATIONS
Upon completion of the Arrangement, HCI will be a reporting issuer in
certain Canadian provinces. Application has been made for certain exemptions
from statutory financial and other reporting requirements, including exempting
insiders of HCI from the requirement of filing reports with respect to trades of
HCI securities in those Canadian provinces on the condition that Homestake files
with the relevant provincial securities regulatory authorities copies of certain
of its reports filed with the SEC and that holders of HCI Exchangeable Shares
receive certain materials that are sent to holders of Homestake Common Stock.
A similar exemption has been requested from the SEC.
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TAX CONSIDERATIONS TO PRIME SHAREHOLDERS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO PRIME SHAREHOLDERS
In the opinion of Lawson Lundell Lawson & McIntosh, counsel for Prime, and
Osler, Hoskin & Harcourt, counsel for HCI, the following is a summary of the
principal Canadian federal income tax considerations generally applicable under
the Canadian Tax Act to Prime Shareholders as a result of the Arrangement.
This summary is based on the current provisions of the Canadian Tax Act, the
regulations thereunder (the "Regulations") and counsel's understanding of the
current administrative practices of Revenue Canada, Customs, Excise and Taxation
("Revenue Canada"). This summary also takes into account the proposed amendments
to the Canadian Tax Act and the Regulations publically announced by the Minister
of Finance prior to the date hereof (the "Proposed Amendments") and assumes that
all such Proposed Amendments will be enacted in their present form. However, no
assurances can be given that the Proposed Amendments will be enacted in the form
proposed, or at all. Except for the foregoing, this summary does not take into
account or anticipate any changes in law, whether by legislative, administrative
or judicial decision or action, nor does it take into account provincial,
territorial or foreign tax legislation or considerations, which may differ from
the Canadian federal income tax considerations described herein. No assurances
can be given that subsequent changes in law or administrative policy will not
affect or modify the opinions expressed herein.
THE CANADIAN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO EACH PRIME
SHAREHOLDER WILL VARY ACCORDING TO EACH PRIME SHAREHOLDER'S PARTICULAR
CIRCUMSTANCES. THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
PRIME SHAREHOLDER. ACCORDINGLY, PRIME SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN
TAX ADVISORS AS TO THE TAX CONSEQUENCES TO THEM OF THE ARRANGEMENT IN THEIR
PARTICULAR CIRCUMSTANCES. NO ADVANCE INCOME TAX RULING HAS BEEN OBTAINED FROM
REVENUE CANADA TO CONFIRM THE TAX CONSEQUENCES OF ANY OF THE TRANSACTIONS
DESCRIBED HEREIN.
For the purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of Homestake Common Stock, including
dividends, adjusted cost base and proceeds of disposition, must be converted
into Canadian dollars based on the prevailing United States dollar exchange rate
at the time that such amounts arise.
PRIME SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable only to Prime
Shareholders who, for purposes of the Canadian Tax Act and any relevant
bilateral tax treaty, and at all relevant times, are resident or deemed to be
resident in Canada, hold their Prime Common Shares and will hold their HCI
Exchangeable Shares or Homestake Common Stock as capital property and deal at
arm's length with Prime, HCI, Homestake and HCH. This summary does not apply to
a shareholder with respect to whom Homestake is or will be a foreign affiliate
within the meaning of the Canadian Tax Act or who holds more than 10 percent of
the Prime Common Shares.
Prime Common Shares, HCI Exchangeable Shares and Homestake Common Stock will
generally be considered to be capital property to a holder thereof provided that
the holder does not hold any such shares in the course of carrying on a business
of buying and selling shares and has not acquired such shares in a transaction
considered to be an adventure in the nature of trade. Certain holders who might
not otherwise be considered to hold their Prime Common Shares and HCI
Exchangeable Shares in respect of which a Tax Election, as defined below, has
not been made as capital property may be entitled to have them treated as
capital property by making the election provided by subsection 39(4) of the
Canadian Tax Act. In addition, the mark-to-market rules contained in the
Canadian Tax Act relating to financial institutions (including certain financial
institutions, registered securities dealers and corporations controlled by one
or more of the foregoing) will deem such financial institutions not to hold
their Prime
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Common Shares, HCI Exchangeable Shares or Homestake Common Stock as capital
property for the purposes of the Canadian Tax Act. PRIME SHAREHOLDERS THAT ARE
FINANCIAL INSTITUTIONS SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
TAX CONSEQUENCES TO THEM OF THE APPLICATION OF THE MARK-TO-MARKET RULES.
TRANSFER OF PRIME COMMON SHARES TO HCH FOR HOMESTAKE COMMON STOCK
A Prime Shareholder who transfers Prime Common Shares to HCH in exchange for
Homestake Common Stock pursuant to the Arrangement will be considered to have
disposed of such Prime Common Shares for proceeds of disposition equal to the
fair market value, at the Effective Date, of the Homestake Common Stock received
by such holder on the exchange plus the amount of any cash received in lieu of
fractional shares. A Prime Shareholder will realize a capital gain (or a capital
loss) equal to the amount by which the proceeds of disposition of such Prime
Common Shares, net of any reasonable costs of disposition, exceed (or are less
than) the shareholder's adjusted cost base of such Prime Common Shares.
The general tax treatment of capital gains and losses is discussed below
under the heading "Capital Gains and Losses."
The cost of the Homestake Common Stock acquired by a Prime Shareholder on a
disposition of Prime Common Shares to HCH will be the fair market value of such
Homestake Common Stock at the Effective Date. The cost of any such Homestake
Common Stock will be averaged with the adjusted cost base of any other Homestake
Common Stock held by the Prime Shareholder immediately before that time for the
purposes of determining the holder's adjusted cost base of the holder's
Homestake Common Stock.
TRANSFER OF PRIME COMMON SHARES TO HCI FOR HCI EXCHANGEABLE SHARES
A Prime Shareholder who exchanges his or her Prime Common Shares for HCI
Exchangeable Shares pursuant to the Arrangement will generally be considered to
have:
(i) disposed of such Prime Common Shares for proceeds of disposition equal
to the aggregate fair market value at the Effective Date of the HCI Exchangeable
Shares, the Ancillary Rights and the HCI Rights received on the exchange plus
the amount of any cash received in lieu of fractional shares, less the fair
market value at the Effective Date of the Call Rights; and
(ii) granted the Call Rights to Homestake and HCH for consideration equal to
the fair market value at the Effective Date of the Call Rights.
Prime Shareholders who are resident in Canada for the purposes of the
Canadian Tax Act and who are not tax-exempt for the purposes of Part I of the
Canadian Tax Act ("Eligible Holders") or, in the case of a Prime Shareholder
which is a partnership, where one or more members of the partnership is an
Eligible Holder, will be entitled to make a joint election with HCI under
subsection 85(1) or 85(2), as applicable, of the Canadian Tax Act which may
result in the deferral of capital gains otherwise arising under (i) above. See
commentary under the heading "Tax Elections" below.
To the extent that a subsection 85(1) or 85(2) election is not made in
respect of the exchange of Prime Common Shares for HCI Exchangeable Shares,
Prime Shareholders will realize a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition received, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted cost base of the
Prime Common Shares exchanged. In these circumstances, the aggregate cost of the
HCI Exchangeable Shares, the Ancillary Rights and the HCI Rights acquired by a
Prime Shareholder on the disposition of Prime Common Shares to HCI will be an
amount equal to such proceeds of disposition. Prime Shareholders will be
required to allocate this aggregate cost between the HCI Exchangeable Shares,
the Ancillary Rights and the HCI Rights on a reasonable basis.
For the purposes of determining the tax implications of (i) above, Prime
Shareholders will be required to determine the fair market value of the
Ancillary Rights and the HCI Rights on a reasonable basis. Prime is of the view,
and has advised counsel, that the Ancillary Rights and the HCI Rights granted
pursuant to
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the Arrangement will have only nominal fair market value. Counsel expresses no
opinion as to the appropriateness or accuracy of this valuation. It is possible
that Revenue Canada could take the position that the Ancillary Rights and the
HCI Rights have a fair market value in excess of a nominal amount.
For the purposes of determining the tax implications of (i) and (ii) above,
Prime Shareholders will be required to determine the fair market value of the
Call Rights granted to Homestake and HCH. Prime is of the view, and has advised
counsel, that the Call Rights granted pursuant to the Arrangement will have only
nominal fair market value. Counsel expresses no opinion as to the
appropriateness or accuracy of this valuation. Prime's view as to the valuation
of the Call Rights is not binding upon Revenue Canada. Provided that Prime's
valuation with respect to the Call Rights is correct, the granting of the Call
Rights to Homestake and HCH will not result in any material adverse income tax
consequences to Prime Shareholders. However, should Revenue Canada challenge
this valuation, and ultimately succeed in establishing that the Call Rights have
a fair market value in excess of a nominal amount, Prime Shareholders will
realize a capital gain in an amount equal to the fair market value of the Call
Rights.
The general tax treatment of capital gains and losses is discussed below
under the heading "Capital Gains and Losses."
CAPITAL GAINS AND LOSSES
A Prime Shareholder's taxable capital gain (or allowable capital loss) from
the disposition of Prime Common Shares, HCI Exchangeable Shares or Homestake
Common Stock will be equal to three-quarters of the amount of the shareholder's
capital gain (or capital loss) in respect of such disposition. A Prime
Shareholder must include any such taxable capital gain in income for the
taxation year of disposition, and may, subject to the detailed provisions of the
Canadian Tax Act, deduct any such allowable capital loss from taxable capital
gains in the year in which such allowable capital loss is realized. Subject to
the detailed rules contained in the Canadian Tax Act, any remaining allowable
capital loss may generally be applied to reduce net taxable capital gains
realized by the holder in the three preceding taxation years or in any
subsequent taxation year.
If the holder of a share is a corporation, the amount of any capital loss
arising from a disposition or deemed disposition of a share may be reduced by
the amount of dividends received or deemed to have been received by it on such
share to the extent and under circumstances prescribed by the Canadian Tax Act.
Similar rules may apply where a corporation is a member of a partnership or a
beneficiary of a trust that owns shares or where a trust or partnership of which
a corporation is a beneficiary or a member is a member of a partnership or a
beneficiary of a trust that owns shares.
Capital gains realized by an individual may be subject to alternative
minimum tax under the Canadian Tax Act depending on the individual's
circumstances.
Prime Shareholders that are "Canadian-controlled private corporations" (as
defined in the Canadian Tax Act) may be liable to pay an additional 6 2/3%
refundable tax in respect of taxable capital gains realized.
TAX ELECTIONS
HCI will make a joint election under subsection 85(1) or subsection 85(2),
as applicable, of the Canadian Tax Act with any Prime Shareholder who is an
Eligible Holder or, in the case of a partnership, where one or more members of
the Partnership is an Eligible Holder, as a result of which the holder may be
entitled to obtain a full or partial tax-deferred rollover on the disposition of
the holder's Prime Common Shares to HCI pursuant to the Arrangement. The joint
election allows the holder to elect an amount which will be treated for the
purposes of the Canadian Tax Act as the holder's proceeds of disposition in
respect of such Prime Common Shares. The elected amount will be determined by
each holder who makes such a joint election, subject to the limitations under
the Canadian Tax Act described generally below. The elected amount cannot be (i)
less than the greater of the adjusted cost base to such
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holder of such Prime Common Shares and the aggregate of the fair market value of
the Ancillary Rights and the HCI Rights received on the exchange and the amount
of any cash received in lieu of fractional shares (the "Non-share
Consideration"), or (ii) more than the aggregate fair market value of such Prime
Common Shares. The cost of the HCI Exchangeable Shares acquired on such exchange
will be the difference between the amount elected and the aggregate fair market
value of the Non-share Consideration received by the Prime Shareholder on the
exchange. A capital gain (or capital loss) will be realized by a holder to the
extent that the proceeds of disposition (I.E., the elected amount) of the Prime
Common Shares, net of any reasonable costs associated with the disposition,
exceed (or are less than) the adjusted cost base to the holder of such Prime
Common Shares. A Prime Shareholder will be required to include in income any
such capital gain or capital loss in the manner and subject to the rules
described above under the heading "Capital Gains and Losses." The cost of the
Ancillary Rights and the HCI Rights received will equal the fair market value
thereof at the Effective Date. The comments above under the heading "Transfer of
Prime Common Shares to HCI for HCI Exchangeable Shares" apply equally in respect
of determining the fair market value of the Ancillary Rights and the HCI Rights
for the purpose of arriving at the appropriate elected amount.
Prime Shareholders who wish to make an election under subsection 85(1) or
subsection 85(2) of the Canadian Tax Act (a "Tax Election") must duly complete
and forward to HCI by registered mail a package of documents described below (a
"Tax Election Filing Package") in the manner and within the time set out below.
A Prime Shareholder interested in obtaining a Tax Election Filing Package should
indicate same on the Letter of Transmittal. The Tax Election Filing Package will
include copies of the relevant election forms and a letter authorizing HCI to
file the Tax Election on behalf of the Prime Shareholder. Alternatively, the Tax
Election forms may be obtained directly from Revenue Canada.
Certain provincial or territorial jurisdictions may require that a separate
joint election be filed for provincial or territorial income tax purposes. HCI
will also make a joint election with a provincial or territorial Prime
Shareholder under provisions of any relevant provincial or territorial income
tax legislation with similar effect to subsection 85(1) or subsection 85(2) of
the Canadian Tax Act. PRIME SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
TO DETERMINE WHETHER SEPARATE ELECTION FORMS MUST BE FILED WITH ANY PROVINCIAL
OR TERRITORIAL TAXING AUTHORITY. It will be the responsibility of each Prime
Shareholder who wishes to make such an election to obtain the necessary
provincial or territorial election forms and to submit such forms to HCI.
A duly completed Tax Election Filing Package together with any required
supporting schedules must be signed and forwarded by a Prime Shareholder to HCI
within 90 days of the Effective Date. HCI agrees to execute any properly
completed Tax Election contained in a Tax Election Filing Package and, if so
directed by a Prime shareholder, will forward such Tax Election by mail within
30 days after the receipt thereof by HCI to Revenue Canada with a copy to the
Prime Shareholder. Alternatively, Prime Shareholders may direct HCI to return
the signed election forms directly to them. In order for Revenue Canada to
accept a Tax Election without a late filing penalty being paid by a Prime
Shareholder, the Tax Election, duly completed and executed by both the Prime
Shareholder and HCI, must be received by Revenue Canada on or before the day
that is the earlier of June 30, 1999 and the date on or before which the Prime
Shareholder is required to file an income tax return for the taxation year in
which the Arrangement is completed (I.E., April 30, 1999 in the case of Prime
Shareholders who are individuals).
HCI will not be responsible or liable for taxes, interest, penalties,
damages or expenses resulting from the failure by anyone to properly complete
any Tax Election, nor will HCI be responsible or liable for taxes, interest,
penalties, damages or expenses resulting from the failure by anyone to properly
file a Tax Election in the prescribed form and manner and within the time
prescribed in the Canadian Tax Act (except with respect to any failure by HCI to
file a properly completed Tax Election Filing Package within 30 days of its
being received by HCI).
PRIME SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE
THE TAX CONSEQUENCES TO THEM OF THE RECOGNITION OF A CAPITAL GAIN AS A RESULT OF
THE TRANSFER OF PRIME COMMON SHARES TO HCI. A
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HOLDER WHO DOES NOT MAKE A VALID ELECTION UNDER SUBSECTION 85(1) OR 85(2), AS
APPLICABLE, OF THE CANADIAN TAX ACT MAY REALIZE A TAXABLE CAPITAL GAIN.
DIVIDENDS
(A) HCI EXCHANGEABLE SHARES
A shareholder who is an individual will be required to include in income
dividends received or deemed to be received on the HCI Exchangeable Shares,
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from taxable Canadian corporations.
Subject to the discussion below as to the denial of the dividend deduction,
in the case of a shareholder that is a corporation, other than a "specified
financial institution" as defined in the Canadian Tax Act, dividends received or
deemed to be received on the HCI Exchangeable Shares will be included in
computing the corporation's income and will generally be deductible in computing
its taxable income. A corporation is a specified financial institution for
purposes of the Canadian Tax Act if it is a bank, a trust company, a credit
union, an insurance corporation or a corporation whose principal business is the
lending of money to persons with whom the corporation is dealing at arm's length
or the purchasing of debt obligations issued by such persons or a combination
thereof, and corporations controlled by or related to such entities.
In the case of a shareholder that is a specified financial institution, such
a dividend will be deductible in computing its taxable income only if either:
(i) the specified financial institution did not acquire the HCI Exchangeable
Shares in the ordinary course of the business carried on by such
institution; or
(ii) at the time of the receipt of the dividend by the specified financial
institution, the HCI Exchangeable Shares are listed on a prescribed stock
exchange in Canada (which currently includes the TSE) and the specified
financial institution, either alone or together with persons with whom it
does not deal at arm's length, does not receive (or is not deemed to
receive) dividends in respect of more than 10 percent of the issued and
outstanding HCI Exchangeable Shares.
A shareholder that is a "private corporation" (as defined in the Canadian
Tax Act) or any other corporation resident in Canada and controlled or deemed to
be controlled by or for the benefit of an individual or related group of
individuals may be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3% on dividends received or deemed to be received on the
HCI Exchangeable Shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
If HCI or any other person with whom HCI does not deal at arm's length is a
specified financial institution at a point in time that a dividend is paid on an
HCI Exchangeable Share, then, subject to the exemption described below,
dividends received or deemed to be received by a shareholder that is a
corporation will not be deductible in computing taxable income but will be fully
includable in taxable income under Part I of the Canadian Tax Act. A shareholder
that is a "Canadian-controlled private corporation" (as defined in the Canadian
Tax Act) may be liable to pay an additional refundable tax of 6 2/3% on
dividends or deemed dividends that are not deductible in computing taxable
income. This denial of the dividend deduction for a corporate shareholder will
not in any event apply if, at the time a dividend is received or deemed to be
received, the HCI Exchangeable Shares are listed on a prescribed stock exchange
(which currently includes the TSE), Homestake and HCH are "related" to HCI for
the purposes of the Canadian Tax Act and the recipient (together with persons
with whom the recipient does not deal at arm's length or any partnership or
trust of which the recipient or person is a member or beneficiary, respectively)
does not receive dividends on more than 10 percent of the issued and outstanding
HCI Exchangeable Shares.
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The HCI Exchangeable Shares will be "taxable preferred shares" and
"short-term preferred shares" for purposes of the Canadian Tax Act. Accordingly,
HCI will be subject to a 66 2/3% tax under Part VI.1 of the Canadian Tax Act on
dividends paid or deemed to be paid on the HCI Exchangeable Shares and will be
entitled to deduct 9/4 of the tax payable in computing its taxable income under
Part I of the Canadian Tax Act.
In the event that the IRS imposes U.S. withholding tax with respect to
dividends paid on the HCI Exchangeable Shares as set out in "--Certain United
States Federal Tax Considerations to Prime Shareholders--Dividends on
Exchangeable Shares," it is unlikely that a Canadian resident holder of HCI
Exchangeable Shares will be entitled to a foreign tax credit in Canada with
respect to such U.S. withholding tax.
(B) HOMESTAKE COMMON STOCK
Dividends on Homestake Common Stock will be required to be included in the
recipient's income for the purposes of the Canadian Tax Act. Such dividends
received by a holder who is an individual will not be subject to the gross-up
and dividend tax credit rules in the Canadian Tax Act. A holder that is a
corporation will include such dividends in computing its taxable income. A
holder that is a Canadian controlled private corporation may be liable to pay an
additional refundable tax of 6 2/3% on such dividends. United States
non-resident withholding tax paid in respect of such dividends (see commentary
under the heading "Certain United States Federal Tax Considerations to Prime
Shareholders") will be eligible for foreign tax credit or deduction treatment
where applicable under the Canadian Tax Act.
REDEMPTION OR EXCHANGE OF HCI EXCHANGEABLE SHARES
A Prime Shareholder will be considered under the Canadian Tax Act to have
disposed of HCI Exchangeable Shares on (i) a redemption (including pursuant to a
Retraction Request) of such HCI Exchangeable Shares by HCI, or (ii) an
acquisition of such HCI Exchangeable Shares by Homestake or HCH pursuant to the
Call Rights. The Canadian federal income tax consequences of such a disposition
are significantly different for the holder depending on whether the event giving
rise to the disposition is a redemption by HCI or an acquisition by Homestake or
HCH. A Prime Shareholder who exercises the right to require redemption of an HCI
Exchangeable Share by giving a Retraction Request cannot control whether the HCI
Exchangeable Share will be acquired by Homestake or HCH under the Retraction
Call Right or redeemed by HCI; however, the holder will be notified if the
Retraction Call Right will not be exercised in which case the holder may cancel
the Retraction Request and retain the HCI Exchangeable Share.
On the redemption (including pursuant to a Retraction Request) of an HCI
Exchangeable Share by HCI, the holder of an HCI Exchangeable Share will be
deemed to have received a taxable dividend equal to the amount, if any, by which
the redemption proceeds (the fair market value at that time of the Homestake
Common Stock received by the holder from HCI on the redemption plus the amount
of any accrued but unpaid dividends on the HCI Exchangeable Share) exceeds the
paid-up capital (for purposes of the Canadian Tax Act) at that time of the HCI
Exchangeable Share so redeemed. The amount of any such deemed dividend will be
subject to the tax treatment described above under the heading "Dividends-HCI
Exchangeable Shares". On the redemption, the holder of an HCI Exchangeable Share
will also be considered to have disposed of the HCI Exchangeable Share for
proceeds of disposition equal to the redemption proceeds less the amount of such
deemed dividend. A holder will in general realize a capital loss (or a capital
gain) equal to the amount by which the adjusted cost base to the holder of the
HCI Exchangeable Share exceeds (or is less than) such proceeds of disposition.
The general tax treatment of capital gains and capital losses is discussed above
under the heading "Capital Gains and Capital Losses." In the case of a
shareholder that is a corporation, in some circumstances the amount of any such
deemed dividend may be treated as proceeds of disposition and not as a dividend.
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On the exchange of an HCI Exchangeable Share by the holder thereof with
Homestake or HCH for Homestake Common Stock such holder will be considered to
have disposed of the HCI Exchangeable Share for proceeds of disposition equal to
the fair market value at that time of the Homestake Common Stock received on
such exchange plus the Additional Amount in respect of such HCI Exchangeable
Share. Such holder will in general realize a capital gain (or a capital loss)
equal to the amount by which the proceeds of disposition of the HCI Exchangeable
Share, net of any reasonable costs of disposition, exceed (or are less than) the
adjusted cost base to the holder of the HCI Exchangeable Share. The general tax
treatment of capital gains and capital losses is discussed above under the
heading "Capital Gains and Losses."
The cost of Homestake Common Stock received on the redemption of an HCI
Exchangeable Share by HCI will be equal to the fair market value of the
Homestake Common Stock received on the redemption. The cost of Homestake Common
Stock received on the exchange of an HCI Exchangeable Share with Homestake or
HCH will be equal to the fair market value of the Homestake Common Stock
received on the exchange. The cost of any such Homestake Common Stock will be
averaged with the adjusted cost base of any other Homestake Common Stock held by
the Prime Shareholder immediately before that time for the purposes of
determining the holder's adjusted cost base of the holder's Homestake Common
Stock.
DISPOSITION OF HOMESTAKE COMMON STOCK
A disposition or deemed disposition of Homestake Common Stock by a holder
will generally result in a capital gain (or capital loss) equal to the amount by
which the proceeds of disposition, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base to the holder of Homestake
Common Stock. The general tax treatment of capital gains and capital losses is
discussed above under the heading "Capital Gains and Losses."
ELIGIBILITY FOR INVESTMENT
Homestake has indicated to counsel that HCI has applied for listing of the
HCI Exchangeable Shares on the TSE, and that Homestake intends to use its best
efforts to cause HCI to maintain such listing. Homestake has also indicated that
it will maintain the listing of Homestake Common Stock on the NYSE or another
prescribed exchange.
QUALIFIED INVESTMENTS. Provided the HCI Exchangeable Shares and the
Homestake Common Stock are listed on a prescribed stock exchange (which
currently includes the TSE and the NYSE), such securities, the Ancillary Rights,
the HCI Rights and the Homestake Rights will be qualified investments under the
Canadian Tax Act for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans.
FOREIGN PROPERTY. Provided the HCI Exchangeable Shares are listed on a
prescribed stock exchange in Canada (which currently includes the TSE) and HCI
continues to maintain a substantial presence in Canada, the HCI Exchangeable
Shares and the HCI Rights will not be foreign property under the Canadian Tax
Act for trusts governed by registered pension plans, registered retirement
savings plans, registered retirement income funds and deferred profit sharing
plans or for certain other tax-exempt persons. HCI will be considered to have a
substantial presence in Canada if it satisfies certain tests contained in the
Canadian Tax Act including certain asset tests or if it maintains an office in
Canada and HCI or a corporation controlled by it employs more than five
employees in Canada full time in the active conduct of a business, other than an
investment activity or a business carried on directly or indirectly through a
partnership of which the corporation is not a majority interest partner.
Homestake has informed counsel that following the Arrangement, HCI will satisfy
this substantial presence test and expects that HCI will continue to satisfy the
test.
The Homestake Common Stock, the Homestake Rights and the Ancillary Rights
will be foreign property under the Canadian Tax Act.
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DISSENTING SHAREHOLDERS
A Dissenting Shareholder will be considered to have realized a deemed
dividend and a capital gain (or capital loss) based on the fair market value of
the consideration received for its Prime Common Shares, computed as generally
described above in the case of a redemption of an HCI Exchangeable Share by HCI
for Homestake Common Stock under "Redemption or Exchange of HCI Exchangeable
Shares". Dissenting Shareholders should consult their own tax advisors in
respect of the treatment of such deemed dividends. Additional income tax
considerations may be relevant to Dissenting Shareholders who fail to perfect or
withdraw their claims pursuant to the Dissent Right.
Interest awarded to a Dissenting Shareholder by a court will be included in
the Dissenting Shareholder's income for purposes of the Canadian Tax Act.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary is applicable only to Prime
Shareholders who, for purposes of the Canadian Tax Act or any relevant bilateral
treaty, have not been and will not be resident or deemed to be resident in
Canada at any time while they have held Prime Common Shares or will hold HCI
Exchangeable Shares or Homestake Common Stock and to whom such shares are not
"taxable Canadian property" (as defined in the Canadian Tax Act) and who do not
use or hold and are not deemed to use or hold such shares in connection with
carrying on a business in Canada and, in the case of a holder who carries on an
insurance business in Canada and elsewhere, whose shares are not "designated
insurance property" as defined in the Proposed Amendments and are not
effectively connected with an insurance business carried on in Canada at any
time (a "Non-Resident Shareholder").
Generally, Prime Common Shares, HCI Exchangeable Shares and Homestake Common
Stock will not be taxable Canadian property provided that such shares are listed
on a prescribed stock exchange (which currently includes the TSE and the NYSE),
the holder does not use or hold, and is not deemed to use or hold, such shares
in connection with carrying on a business in Canada and none of the holder,
persons with whom the holder does not deal at arm's length or the holder
together with such persons owned (or had under option) at any time during the
immediately preceding five year period, 25 percent or more of the issued shares
of any class or series of the capital stock of Prime, HCI or Homestake, as the
case may be. In certain circumstances, Prime Common Shares held by a
Non-Resident Shareholder may be deemed to be "taxable Canadian property" where
such shares were acquired as part of a tax-deferred reorganization. HCI has
applied for the listing of the HCI Exchangeable Shares on the TSE and Homestake
has indicated that it intends to use its best efforts to cause HCI to maintain
such listing. Homestake has indicated that it will maintain the listing of
Homestake Common Stock on the NYSE or another prescribed stock exchange.
HCI will not make joint elections under subsection 85(1) or subsection 85(2)
of the Canadian Tax Act with Non-Resident Holders.
A Non-Resident Shareholder will not be subject to tax under the Canadian Tax
Act on the exchange of Prime Common Shares for HCI Exchangeable Shares, on the
exchange of an HCI Exchangeable Share for Homestake Common Stock (except to the
extent the exchange results in a redemption of an HCI Exchangeable Share) or on
the sale or other disposition of an HCI Exchangeable Share or Homestake Common
Stock. A holder whose HCI Exchangeable Shares are redeemed (either under HCI's
redemption right or pursuant to a Retraction Request) will be deemed to receive
a dividend as described above for shareholders resident in Canada under
"Redemption or Exchange of HCI Exchangeable Shares". The amount of such deemed
dividend will be subject to the tax treatment accorded to dividends described
below.
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Dividends paid or deemed to be paid on the HCI Exchangeable Shares are
subject to non-resident withholding tax under the Canadian Tax Act at the rate
of 25 percent, although such rate may be reduced under the provisions of an
applicable income tax treaty. Under the Tax Treaty the rate is generally reduced
to 15 percent in respect of dividends paid to a person who is the beneficial
owner of such shares and who is resident in the United States for purposes of
the Tax Treaty.
A Dissenting Shareholder will be considered to have realized a deemed
dividend computed as generally described above in the case of shareholders
resident in Canada under "Dissenting Shareholders". The amount of any such
deemed dividend will be subject to the tax treatment accorded to dividends
described immediately above. Additional income tax considerations may be
relevant to dissenting Prime Shareholders who fail to perfect or withdraw their
claims pursuant to the right of dissent. An award of interest to a Dissenting
Shareholder who is a Non-Resident Shareholder will be subject to a non-resident
withholding tax under the Canadian Tax Act at a rate of 25%, although such rate
may be reduced under the provisions of any income tax treaty in force between
Canada and the country of residence of the Non-Resident Shareholder. This
withholding rate is reduced to 10% under the Tax Treaty for Dissenting
Shareholders resident in the United States.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS TO PRIME SHAREHOLDERS
The following summary of the principal United States federal income tax
considerations generally applicable to a United States Holder (as defined below)
arising from and relating to the Arrangement, including the receipt and
ownership of HCI Exchangeable Shares and Homestake Common Stock, represents the
opinion of Thelen Reid & Priest LLP ("TRP"), United States counsel to Homestake,
insofar as it relates to matters of United States federal income tax law and
legal conclusions with respect thereto.
As used herein, a United States Holder is a Prime Shareholder who is a
citizen or individual resident of the United States, a corporation or
partnership created or organized in or under the laws of the United States, or
of any political subdivision thereof, an estate the income of which is
includable in its gross income for United States federal income tax purposes
without regard to its source or a trust whose administration is subject to the
primary supervision of a United States court and which has one or more
fiduciaries who are United States persons and who have the authority to control
all substantial decisions of the trust. However, as used herein, United States
Holder excludes persons subject to special provisions of United States federal
income tax law, such as tax-exempt organizations, financial institutions,
insurance companies, broker-dealers, persons having a "functional currency"
other than the United States dollar and Prime Shareholders who hold Prime Common
Shares as part of a straddle, wash sale, hedging or conversion transaction.
United States Holders who do not maintain a substantial presence, permanent home
or habitual abode in the United States or who do not maintain closer personal
and economic relationships with the United States than with any other country
(other than Canada) may be unable to benefit from the provisions of the Tax
Treaty described herein. Such holders should consult their own tax advisors
concerning the availability of Tax Treaty benefits. This summary is limited to
United States Holders who hold Prime Common Shares as capital assets.
This summary is based on United States federal income tax law in effect as
of the date of this Supplement. No statutory, judicial or administrative
authority exists which directly addresses certain of the United States federal
income tax consequences of the issuance and ownership of instruments and rights
comparable to the HCI Exchangeable Shares, the Ancillary Rights granted to the
Prime Shareholders and the Call Rights. Consequently, as discussed more fully
below, some aspects of the United States federal income tax treatment of the
Arrangement, including the receipt and ownership of HCI Exchangeable Shares and
the exchange of HCI Exchangeable Shares for shares of Homestake Common Stock,
are not certain. No advance income tax ruling has been sought or obtained from
the United States Internal Revenue Service (the "IRS") regarding the tax
consequences of any of the transactions described herein.
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This summary does not address aspects of United States taxation other than
United States federal income taxation under the United States Internal Revenue
Code of 1986, as amended, nor does it address all aspects of United States
federal income taxation that may be applicable to a particular United States
Holder in light of the United States Holder's particular circumstances. In
addition, this summary does not address the United States state or local tax
consequences or the foreign tax consequences of the Arrangement or the receipt
and ownership of the HCI Exchangeable Shares or shares of Homestake Common
Stock.
THE FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO EACH PRIME SHAREHOLDER
WILL VARY ACCORDING TO EACH PRIME SHAREHOLDER'S PARTICULAR CIRCUMSTANCES. THIS
SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR PRIME SHAREHOLDER.
ACCORDINGLY, PRIME SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO
THE TAX CONSEQUENCES TO THEM OF THE ARRANGEMENT IN THEIR PARTICULAR
CIRCUMSTANCES.
CHARACTERIZATION OF THE ARRANGEMENT FOR UNITED STATES FEDERAL INCOME TAX
PURPOSES
There is no direct authority addressing the proper treatment of the
Arrangement for United States federal income tax purposes and therefore the
conclusions contained in the discussion below are subject to significant
uncertainty. There can be no assurance that the IRS would not challenge the
characterization of the Arrangement discussed below, or that, in the event of a
challenge, a court would not agree with the IRS.
RECEIPT OF HCI EXCHANGEABLE SHARES OR HOMESTAKE COMMON STOCK
Prime Shareholders that participate in the Arrangement will be entitled to
elect to receive (i) HCI Exchangeable Shares and Ancillary Rights (and may be
deemed to grant certain of the Call Rights) or (ii) Homestake Common Stock in
exchange for their Prime Common Shares.
The exchange of Prime Common Shares for HCI Exchangeable Shares and
Ancillary Rights or for Homestake Common Stock pursuant to the Arrangement will
be a taxable exchange for United States federal income tax purposes.
Consequently, United States Holders will recognize gain or loss equal to the
difference between (i) the sum of the fair market value of HCI Exchangeable
Shares and Ancillary Rights or Homestake Common Stock and the amount of cash
received in lieu of a fractional share interest and (ii) the tax basis of the
Prime Common Shares surrendered. Such gain or loss will be long-term capital
gain or loss if the Prime Common Shares exchanged have been held for more than
one year at the time of the exchange. Any long-term capital gain recognized by
an individual United States Holder would be subject to tax at a maximum rate of
20%. The tax basis of the HCI Exchangeable Shares and Ancillary Rights or
Homestake Common Stock received by a United States Holder generally should be
equal to their fair market value on the date of the exchange. The holding period
of HCI Exchangeable Shares or Homestake Common Stock in the hands of a United
States Holder should begin on the day following the date of the exchange.
Prime believes that the Ancillary Rights received and any Call Rights deemed
to be granted by Prime Shareholders pursuant to the Arrangement Agreement and
the Arrangement generally will have only nominal value and, therefore, that
their receipt or grant, as the case may be, should not result in any material
United States federal income tax consequences, although the value of such rights
could vary depending on the circumstance of a particular Prime Shareholder.
Further, the exchange of certain of the Call Rights for the Ancillary Rights may
not be taxable to United States Holders because United States Holders and
Homestake may be deemed to have granted purchase options to each other, which
grants would not generally be treated as taxable events for United States
federal income tax purposes. It is possible, however, that the IRS could take
the position that the Ancillary Rights and the Call Rights have greater than
nominal value and that the grants of such rights are taxable events. In such
event, the receipt of the Ancillary Rights and the grant of certain of the Call
Rights could generate taxable gain or loss. Such
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gain or loss would generally be capital gain or loss. United States Holders
should consult their tax advisors with respect to the potential tax consequences
of the receipt of the Ancillary Rights pursuant to the Arrangement.
EXCHANGE OF HCI EXCHANGEABLE SHARES FOR HOMESTAKE COMMON STOCK
A United States Holder that exchanges HCI Exchangeable Shares for shares of
Homestake Common Stock generally will recognize gain or loss on such exchange.
Such gain or loss will be equal to the difference between the fair market value
of the shares of Homestake Common Stock at the time of the exchange and the
United States Holder's tax basis in the HCI Exchangeable Shares surrendered. The
gain or loss will generally be capital gain or loss, except that, with respect
to any declared but unpaid dividends on the HCI Exchangeable Shares, ordinary
income may be recognized. Such gain or loss will be long-term capital gain or
loss if the HCI Exchangeable Shares have been held for more than one year at the
time of the exchange. Long-term capital gains recognized by a United States
Holder who is an individual are taxed at rates not in excess of 20%. A United
States Holder will have a tax basis in the shares of Homestake Common Stock
received equal to the fair market value of such shares at the time of the
exchange. The holding period for such stock will begin on the day after the
exchange.
Any Canadian tax imposed on the exchange may be available as a credit
against United States federal income taxes, subject to applicable limitations.
In computing the limitations, gain realized on the exchange of HCI Exchangeable
Shares will be United States source income. However, a United States Holder
resident in the United States may be able to rely on the Tax Treaty to treat the
gain on the exchange as sourced in Canada. Under proposed United States Treasury
regulations, any loss realized by a United States Holder would be allocated
against foreign source income and would thus reduce the United States Holder's
ability to claim foreign tax credits. A United States Holder that is ineligible
for a foreign tax credit with respect to any Canadian tax paid may be entitled
to a deduction therefor in computing United States taxable income.
DISTRIBUTIONS ON THE HCI EXCHANGEABLE SHARES
A United States Holder of HCI Exchangeable Shares generally will be required
to include in gross income as ordinary income dividends paid on the HCI
Exchangeable Shares to the extent paid out of the earnings and profits of HCI,
as determined under United States federal income tax principles. Such dividends
paid in Canadian dollars, inclusive of any Canadian withholding taxes paid by
HCI on such dividends, will be includable in the income of a United States
Holder in a United States dollar amount calculated by reference to the exchange
rate in effect on the date the dividends are distributed. If Canadian dollars
are converted into US dollars on the day they are received, United States
Holders should generally not be required to recognize foreign currency gain or
loss. United States Holders should consult their own tax advisors regarding the
treatment of any foreign currency gain or loss on any Canadian dollars received
which are not converted into US dollars on the date of receipt. Provided that a
United States Holder is entitled to the benefits of the current Tax Treaty, such
dividends will be subject to Canadian withholding tax at a maximum rate of 15
percent. A United States Holder who is entitled to the benefits of the current
Tax Treaty should generally be entitled either to credit the Canadian
withholding tax against the holder's United States federal income tax liability
or to deduct the Canadian withholding tax in determining the holder's United
States taxable income. The amount of the foreign tax credit allowable to a
United States Holder with respect to the dividends is subject to complex
limitations. For the purpose of such limitations, dividends should be treated as
foreign source passive income.
DISSENTERS
A United States Holder who exercises such holder's right to dissent from the
Arrangement should recognize gain or loss on the exchange of such holder's Prime
Common Shares for cash in an amount equal to the difference between the amount
of cash received (other than amounts, if any, which are or are
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deemed to be interest for federal income tax purposes, which amounts will be
taxed as ordinary income) and such holder's basis in the Prime Common Shares.
Such gain or loss will be long-term capital gain or loss if the Prime Common
Shares have been held for more than one year at the Effective Date.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
For United States federal income tax purposes, a foreign corporation
generally will be classified as a passive foreign investment company (a "PFIC")
for any taxable year during which either (i) 75 percent or more of its gross
income is passive income (as defined for United States federal income tax
purposes) or (ii) on average for such taxable year, 50 percent or more of its
assets (by value) produce or are held for the production of passive income.
A United States Holder who receives an "excess distribution" with respect to
the shares of a PFIC or who sells such shares at a gain and who did not elect to
treat the PFIC as a "qualified electing fund" will be taxed on such distribution
or gain at the highest rates applicable to ordinary income, and such tax will be
increased by an interest charge calculated by reference to the period during
which the United States Holder held the PFIC stock.
While there can be no assurance with respect to the classification of Prime
as a PFIC, Prime believes that it was not a PFIC during its taxable years ending
prior to consummation of the Arrangement. However, in connection with the
transactions contemplated herein, no opinion will be rendered regarding Prime's
status as a PFIC. After the consummation of the Arrangement, Homestake and HCI
intend to endeavor to cause HCI to avoid PFIC status in the future, although
there can be no assurance that they will be able to do so or that their intent
will not change. After the Arrangement, HCI intends to monitor its status
regularly, and promptly following the end of each taxable year, HCI will
endeavor to notify United States Holders of HCI Exchangeable Shares if it
believes that HCI was a PFIC for that taxable year.
Since Homestake and Prime believe that Prime is not and has not been a PFIC,
and since Homestake cannot be a PFIC because it is a domestic corporation, a
United States Holder who elects to receive Homestake Common Stock in the
Arrangement should not be affected by the PFIC rules.
Because the United States federal income tax consequences to United States
Holders under the PFIC provisions are significant and complex, United States
Holders who intend to elect to receive HCI Exchangeable Shares (rather than
Homestake Common Stock) in the Arrangement are urged to discuss those
consequences with their tax advisors.
DISTRIBUTIONS ON HOMESTAKE COMMON STOCK
A United States Holder of Homestake Common Stock will be required to include
in gross income as ordinary income any dividends paid on such stock to the
extent paid out of the earnings and profits of Homestake, as determined under
United States federal income tax principles. Distributions on Homestake Common
Stock in excess of such earnings and profits will be treated as a tax-free
return of capital to the extent of the United States Holder's adjusted tax basis
for such shares and, to the extent in excess of adjusted tax basis, as capital
gain. Dividends on Homestake Common Stock should qualify for the dividends
received deduction applicable to United States corporations.
SHAREHOLDERS NOT RESIDENT IN OR CITIZENS OF THE UNITED STATES
The following summary is applicable to a non-United States Holder. As used
herein, a non-United States Holder is a Prime Shareholder who, for United States
federal income tax purposes, is a non-resident alien individual, a foreign
corporation, a foreign partnership or a foreign estate or trust, but excludes
persons subject to special provisions of United States federal income tax law,
such as tax-exempt organizations, financial institutions, insurance companies,
broker-dealers, Prime Shareholders who hold Prime Common Shares as part of a
straddle, wash sale, hedging or conversion transaction, and Prime
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Shareholders who ceased to be citizens or permanent residents of the United
States with a principal purpose of avoiding United States taxation. A non-United
States Holder seeking benefits under an applicable tax treaty or an exemption
from United States withholding tax for "effectively connected" income, as
described below, may be required to comply with additional certification and
other requirements in order to establish the holder's entitlement to such
benefits or exemption. This summary is limited to non-United States Holders who
hold Prime Common Shares as capital assets and who will hold HCI Exchangeable
Shares and shares of Homestake Common Stock as capital assets.
DIVIDENDS ON EXCHANGEABLE SHARES
Dividends paid by HCI to a non-United States Holder with respect to the HCI
Exchangeable Shares should not be subject to United States withholding tax, and
HCI and Homestake do not intend that HCI or Homestake will withhold any amounts
in respect of such tax from such dividends. The IRS may, however, assert that
United States withholding tax is payable with respect to dividends paid on the
HCI Exchangeable Shares to non-United States Holders. As a result, non-United
States Holders of HCI Exchangeable Shares could be subject to United States
withholding tax at a rate of 30%. The withholding rate may be reduced by an
applicable income tax treaty in effect between the United States and the
non-United States Holder's country of residence. Under the Tax Treaty, a maximum
rate of 15% applies to dividends paid to residents of Canada.
DIVIDENDS ON HOMESTAKE COMMON STOCK
Dividends received by a non-United States Holder with respect to Homestake
Common Stock that are not effectively connected with the conduct by such holder
of a trade or business in the United States and, if a tax treaty applies, are
not attributable to a United States permanent establishment of the non-United
States Holder, generally will be subject to United States withholding tax at a
rate of 30 percent, which rate may be reduced by an applicable income tax treaty
in effect between the United States and the non-United States Holder's country
of residence (currently 15 percent, generally, on dividends paid to residents of
Canada under the Tax Treaty).
INTERESTS IN U.S. REAL PROPERTY; DISPOSITIONS OF SHARES
United States federal income tax is imposed on gains realized by non-United
States Holders from the disposition of interests in real property located in the
United States, including an interest in a United States corporation that is, or
has been during certain periods preceding the disposition, a "United States real
property holding corporation" (a "USRPI"). Because HCI Exchangeable Shares are
convertible into shares of Homestake, a United States corporation, the HCI
Exchangeable Shares would be considered a USRPI if Homestake is or becomes a
United States real property holding corporation. Homestake has determined that
it is not a United States real property holding corporation and is not likely to
become one in the foreseeable future. If, contrary to expectations, Homestake
were to become a United States real property holding corporation in the future,
a non-United States Holder who owned more than 5% of the outstanding shares of
Homestake Common Stock (counting both shares of Homestake Common Stock owned
directly and such shares that the holder could acquire by the exchange of HCI
Exchangeable Shares) would be subject to United States federal income taxation
at ordinary income rates on any gain realized on a disposition of such Homestake
Common Stock or HCI Exchangeable Shares. Complex rules may apply for purposes of
determining whether a non-United States Holder owns more than 5% of the
outstanding Homestake Common Stock. Non-United States Holders who believe that
they may become greater than 5% shareholders of Homestake, directly or through
the ownership of HCI Exchangeable Shares, are particularly urged to consult
their own tax advisors concerning the possible U.S. tax consequences to them if
Homestake were to become a USRPI.
Subject to the discussion of interests in U.S. real property above, a
non-United States Holder generally will not be subject to United States federal
income tax on gain (if any) recognized on the receipt
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of the HCI Exchangeable Shares in exchange for Prime Common Shares, on the sale
or exchange of the HCI Exchangeable Shares, or on the sale or exchange of shares
of Homestake Common Stock, unless (i) such gain is effectively connected with a
trade or business of the non-United States Holder in the United States, or, if a
tax treaty applies, is attributable to a permanent establishment maintained by
the non-United States Holder in the United States, or (ii) the non-United States
Holder is an individual who holds the Prime Common Shares, the HCI Exchangeable
Shares or the Homestake Common Stock, as the case may be, as capital assets and
is present in the United States for 183 days or more in the taxable year of
disposition, and certain other conditions are satisfied.
UNITED STATES FEDERAL ESTATE TAX
Homestake Common Stock will be deemed to be a United States asset for
purposes of United States federal estate tax law and, therefore, Homestake
Common Stock held by an individual non-United States Holder at the time of his
or her death will generally be subject to the United States federal estate tax,
except as may otherwise be provided by an applicable tax or estate tax treaty
with the United States.
The HCI Exchangeable Shares should not be considered United States situs
assets for purposes of United States federal estate tax law. However, as there
is no direct authority addressing the proper treatment of the HCI Exchangeable
Shares for United States federal estate tax purposes, this conclusion is subject
to uncertainty, and there can be no assurance that the IRS would not take a
contrary position.
The Tax Treaty provides that United States federal estate tax paid by a
resident of Canada will generally be allowed as a deduction from the amount of
any Canadian tax otherwise payable by the individual for the year in which the
individual died on the total of (a) any income, profits or gains of the
individual arising in the United States in that year and (b) where the value at
the time of the individual's death of the individual's entire gross estate
wherever situated exceeds US$1.2 million, any income, profits or gains of the
individual for that year from property situated in the United States at that
time. This summary does not purport to be a complete description of all of the
provisions of the Tax Treaty that may affect the taxation of Canadian residents.
Non-United States Holders should consult their tax advisors as to the tax
consequences to them of the Tax Treaty or another applicable tax or estate tax
treaty with the United States.
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PRINCIPAL HOLDERS OF HOMESTAKE COMMON STOCK
OWNERSHIP OF COMMON STOCK BY HOMESTAKE'S MANAGEMENT
The following table shows: (i) as of August 31, 1998 the number of shares of
Homestake Common Stock owned by directors and the five highest paid executive
officers for the year ended December 31, 1997, and all directors and executive
officers as a group, (ii) the number of shares of Homestake Common Stock which
such persons have the right to acquire within 60 days of August 31, 1998 but do
not actually own and (iii) the total number of shares of Homestake Common Stock
which such persons own and have the right to acquire within 60 days of August
31, 1998. This includes shares held in Homestake's Savings Plan for the accounts
of executive officers and directors share rights granted under the 1996 Plan and
Homestake's Stock Option and Share Rights Plan--1988, which entitle Outside
Directors to receive shares on the date of ceasing to serve as a director. Other
than Mr. Clark (see footnote 2 below), no director or executive officer
beneficially owns greater than 1 percent of the total number of shares of
Homestake Common Stock outstanding. The shares of Homestake Common Stock
beneficially owned by all directors and executive officers as a group represent
approximately 3.51% of the 211,190,936 shares of Homestake Common Stock
outstanding as of August 31, 1998, which includes shares held by Case, Pomeroy &
Company, Inc. (described in footnote 2 below) and the shares which the
identified persons have the right to acquire but do not own.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED RIGHT TO
AS OF AUGUST 31, ACQUIRE SHARES TOTAL NUMBER OF
1998, EXCLUDING WITHIN 60 DAYS SHARES
RIGHT TO ACQUIRE OF AUGUST 31, BENEFICIALLY
NAME SHARES(1) 1998 OWNED
- ------------------------------------------------------- -------------------- --------------- -----------------
<S> <C> <C> <C>
Gerhard Ammann......................................... 0 0 0
M. Norman Anderson..................................... 2,529 6,686 9,215
Richard R. Burt........................................ 0 84 84
Robert H. Clark, Jr.(2)................................ 6,448,776 2,334 6,451,110
G. Robert Durham....................................... 10,000 1,943 11,943
Douglas W. Fuerstenau.................................. 1,478 2,367 3,845
Paul McClintock(3)..................................... 12,230 0 12,230
John Neerhout, Jr...................................... 3,000 1,889 4,889
Peter J. Neff.......................................... 1,800 0 1,800
Stuart T. Peeler(4).................................... 10,000 2,503 12,503
Carol A. Rae........................................... 500 810 1,310
Jack E. Thompson....................................... 52,249 181,800 234,049
Jeffrey L. Zelms....................................... 50 131 181
Gene G. Elam........................................... 12,337 122,750 135,087
Wayne Kirk(5).......................................... 9,250 105,500 114,750
Gillyeard J. Leathley.................................. 3,831 62,425 66,256
William F. Lindqvist................................... 1,164 91,300 92,464
All Directors and Executive Officers as a Group (25
persons)............................................. 6,598,037 839,797 7,437,834
</TABLE>
- ------------------------
(1) In some instances voting and investment power is shared with the spouse of
the identified person.
(2) Includes 13,000 shares owned by Mr. Clark's spouse. Also includes 6,411,776
shares owned by Case, Pomeroy & Company, Inc. Mr. Clark is the President and
Chief Executive Officer and, with family members, is a principal shareholder
of Case, Pomeroy & Company, Inc. The shares beneficially owned by Mr. Clark
represent approximately 3.05% of the 211,190,936 shares of Homestake Common
Stock outstanding as of August 31, 1998.
(3) Includes 10,530 shares owned by a corporation of which Mr. McClintock is the
sole shareholder.
(4) Includes 3,200 shares owned by a corporation of which Mr. Peeler is the sole
shareholder.
(5) Includes 414 shares held of record by two of Mr. Kirk's children. Mr. Kirk
disclaims beneficial ownership of these shares.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF HOMESTAKE
As of September 8, 1998, there were two holders known to Homestake to own
beneficially five percent or more of the Homestake Common Stock outstanding:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS(1)
- ----------------------------------------------------- ------------------- -------------------
<S> <C> <C>
August von Finck .................................... 30,000,000(2) 14.2%
Pacellistrasse 4
80333 Munich, Germany
Malaysia Mining Corporation Berhad .................. 22,260,391(3) 10.5%
32nd Floor, Menora PNB
201A Jalan Tun Razak
50400 Kuala Lumpur
Malaysia
</TABLE>
- ------------------------
(1) As of September 8, 1998, 211,198,104 shares of Homestake Common Stock were
outstanding.
(2) The amount and nature of Mr. von Finck's beneficial ownership is based upon
information provided to Homestake pursuant to a Form 4 Report filed on
behalf of Mr. von Finck on September 8, 1998.
(3) The amount and nature of Malaysia Mining's beneficial ownership is based
upon information provided to Homestake pursuant to a Schedule 13G filed on
behalf of Malaysia Mining on May 11, 1998.
Mr. August von Finck, Homestake's largest stockholder, proposed that Gerhard
Ammann become a director of Homestake, and on September 25, 1998, Mr. Ammann was
elected to the Homestake Board.
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<PAGE>
PRINCIPAL HOLDERS OF PRIME COMMON SHARES
As of August 31, 1998, there were two holders known to Prime to own
beneficially five percent or more of the Prime Common Shares outstanding:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ----------------------------------------------------- ---------------------- -----------------
<S> <C> <C>
Homestake Canada Inc.(1) ............................ 38,491,008 50.6%
1055 West Georgia Street
Vancouver, British Columbia
CANADA V6E 3P3
Ontario Teachers' Pension ........................... 3,945,100 5.2%
Plan Board(2)
5650 Yonge Street, Suite 300
North York, Ontario
CANADA M2M 4H5
</TABLE>
- ------------------------
(1) HCI is a wholly-owned subsidiary of Homestake California, which in turn is a
wholly-owned subsidiary of Homestake. The address of both Homestake
California and Homestake is 650 California Street, San Francisco, California
94108.
(2) The amount and nature of the ownership of Prime Common Shares by Ontario
Teachers' Pension Plan Board ("Teachers") is based upon information provided
to Prime by Teachers pursuant to a Schedule 13G filed by Teachers on
February 13, 1998.
In addition, (i) each of the four Prime Outside Directors (Messrs. Anderson,
Lenzner, Little and Scott) holds options to acquire 5,000 Prime Common Shares at
a price of C$8.50 per share and options to acquire 5,000 Prime Common Shares at
a price of C$9.55 per share (all of which are vested or will vest pursuant to
the Arrangement), and (ii) two executive officers of Homestake who also are
directors of Prime own Prime Common Shares: Gene G. Elam owns 500 Prime Common
Shares and Wayne Kirk owns 1,000 Prime Common Shares.
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<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
At the Effective Date, holders of Prime Common Shares will receive HCI
Exchangeable Shares or shares of Homestake Common Stock in exchange for their
Prime Common Shares. In addition, holders of HCI Exchangeable Shares may receive
shares of Homestake Common Stock in exchange therefor in various circumstances
contemplated by the HCI Exchangeable Share Provisions.
Prime is a company incorporated under the Company Act. HCI is a corporation
incorporated under the OBCA. Homestake is a corporation incorporated under the
DGCL.
While the rights and privileges of shareholders of a British Columbia
company are, in many instances, comparable to those of shareholders of an
Ontario corporation and of stockholders of a Delaware corporation, there are
certain differences. The principal differences, described below, arise from
differences among British Columbia, Ontario and Delaware law, among the Company
Act, the OBCA and the DGCL and among the Prime Memorandum and the Prime
Articles, the HCI Articles and HCI By-laws and the Restated Certificate and
Homestake By-laws. The information below assumes that any amendments to the
foregoing charter documents contemplated in connection with the Arrangement have
been made and are in effect.
VOTE REQUIRED FOR ORDINARY TRANSACTIONS; QUORUM
Under the Company Act and the Prime Articles, a quorum for a general meeting
of shareholders of Prime is two shareholders, in person or represented by proxy.
Business which is not deemed special business by the Prime Articles must be
approved by a majority of the shares present or represented by proxy at a
general meeting. Matters which are not deemed special business include the
consideration of financial statements, fixing the number of directors, the
election of directors, the appointment of the auditor, the fixing of the
remuneration of the auditor and such other business as by the Prime Articles or
the Company Act may be transacted at a general meeting without prior notice
thereof being given to the shareholders or any business which is brought under
consideration by the report of the directors.
Under the OBCA, matters which are deemed not to require approval by special
resolution by the OBCA or the articles or by-laws and are questions proposed for
the consideration of the shareholders generally must be approved by the vote of
the holders of a majority of the shares present in person or represented by
proxy at a shareholders' meeting. The OBCA provides that unless the by-laws of a
corporation otherwise provide, the holders of a majority of shares entitled to
vote at a meeting of shareholders, whether present in person or represented by
proxy, constitute a quorum.
Under the DGCL and the Homestake By-laws, matters requiring stockholder
approval generally must be approved by the vote of the holders of a majority of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the matter. However, matters such as amendments to the certificate of
incorporation, and extraordinary transactions such as mergers and sales of all
or substantially all of the assets, require approval of a majority of the
outstanding shares, as discussed below.
With respect to the election of Homestake directors, the nominees receiving
the highest number of votes are elected. Directors of Homestake are elected for
a term of three years, with approximately one-third of the directors elected
each year.
Under the DGCL, a corporation's certificate of incorporation and by-laws may
specify the number of shares necessary to constitute a quorum at any meeting of
shareholders; provided, however, that a quorum may not consist of less than
one-third of the shares entitled to vote at the meeting. The Homestake By-laws
provide that, in general, the presence in person or by proxy of the holders of a
majority of the total voting power of Homestake then outstanding at any meeting
will constitute a quorum for the transaction of business.
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<PAGE>
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
The Company Act requires that various extraordinary corporate transactions,
such as arrangements, amalgamations, sales, leases or other dispositions of all
or substantially all of a company's undertaking or changes of corporate
jurisdiction, must be approved by a special resolution. Under the Company Act, a
special resolution is a resolution passed by not less than a majority of 75% of
the votes cast by the shareholders of a company who vote in person or by proxy
at a meeting called for that purpose with appropriate notice. In addition, where
the extraordinary corporate action being considered is an arrangement or
amalgamation, the approval of the British Columbia Supreme Court is required.
The OBCA provides that certain extraordinary corporate actions, such as
certain amalgamations, changes of corporate jurisdiction and sales, leases or
exchanges of all or substantially all the property of a corporation other than
in the ordinary course of business, and other extraordinary corporate actions
such as liquidations, dissolutions and (if ordered by a court) arrangements, are
required to be approved by special resolution. Under the OBCA, a special
resolution is a resolution passed at a meeting by not less than two-thirds of
the votes cast on the resolution. In certain cases, a special resolution to
approve an extraordinary corporate action is also required to be approved
separately by the holders of a class or series of shares.
A merger of two or more corporations into a single constituent corporation
(a "merger"), the consolidation of two or more corporations into a new
corporation formed by the consolidation (a "consolidation"), or the dissolution
or sale of all or substantially all the assets of a corporation, in any case
involving Homestake, will be governed, at least in part, by the DGCL. Under the
DGCL, in addition to the requisite board of directors approval, a merger or
consolidation generally requires the adoption of the agreement by the
stockholders of each constituent corporation by the affirmative vote of a
majority of the outstanding stock of each such corporation entitled to vote
thereon. Unless specifically required in a corporation's certificate of
incorporation, no vote of stockholders of a constituent corporation surviving a
merger is necessary if (i) the merger agreement does not amend the certificate
of incorporation of the surviving corporation, (ii) each share of stock of such
constituent corporation outstanding prior to the merger remains an identical
outstanding or treasury share of the surviving corporation immediately after the
merger and (iii) the shares of common stock of the surviving corporation to be
issued pursuant to the merger (together with any such shares issuable upon
conversion of other shares, securities or obligations issued pursuant to the
merger) do not exceed 20% of the shares of common stock of the surviving
corporation outstanding immediately prior to the merger. (The Restated
Certificate does not require stockholder approval in these circumstances.)
Approval of stockholders generally is not required for the issuance of common
stock under the DGCL but the NYSE Listing Rules require stockholder approval if
the issuance equals 20% or more of the common or voting stock of the corporation
outstanding immediately prior to the issuance. (However, stockholder approval is
required to amend the Restated Certificate to, INTER ALIA, increase Homestake's
authorized capital stock.) Where the corporation owns at least 90% of the
outstanding stock of each class of stock of another corporation, stockholder
approval is not required under the DGCL from either corporation to merge the
subsidiary corporation into the parent provided that such merger is permitted by
the jurisdiction of incorporation of each constituent corporation.
The Restated Certificate contains a "Fair Price" provision which applies to
mergers, reorganizations, sales of assets and a variety of other transactions.
See "Description of Homestake Capital Stock--"Fair Price" Charter Provision."
The Homestake Rights Agreement and the HCI Rights Agreement also may affect such
transactions. See "Description of Homestake Capital Stock--Homestake Rights
Agreement" and "Description of HCI Share Capital--HCI Rights Agreement."
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<PAGE>
TRANSACTIONS INVOLVING SHAREHOLDERS, OFFICERS OR DIRECTORS
BUSINESS COMBINATIONS WITH SHAREHOLDERS
The Company Act provides that a compromise or arrangement involving the
exchange of shares by a shareholder of a reporting company for property, money
or other securities of the company or for property, money or securities of
another corporation is not binding on such shareholder unless it is approved not
only by 75% of the votes of the holders of shares present and voting either in
person or by proxy at a meeting convened to approve the compromise or
arrangement (as is required under the Company Act for any compromise or
arrangement), but also by a majority of votes cast by shareholders of the
company other than votes cast by affiliates of the company and certain other
interested persons.
The OBCA contains comparable provisions requiring preparation of an
independent valuation and approval by the minority shareholders of the
corporation, by either a simple majority or two-thirds of the votes cast,
depending upon the circumstances with respect to business combinations. In
addition, policies of certain Canadian securities regulatory authorities,
including Policy 9.1 and Policy Q-27, contain requirements regarding "related
party transactions." A related party transaction means, generally, any
transaction by which the issuer, directly or indirectly, acquires or transfers
an asset or acquires or issues treasury securities or assumes or transfers a
liability from or to, as the case may be, a related party by any means in any
one transaction or any combination of transactions. "Related party" is defined
in Policy 9.1 and Policy Q-27 and includes directors, senior officers and
holders of at least 10% of the voting securities of the issuer.
Policy 9.1 and Policy Q-27 require more detailed disclosure in the proxy
material sent to securityholders in connection with a related party transaction
and, subject to certain exemptions, the preparation by an independent valuer of
a formal valuation of the subject matter of the related party transaction and
any non-cash consideration offered therefor and the inclusion of a summary of
the valuation in the proxy material. Policy 9.1 and Policy Q-27 also require,
subject to certain exemptions, that the minority shareholders of the issuer
approve the transaction.
In the case of Homestake, with certain exceptions described below, the DGCL
prohibits a "business combination" between the corporation and an "interested
stockholder" within three years following the time that the stockholder became
an "interested stockholder." An "interested stockholder" is generally one who,
directly or indirectly, beneficially owns 15% or more of the voting shares
outstanding. A "business combination" includes a merger, consolidation, sale or
other disposition of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain arrangements that would
increase the interested stockholder's proportionate share ownership in the
corporation. This provision does not apply where:
(i) the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the time the stockholder became an
interested stockholder;
(ii) the interested stockholder acquired at least 85% of the voting
shares outstanding of the corporation in the transaction in which the
stockholder became an interested stockholder excluding, in determining the
number of shares outstanding, shares held by persons who are directors and
also officers and by employee stock plans in which participants do not have
the right to determine confidentially whether shares held subject to the
plan will be tendered; or
(iii) at or subsequent to the time that the interested stockholder became
such, the business combination is approved by the board of directors and by
the affirmative vote of two-thirds of the votes entitled to be cast by
disinterested shareholders at an annual or special meeting.
As noted above, the Restated Certificate contains a "Fair Price" provision
which will apply to business combinations between Homestake and "related
persons." See "Description of Homestake Capital Stock--
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<PAGE>
"Fair Price" Charter Provisions." The Homestake Rights Agreement and the HCI
Rights Agreement will also apply to certain business combinations. See
"Description of Homestake Capital Stock--Homestake Rights Agreement" and
"Description of HCI Share Capital--HCI Rights Agreement."
TRANSACTIONS WITH INTERESTED DIRECTORS OR OFFICERS
Under the Company Act and the Prime Articles, after full disclosure by a
director who has any direct or indirect interest in a proposed contract or
transaction with a company of the nature and extent of such interest, either (a)
a majority of the directors must approve the proposed contract or transaction
(with the interested director abstaining from voting but, if such approval is
obtained at a meeting of directors, counted toward a quorum); or (b) the
shareholders must approve by special resolution the contract or transaction,
which must be fair and reasonable to the company at the time it was entered
into. Otherwise, (a) although the proposed contract or transaction is not
invalid solely by reason of the interest in it of the interested director, the
British Columbia Supreme Court may, on application of the company or any
interested person, set aside the contract or transaction or enjoin the company
from entering into it or make any other order it sees fit, and (b) the
interested director must account to the company for any profit made as a
consequence of the company entering into or performing the proposed contract or
transaction. Under the Company Act, an officer of a company is required to
disclose in writing any office or property whereby duties or interests might be
created in conflict with his or her duties as an officer of the company.
Under the OBCA, contracts or transactions in which a director or officer has
an interest are not invalid because of such interest provided that the director
or officer who is party to a material contract or transaction discloses his or
her interest in writing to the corporation or requests to have entered in the
minutes of meetings of directors the nature and extent of his or her interest.
Where a contract or transaction that, in the ordinary course of the
corporation's business, would not require approval by the directors or
shareholders is proposed, the interested director or officer shall disclose in
writing to the corporation or request to have entered in the minutes of meetings
of directors the nature and extent of his or her interest forthwith after the
director or officer becomes aware of the contract or transaction or proposed
contract or transaction.
A director or officer, acting honestly and in good faith, is not accountable
to the corporation or to its shareholders for any profit or gain realized from
any such contract or transaction by reason only of his or her holding the office
of director or officer or by reason only of his or her vote being counted toward
a quorum at a meeting of directors. The contract or transaction, if it was
reasonable and fair to the corporation at the time it was approved, is not by
reason only of the director's or officer's interest therein void or voidable,
where (a) the contract or transaction is confirmed or approved by special
resolution at a meeting of the shareholders duly called for that purpose; and
(b) the nature and extent of the director's or officer's interest in the
contract or transaction are disclosed in the information circular prepared for
the shareholders' meeting.
Where a director or officer of a corporation fails to disclose his or her
interest in a material contract or transaction, the corporation or a shareholder
of the corporation, or, in the case of an offering corporation, the OSC may
apply to the court for an order setting aside the contract or transaction and
directing that the director or officer account to the corporation for any profit
or gain realized.
Section 144 of the DGCL provides that a contract or transaction
("transaction") between a Delaware corporation and one or more of its directors
or officers (an "interested person"), or an entity in which such person is an
officer or director or has a financial interest, is not void or voidable solely
because of such interest, or solely because such interested person is present at
or participates in a board or committee
S-173
<PAGE>
meeting approving the transaction or solely because such interested person's
votes are counted for such purposes if:
(i) the material facts of the relationship or interest and the
transaction are disclosed or are known to the board or committee and the
board or committee in good faith authorizes the transaction by a majority of
the disinterested directors even though the disinterested directors are less
than a quorum;
(ii) the material facts of the relationship or interest and the
transaction are disclosed or are known to, and the transaction is approved
in good faith by, the stockholders; or
(iii) the transaction is fair as to the corporation at the time it is
authorized, approved or ratified.
DISSENTERS' RIGHTS
Under the Company Act and the Prime Articles, the Prime Shareholders have
the right to dissent from certain corporate acts, including (a) certain
amendments to the Prime Memorandum or the Prime Articles, (b) a change of
Prime's corporate jurisdiction, (c) various forms of corporate reorganizations
involving Prime, or (d) a sale, lease or other disposition of all or
substantially all of Prime's undertaking. Upon the due exercise by any
shareholder of such right, such shareholder is entitled to require Prime to
purchase his or her shares for their fair value. Although the Company Act does
not provide a statutory dissent right in respect of arrangements, Prime
Shareholders have been granted dissent rights under the Arrangement. See "The
Arrangement--Dissenters' Rights."
The OBCA provides that the shareholders of an Ontario corporation entitled
to vote on certain matters are entitled to exercise dissent rights and to be
paid the fair value of their shares in connection therewith. Such matters
include: (a) an amendment to its articles to add, remove or change restrictions
on the issue, transfer or ownership of shares of a class or series of the shares
of the corporation; (b) an amendment to its articles to add, remove or change
any restriction upon the business or businesses that the corporation may carry
on or upon the powers that the corporation may exercise; (c) any amalgamation
with another corporation (other than certain affiliated corporations); (d) a
change of corporate jurisdiction; (e) the sale, lease or exchange of all or
substantially all its property other than in the ordinary course of business;
(f) a court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement proposed by the
corporation; or (g) certain amendments to the articles of a corporation which
require a separate class or series vote. A shareholder is not entitled to
dissent if an amendment to the articles is effected by a court order approving a
reorganization or by a court order made in connection with an action for an
oppression remedy.
The DGCL generally entitles a stockholder who has neither voted in favor of
a merger or consolidation or consented thereto in writing to exercise appraisal
rights upon a merger or consolidation of the corporation if the stockholder
complies with certain procedural requirements. Exercise of appraisal rights
entitles the holder of shares for which appraisal rights have been duly
perfected to have such shares appraised by the Delaware Court of Chancery and to
receive payment of the fair value of such shares, exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, as determined by such
court.
Unless specified in the corporation's certificate of incorporation, the DGCL
does not provide dissenters appraisal rights for stockholders of a corporation
that engages in:
(i) a sale of all or substantially all its assets;
(ii) an amendment to its certificate of incorporation; or
(iii) a merger or consolidation where (A) the agreement of merger or
consolidation does not require holders to accept for their shares anything
other than shares of the surviving or resulting corporation, shares of any
other corporation listed on a national securities exchange in the United
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States, designated as a national market system security on an interdealer
quotation system by the NASD or held by more than 2,000 stockholders, cash
in lieu of fractional shares or any combination thereof and (B) either:
(1) the shares of the corporation's capital stock held by the
stockholder, at the record date fixed to determine the stockholders
entitled to notice of and to vote at the meeting of stockholders to act
upon the agreement, were listed on a national securities exchange,
designated as a national market system security on an interdealer
quotation system by the NASD or held of record by more than 2,000
stockholders; or
(2) the corporation is to survive the merger or consolidation and
the approval of its stockholders is not required because each share of
stock of the corporation outstanding immediately prior to the merger will
remain an identical outstanding or treasury share of the surviving
corporation immediately after the merger and the merger or consolidation
agreement does not amend the surviving corporation's certificate of
incorporation and does not provide for the issue of common shares of the
survivor in excess of 20% of such survivor's shares issued and
outstanding immediately prior to the merger or consolidation.
The Restated Certificate does not provide dissenters appraisal rights in
such circumstances.
Because Homestake Common Stock is listed on the NYSE (a national securities
exchange) and the Restated Certificate does not provide otherwise, Homestake
Stockholders would not have dissenters appraisal rights in the event that
Homestake is a constituent corporation to a merger or consolidation and the
consideration payable to Homestake Stockholders for their shares meets the
requirement described in (iii) (A) above.
DIRECTOR LIABILITY
The Company Act imposes joint and several personal liability upon directors
of a company who vote for or consent to any resolution authorizing certain
corporate actions including the acquisition by the company of its own shares if
it is insolvent or would thereby be rendered insolvent, the payment by the
company of a commission or discount in excess of 25% on a sale of its shares,
the payment by the company of dividends if it is insolvent or would thereby be
rendered insolvent, the provision by the company of prohibited financial
assistance, or the payment by the company of an indemnity in certain
circumstances, subject in all such cases to certain limited defenses. The
Company Act provides that such liability is in addition to and not in derogation
of any liability imposed on a director by any other legislation, regulation or
rule of law.
The OBCA imposes joint and several personal liability upon directors who
vote for or consent to a resolution authorizing actions that are in violation of
provisions of the OBCA relating to the issuance of shares, financial assistance,
the purchase, redemption or other acquisition of shares, the commissions paid on
the sale of shares, the payment of dividends, the payment of a director's
indemnity or payments made to a shareholder. The OBCA further provides that a
director cannot contract out of this liability.
The Restated Certificate contains a provision, permitted by the DGCL,
limiting the personal monetary liability of directors for breach of fiduciary
duties as a director. The DGCL and the Restated Certificate provide that such a
provision shall not eliminate or limit liability:
(i) for any breach of the director's duty of loyalty to the corporation
or its stockholders;
(ii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in the DGCL;
(iii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
(iv) for any transaction from which the director derived an improper
personal benefit.
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INDEMNIFICATION AND INSURANCE
Under the Prime Articles, subject to the provisions of the Company Act,
Prime must indemnify directors and former directors, and may indemnify directors
and former directors of a corporation of which Prime is or was a shareholder,
and their heirs and personal representatives, against all expenses incurred,
including an amount paid in settling an action or satisfying a judgment in an
action or proceeding to which they are made a party by reason of being or having
been directors of Prime or such corporation. Under the Prime Articles, subject
to the provisions of the Company Act, Prime may indemnify officers, employees or
agents of Prime or of any corporation of which Prime is or was a shareholder
against all costs, charges and expenses incurred resulting from such person
acting as an officer, employee or agent of Prime or of such corporation
(provided that Prime is required to indemnify its Secretary and any Assistant
Secretary in certain circumstances from certain costs, charges and expenses
incurred by them). The Company Act provides that a company may, with the
approval of the British Columbia Supreme Court, indemnify a current or former
director or officer of a company, or a corporation of which the company is or
was a shareholder, in respect of a civil, criminal or administrative action or
proceeding to which such director or officer was made a party by reason of being
or having been a director or officer, if (a) the director or officer acted
honestly and in good faith with a view to the best interests of the company and
(b) in the case of a criminal or administrative action or proceeding, such
director or officer had reasonable grounds for believing that the impugned
conduct was lawful. The failure of a director or officer to comply with the
provisions of the Company Act will not invalidate the indemnity provided under
the Prime Articles.
Under the Prime Articles, Prime may purchase insurance for the benefit of
any director, officer, employee or agent of Prime or of any corporation of which
Prime is or was a shareholder, and their heirs and personal representatives,
against any liability incurred by such person acting as such director, officer,
employee or agent.
Under the OBCA, a corporation may indemnify a director or officer, a former
director or officer or a person who acts or acted at the corporation's request
as a director or officer of a body corporate of which the corporation is or was
a shareholder or creditor, and his heirs and legal representatives (an
"Indemnifiable Person") against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgement, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of being or having been a director or officer
of such corporation or body corporate, if (a) he acted honestly and in good
faith with a view to the best interests of the corporation and (b) in the case
of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, he had reasonable grounds to believe that his or her conduct
was lawful.
Under the OBCA, a corporation may also, with the approval of the court,
indemnify an Indemnifiable Person in respect of an action by or on behalf of the
corporation or body corporate to procure a judgment in its favor, to which the
person is made a party by reason of being or having been a director or an
officer of the corporation or body corporate, against all costs, charges and
expenses reasonably incurred by the person in connection with such action if he
fulfills the conditions set out in clauses (a) and (b) above. In any event, an
Indemnifiable Person is entitled to indemnity from the corporation in respect of
all costs, charges, and expenses reasonably incurred by him in connection with
the defense of any civil, criminal or administrative action or proceeding to
which he or she is made a party by reason of being or having been a director or
officer of the corporation or the body corporate, if the Indemnifiable Person
was substantially successful on the merits in his or her defense of the action
or proceeding and fulfills the conditions set out in clauses (a) and (b) above.
The HCI By-laws require indemnification to the full extent authorized by the
OBCA.
The OBCA also permits a corporation to purchase and maintain insurance on
behalf of directors and officers, a former director or officer or a person who
acts or acted at the corporation's request as a director or officer of a body
corporate of which the corporation is or was a shareholder or creditor against
liability
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incurred by the person in their capacity as a director or an officer, except
where the liability relates to the person's failure to act honestly and in good
faith with a view to the best interests of the corporation.
The DGCL permits indemnification against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with actions, suits, or proceedings in which an officer,
director, employee or agent is a party by reason of the fact that he is or was
such a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another entity or enterprise, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, in respect of any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. However, in connection
with actions by or in the right of the corporation, such indemnification is
limited to expenses (including attorneys' fees) and is not permitted even for
such expenses if such person has been adjudged liable to the corporation, unless
the court determines that, under all of the circumstances, such person is
nonetheless fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. Under the Homestake By-laws, Homestake must indemnify
directors and officers to the fullest extent permitted by law.
The DGCL also permits a corporation to purchase and maintain insurance on
behalf of its directors, officers, employees and agents against any liability
which may be asserted against, or incurred by, such persons in their capacities
as such whether or not the corporation would have the power to indemnify such
persons against such liabilities. Homestake has purchased such insurance. The
DGCL further provides that the statutory provisions regarding indemnification
are not exclusive of any right which may exist under any by-law, agreement, vote
of stockholders or independent directors, or otherwise.
EXAMINATION OF CORPORATE RECORDS
Under the Company Act, shareholders of a company are entitled to examine,
and take extracts without charge from, certain of the company's records,
including its certificate of incorporation, its memorandum and articles and all
amendments thereto, minutes of all shareholders' meetings, all contracts
pursuant to which the company issued shares for a consideration other than cash,
all documents filed by the company with and certificates issued to it by the
Registrar, every audited financial statement of the company and its subsidiaries
and every prospectus, takeover bid circular and information circular issued by
the company or any subsidiary during the preceding 10 years. In addition, any
person is entitled, upon payment of a reasonable fee, to a list of the
shareholders of a company on delivering to the company or its agent an affidavit
stating that the list is required for corporate purposes. "Corporate purposes"
is defined to mean any effort to influence the voting of shareholders at any
meeting, to acquire or sell shares or debentures of the company or to effect an
amalgamation or reorganization of the company.
Under the OBCA, shareholders of a corporation, their agents and legal
representatives may examine the articles of the corporation, by-laws of the
corporation, minutes of meetings and resolutions of shareholders, a register of
directors and a securities register during the usual business hours of the
corporation, and may take extracts free of charge. A shareholder of a
corporation is entitled, without charge on request, to one copy of any unanimous
shareholders' agreement.
Under the DGCL, stockholders of record have the right for any proper purpose
to inspect, upon written demand under oath stating the purpose for such
inspection, the corporation's stock ledger, list of stockholders, and its other
books and records, and to make copies or extracts of the same. A proper purpose
means a purpose reasonably related to a person's interest as a stockholder.
DIRECTOR QUALIFICATIONS
Under the Company Act, a reporting company must have a minimum of three
directors. A majority of the directors must be ordinarily resident in Canada and
at least one director must be ordinarily resident in British Columbia.
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A majority of the directors of an OBCA corporation must be resident
Canadians but where a corporation has only one or two directors, that director
or one of the two directors, as the case may be, must be a resident Canadian.
The OBCA also requires that at least one-third of the directors of a corporation
whose securities are publicly traded must not be officers or employees of the
corporation or any of its affiliates. The foregoing provisions will apply to
HCI.
The DGCL does not have any residency or other director qualification
requirements.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the Company Act, the shareholders of a company may remove a director
by special resolution and, by ordinary resolution passed by a simple majority of
votes cast, appoint a new director to serve in the removed director's place. The
Company Act provides that any casual vacancies on a company's board of directors
may be filled by action of the directors remaining in office. In addition, under
the Company Act, if the number of directors of a company is reduced below the
necessary quorum for directors, the remaining directors may act for the purpose
of filling the vacancies up to the quorum, or of calling a general meeting of
shareholders, but for no other purpose.
The shareholders of an OBCA corporation such as HCI may, by resolution
passed by a majority of the votes cast thereon at a meeting of shareholders
called for that purpose, remove any director before the expiration of such
director's term of office and may elect any qualified person in such director's
stead for the remainder of such director's term. Generally, under the OBCA, if a
vacancy should occur in the board of directors, the remaining directors, if
constituting a quorum, may appoint a qualified person to fill the vacancy for
the remainder of the vacating director's term. In the absence of a quorum, the
remaining directors shall call a meeting of shareholders to fill the vacancy. In
addition, if the articles of a corporation so provide, the directors may
increase the number of directors within the range provided in the articles and
may fill the vacancies thereby created for a term expiring not later than the
next annual meeting of shareholders provided that the total number of directors
so appointed does not exceed one-third of the number of directors elected at the
previous annual meeting of shareholders.
Under the DGCL, in the case of a corporation whose board of directors is
classified (such as the Homestake Board), the stockholders of the corporation
may remove a director only for cause (unless the certificate of incorporation
otherwise provides), by the affirmative vote of the holders of a majority of the
shares then entitled to vote at an election of directors. Since the Homestake
Board is classified and the Restated Certificate does not vary the for cause
removal requirement, Homestake directors may be removed only for cause. The DGCL
provides that, unless otherwise provided in a corporation's certificate of
incorporation or by-laws, vacancies and newly-created directorships may be
filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Since the Restated Certificate
essentially mirrors the foregoing provision of the DGCL, the Homestake directors
have the authority to fill vacancies and newly-created directorships by a
majority of the directors then in office, although less than a quorum.
SPECIAL MEETING OF STOCKHOLDERS
The Company Act provides that the holders of 5% of the issued shares of a
company with a right to vote may requisition the directors of the company to
call an extraordinary general meeting of shareholders of the company. The Prime
Articles further provide that the directors may convene an extraordinary meeting
whenever they think fit and that the directors shall convene an extraordinary
meeting when the Company Act requires.
The OBCA provides that the board of directors or the holders of not less
than 5% of the issued shares of the corporation, that carry the right to vote at
a meeting sought to be held, may requisition the directors to call a meeting of
shareholders for the purposes stated in the requisition.
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Under the DGCL, a special meeting may be called by the board of directors or
by any other person authorized to do so in the corporation's certificate of
incorporation or by-laws. The Restated Certificate provides that special
meetings of the stockholders for any purpose may be called at any time only by
the board of directors, the Chairman of the board of directors, the President, a
committee of the board of directors which has been duly designated by the board
of directors and whose powers and authority, as provided in a resolution of the
board of directors or in the Homestake By-laws, include the power to call such
meeting, or by stockholders having not less than 75% of the total voting power
of all outstanding shares of stock of Homestake.
AMENDMENTS TO CHARTER DOCUMENTS
Under the Company Act, a company's memorandum or articles may generally be
amended only with the approval of the shareholders of the company (in certain
circumstances, by a special resolution); provided, however, that (a) if rights
attached to a class or series of shares are prejudiced, a separate resolution of
75% of the votes cast by the holders of that class or series may be required,
(b) alteration of the memorandum as to part only of the issued shares of a class
or series requires the consent of the holders of 75% of the shares of such class
or series not to be changed, and (c) if the articles authorize the board of
directors to fix the number of shares in a series of a class of shares, to
determine the designation of the shares and to create, define and attach special
rights and restrictions to the shares of each series of a class of shares, the
directors may amend the memorandum or articles as necessary in this regard. The
Prime Articles authorize the Prime Board to take such actions.
The OBCA provides that any amendment to articles of a corporation generally
requires approval by special resolution, which is a resolution passed by a
majority of not less than two-thirds of the votes cast by shareholders entitled
to vote on the resolution. Unless the articles or by-laws of an OBCA corporation
otherwise provide, the OBCA provides that directors may, by resolution, make,
amend or repeal any by-laws that regulate the business or affairs of a
corporation. Where the directors make, amend or repeal a by-law, they are
required under the OBCA to submit the by-law, amendment or repeal to the
shareholders at the next meeting of shareholders, and the shareholders may
confirm, reject or amend the by-law, amendment or repeal by ordinary resolution,
which is a resolution passed by a majority of the votes cast by shareholders
entitled to vote on the resolution.
The DGCL provides that, in addition to approval thereof by a corporation's
board of directors, the vote of holders of a majority in voting power of the
outstanding shares entitled to vote is required to amend a corporation's
certificate of incorporation, unless a greater proportion is otherwise specified
in the corporation's certificate of incorporation. The Restated Certificate does
not alter this requirement (other than as set forth in Article SIXTEEN of the
Restated Certificate). The DGCL further provides that the holders of shares of a
class shall be entitled to vote on a proposed amendment to the certificate of
incorporation if the amendment would increase or decrease the number of
authorized shares of such class (unless such vote is denied in the charter),
change the par value of the shares of such class, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. Article SIXTEEN of the Restated Certificate provides that Articles
FOURTEEN and FIFTEEN (relating to the "Fair Price" provision in the Restated
Certificate) as well as Article SIXTEEN of the Restated Certificate may not be
amended if there is then a "Related Person" unless such amendment is approved
(i) by not less than 80% of the total voting power of Homestake and (ii) by a
majority of the total voting power of Homestake other than a Related Person (and
any affiliates and associates thereof). See "Description of Homestake Capital
Stock--"Fair Price" Charter Provision."
OPPRESSION REMEDY
The Company Act contains an oppression remedy pursuant to which a beneficial
or registered shareholder of a company, or any other person determined by the
British Columbia Supreme Court to be a proper person for such purpose, may apply
to the British Columbia Supreme Court for an order on the
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basis that: (a) the affairs of the company are being conducted, or the powers of
the directors are being exercised, in a manner oppressive to one or more
shareholders; or (b) some act of the company has been done, or is threatened, or
that some resolution of the shareholders has been passed or is proposed, that is
unfairly prejudicial to one or more shareholders. On any such application, the
British Columbia Supreme Court may make any such interim or final order as it
considers appropriate.
The OBCA provides an oppression remedy that enables the court to make any
order, both interim and final, to rectify the matters complained of, if the
court is satisfied upon the application by a complainant (as defined below) or
by the OSC in the case of a corporation whose securities are publicly traded,
that: (a) any act or omission of the corporation or an affiliate effects or
threatens to effect a result; (b) the business or affairs of the corporation or
an affiliate are, have been or are threatened to be carried on or conducted in a
manner; or (c) the powers of the directors of the corporation or an affiliate
are, have been or are threatened to be exercised in a manner that is oppressive
or unfairly prejudicial to, or unfairly disregards the interest of, any security
holder, creditor, director or officer of the corporation. A complainant means
(i) a registered holder or beneficial owner, or a former registered holder or
beneficial owner, of a security of a corporation or any of its affiliates; (ii)
a director or officer or a former director or officer of a corporation or of any
of its affiliates; or (iii) any other person who, in the discretion of the
court, is a proper person to make such application.
Because of the breadth of conduct which can be complained of and the scope
of the court's remedial powers, the oppression remedy is very flexible and is
sometimes relied upon to safeguard the interests of shareholders and other
complainants with a substantial interest in the corporation. Under the OBCA, it
is not necessary to prove that the directors of a corporation acted in bad faith
in order to seek an oppression remedy. Furthermore, the court may order the
corporation to pay the interim expenses of a complainant seeking an oppression
remedy, but the complainant may be held accountable for such interim costs on
final disposition of the complaint (as in the case of a derivative action).
The DGCL does not contain an oppression remedy.
FIDUCIARY DUTIES OF DIRECTORS
Under the Company Act, the directors of a company must act honestly and in
good faith with a view to the best interests of the company and are required to
exercise the care, diligence and skill of a reasonably prudent person.
Directors of corporations incorporated under the OBCA have fiduciary
obligations to the corporation. Pursuant to these fiduciary obligations, the
directors must act in accordance with duties of due care and loyalty. The duty
of loyalty requires directors of an Ontario corporation to act honestly and in
good faith with a view to the best interest of the corporation, and the duty of
care requires that the directors exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
Directors of corporations organized under the DGCL have fiduciary
obligations to the corporation and to its stockholders. Pursuant to these
fiduciary obligations, the directors must act in accordance with duties of due
care and loyalty. Under the DGCL, the duty of care requires that the directors
act in an informed and deliberative manner to inform themselves, prior to making
a business decision, of material information reasonably available to them. The
duty of care also requires that directors exercise care in overseeing and
investigating the conduct of corporate employees. The duty of loyalty may be
summarized as the duty to act in good faith, not out of self interest, and in a
manner which the directors reasonably believe to be in the best interest of the
corporation.
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DERIVATIVE ACTIONS
The Company Act entitles a shareholder or director of a company, or any
other proper person as determined by the British Columbia Supreme Court, to
initiate legal proceedings in the name of the company to enforce a duty or right
owed to the company or to obtain monetary damages for breach of such right or
duty, whether the right or duty arises under the Company Act or otherwise. A
derivative action requires the approval of the British Columbia Supreme Court,
which will not be granted unless the British Columbia Supreme Court is satisfied
that (a) the complainant has made reasonable efforts to cause the directors of
the company to commence or diligently prosecute or defend the action; (b) the
complainant is acting in good faith; (c) it appears to be in the interests of
the company that the action be brought or defended; and (d) the complainant, if
a shareholder, was a shareholder at the time of the transaction or other event
giving rise to the cause of action. A complainant is not required to give
security for costs in a derivative action.
Under the OBCA, a complainant may apply to the court for leave to bring an
action in the name of and on behalf of a corporation or a subsidiary, or to
intervene in an existing action to which any such body corporate is a party, for
the purpose of prosecuting, defending or discontinuing the action on behalf of
the body corporate. Under the OBCA, no action may be brought and no intervention
in an action may be made unless the complainant gives 14 days' notice to the
directors of the corporation or its subsidiary of the complainant's intention to
apply to the court and the court is satisfied that (a) the directors of the
corporation or its subsidiary will not bring, diligently prosecute or defend or
discontinue the action; (b) the complainant is acting in good faith; and (c) it
appears to be in the interests of the corporation or its subsidiary that the
action be brought, prosecuted, defended or discontinued. Where a complainant
makes an application without having given the required notice, the OBCA permits
the court to make an interim order pending the complainant giving the required
notice, provided that the complainant can establish that at the time of seeking
the interim order it was not expedient to give the required notice. The OBCA
provides that the court in a derivative action may make any order it thinks fit.
Under the DGCL, subject to making a prior demand therefor on the board of
directors (unless such demand is excused), shareholders may bring derivative
actions against officers and directors of the corporation for breach of their
fiduciary duty to the corporation and its shareholders or for other
misconduct, so long as the shareholder was a shareholder of the corporation at
the time of the conduct in question or he or she obtained the stock thereafter
by operation of law.
INDEPENDENT ACCOUNTANTS
Prime's financial statements as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997 included in this
document, have been audited by Price-
waterhouseCoopers (formerly known as Coopers & Lybrand), independent
accountants, as stated in their reports appearing herein.
Homestake's consolidated financial statements as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
included in this document, have been audited by PricewaterhouseCoopers LLP
(formerly known as Coopers & Lybrand L.L.P.), independent accountants, as stated
in their report appearing herein.
Representatives of PricewaterhouseCoopers are expected to be present at the
Homestake Special Meeting and the Prime Special Meeting and will have the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
LEGAL MATTERS
Canadian federal income tax considerations of the Arrangement will be passed
upon for Prime by Lawson Lundell Lawson & McIntosh, Vancouver, British Columbia
and Osler, Hoskin & Harcourt,
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Toronto, Ontario, and United States federal income tax consideration of the
Arrangement will be passed upon for Homestake by Thelen Reid & Priest LLP, San
Francisco, California.
AVAILABLE INFORMATION
Homestake files annual, quarterly and current reports, proxy statements and
other information with the SEC. Prime is a "foreign private issuer" and as such,
Prime files annual and periodic reports with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Homestake public filings are also available to the
public from commercial document retrieval services and at the Internet World
Wide Web site operated by the SEC at "http://www.sec.gov." Reports, proxy
statements and other information concerning Homestake may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Reports, proxy
statements and other information concerning Prime may be inspected at the
offices of Amex, 86 Trinity Place, New York, New York 10006.
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APPENDIX A
GLOSSARY
AND
CERTAIN MEASUREMENTS
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GLOSSARY
Unless the context otherwise requires, the following terms have the
following meanings when used in this Supplement:
"A$" means Australian dollars.
"Additional Amount" means, with respect to each HCI Exchangeable Share, an
amount equal to the full amount of all declared and unpaid dividends and other
distributions, if any, on such HCI Exchangeable Share and all dividends and
other distributions, if any, declared on a share of Homestake Common Stock that
have not been declared on each HCI Exchangeable Share, in each case with a
record date prior to the effective date of any exchange of HCI Exchangeable
Shares for shares of Homestake Common Stock by a holder.
"Amex" means the American Stock Exchange, Inc.
"Ancillary Rights" means any and all rights granted by Homestake to holders
of HCI Exchangeable Shares in connection with the Arrangement (including the
Voting Rights and the Exchange Rights).
"Arrangement" means an arrangement under the provisions of section 252 of
the Company Act on the terms and conditions set forth in the Plan of Arrangement
and any amendment or variation thereto made in accordance with the terms of the
Arrangement Agreement pursuant to which the outstanding Prime Common Shares
(other than those held by Prime Shareholders who validly dissent and those held
indirectly by Homestake) are exchanged for HCI Exchangeable Shares or shares of
Homestake Common Stock.
"Arrangement Agreement" means the Arrangement Agreement by and between
Homestake, Prime, HCI and HCH dated as of September 28, 1998, a copy of which is
attached to this Supplement as Appendix B.
"Arrangement Resolution" means the special resolution of Prime Shareholders
approving the Arrangement in the form set out in Appendix F to this Supplement.
"BCSC" means the British Columbia Securities Commission.
"Business Day" means a day other than a Saturday, a Sunday or a statutory
holiday, on which banks are open for business in each of Toronto, Vancouver and
San Francisco.
"C$" means Canadian dollars.
"Call Rights" means the Liquidation Call Right, the Redemption Call Right
and the Retraction Call Right, collectively.
"Canadian Dollar Equivalent" means the product obtained by multiplying the
relevant US dollar amount by the noon spot exchange rate on such date for US
dollars expressed in Canadian dollars as reported by the Bank of Canada.
"Canadian GAAP" means generally accepted accounting principles in Canada.
"Canadian Tax Act" means the Income Tax Act (Canada), as amended.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Company Act" means the Company Act (British Columbia), as amended.
"Current Market Price" has the meaning set forth in Section 1.1 of the HCI
Exchangeable Share Provisions.
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
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"Dissent Notice" means a written objection to the Arrangement sent by a
Prime Shareholder to Prime as described under "The Arrangement--Dissenters'
Rights."
"Dissent Procedures" means the dissent procedures set out in section 4 of
the Plan of Arrangement and described under "The Arrangement--Dissenters'
Rights--Prime."
"Dissent Right" means the right to dissent in respect of the Arrangement
granted by Prime to Prime Shareholders pursuant to the terms of the Interim
Order and the Plan of Arrangement as described under "The
Arrangement--Dissenters' Rights."
"Dissenting Shareholder" means a Prime Shareholder who dissents in respect
of the Arrangement in accordance with the Dissent Procedures.
"Dissenting Shares" means Prime Common Shares held by Dissenting
Shareholders;
"Effective Date" means the date on which the Arrangement becomes effective,
being the date on which the Registrar of Companies for British Columbia accepts
for filing a certified copy of the Final Order.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Rate" means the noon buying rate in New York City as certified for
customs purposes by the Federal Reserve Bank of New York for cable transfers in
Canadian dollars expressed in US dollars, or the inverse thereof, as the case
may be.
"Exchange Ratio" means 0.74, being the number of HCI Exchangeable Shares or
shares of Homestake Common Stock for which each Prime Common Share is exchanged
under the Arrangement.
"Exchange Rights" means the optional exchange right granted to the Trustee
for the use and benefit of the holders of the HCI Exchangeable Shares pursuant
to the Trust Agreement to require Homestake to exchange HCI Exchangeable Shares
for shares of Homestake Common Stock, plus the Additional Amount, upon the
occurrence of an HCI Insolvency Event.
"Fairness Opinion" means the opinion as to the fairness from a financial
point of view of the terms of the Arrangement to the Prime Minority Shareholders
prepared by RBCDS in accordance with Policy 9.1 and Policy Q-27 as described
under "The Arrangement--Prime Special Committee" and "--RBCDS Valuation and
Fairness Opinion."
"Final Order" means the final order of the Court made in connection with the
approval of the Arrangement, as such order may be amended or modified by the
highest court to which an appeal may be applied for.
"HCH" means Homestake Canada Holdings Company, a Nova Scotia unlimited
liability corporation and a wholly-owned subsidiary of Homestake California,
which will own all of the HCI Common Shares and Third Preference Shares, Series
I.
"HCI" means Homestake Canada Inc., an Ontario corporation, and, upon the
amalgamation of Prime and HCI as described under "The Arrangement--Homestake
After the Arrangement," the company resulting from such amalgamation.
"HCI Articles" means HCI's articles of incorporation, as amended.
"HCI By-laws" means the by-laws of HCI, as amended from time to time.
"HCI Common Shares" means the Common Shares of HCI.
"HCI Exchangeable Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the HCI Exchangeable Shares, which are
attached as Appendix D to the Supplement.
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"HCI Exchangeable Shares" means the Exchangeable Shares of HCI having
rights, privileges, restrictions and conditions set forth in the HCI
Exchangeable Share Provisions.
"HCI Insolvency Event" means the institution by HCI of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound up, or the
consent of HCI to the institution of bankruptcy, insolvency, dissolution or
winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the
failure by HCI to contest in good faith any such proceedings commenced in
respect of HCI within 15 days of becoming aware thereof, or the consent by HCI
to the filing of any such petition or to the appointment of a receiver, or the
making by HCI of a general assignment for the benefit of creditors, or the
admission in writing by HCI of its inability to pay its debts generally as they
become due, or HCI not being permitted, pursuant to solvency requirements of
applicable law or the provisions of Section 6.01 of the Rights, Privileges,
Conditions and Restrictions attaching to the HCI Third Preference Shares, Series
1, to redeem any HCI Exchangeable Shares pursuant to the HCI Exchangeable Share
Provisions.
"HCI Rights" means the rights entitling the holders thereof to purchase or
receive HCI Exchangeable Shares in certain circumstances pursuant to the HCI
Rights Agreement.
"HCI Rights Agreement" means the Rights Agreement dated - , 1998, between
HCI and - , as Rights Agent, and attached as Schedule 6 to the Arrangement
Agreement.
"HGAL" means Homestake Gold of Australia Limited, a South Australia
corporation and a wholly-owned subsidiary of Homestake.
"Homestake" or the "Company" means Homestake Mining Company, a Delaware
corporation, and, where the context so requires, Homestake and its subsidiaries
and predecessor entities.
"Homestake Board" means the Board of Directors of Homestake.
"Homestake By-laws" means Homestake's by-laws, as amended from time to time.
"Homestake California" means Homestake Mining Company of California, a
California corporation and a wholly-owned subsidiary of Homestake.
"Homestake Certificate" means the certificate of incorporation of Homestake
as amended and restated through the date of this Supplement.
"Homestake Common Stock" means the common stock, $1.00 par value, of
Homestake.
"Homestake Consolidated Financial Statements" means the consolidated
financial statements of Homestake set forth in Appendix J.
"Homestake Equivalent Dividends" means (i) in the case of a cash dividend or
distribution declared on the shares of Homestake Common Stock, the Canadian
dollar equivalent of such cash dividend calculated on the date such dividend was
declared; (ii) in the case of a stock dividend or a distribution declared on the
shares of Homestake Common Stock to be paid in shares of Homestake Common Stock,
such number of HCI Exchangeable Shares for each Exchangeable Share held as is
equal to the number of shares of Homestake Common Stock to be paid on each share
of Homestake Common Stock; or (iii) in the case of a dividend or distribution
declared on the shares of Homestake Common Stock to be paid in property other
than cash or shares of Homestake Common Stock the economic equivalent (as
determined by the Board of Directors of HCI) of the dividend or distribution
paid in respect of each share of Homestake Common Stock.
"Homestake Liquidation Event" means (i) any determination by the Homestake
Board to institute voluntary liquidation, dissolution or winding up proceedings
with respect to Homestake or to effect any
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other distribution of assets of Homestake among its stockholders for the purpose
of winding up its affairs or (ii) receipt by Homestake of notice of, or
Homestake otherwise becoming aware of, any threatened or instituted claim, suit,
petition or other proceedings with respect to the involuntary liquidation,
dissolution or winding up of Homestake or to effect any other distribution of
assets of Homestake among its stockholders for the purpose of winding up its
affairs.
"Homestake Preferred Stock" means the preferred stock, $1.00 par value, of
Homestake.
"Homestake Record Date" means - , 1998, the record date for the Homestake
Special Meeting.
"Homestake Rights" means the rights to purchase or receive Homestake
Preferred Stock or Homestake Common Stock in certain circumstances pursuant to
the Homestake Rights Agreement.
"Homestake Rights Agreement" means the Rights Agreement dated October 16,
1987, and amended as of October 15, 1997, between Homestake and BankBoston N.A.,
as Rights Agent.
"Homestake Special Meeting" means the meeting of Homestake Stockholders to
consider and vote on the proposal to adopt the Restated Certificate and to
approve the Outside Directors' Stock Compensation Plan.
"Homestake Stockholders" means the holders of Homestake Common Stock.
"Interim Order" means the interim order of the British Columbia Supreme
Court dated - , 1998 providing for the calling and holding of the Prime
Special Meeting and other procedural matters, a copy of which is attached hereto
in Appendix G.
"IRS" means the United States Internal Revenue Service.
"Letter of Transmittal" means the letter delivered to the Prime Shareholders
(other than HCI) which, when duly completed and returned with a certificate
representing Prime Common Shares, will enable a shareholder to exchange such
certificate for a certificate representing HCI Exchangeable Shares or Homestake
Common Stock.
"Liquidation Call Right" means the overriding right of Homestake and HCH, in
the event of a proposed liquidation, dissolution or winding up of HCI, to
purchase all of the outstanding HCI Exchangeable Shares (other than HCI
Exchangeable Shares held by Homestake or any subsidiary) from the holders
thereof on the effective date of any such liquidation, dissolution or winding up
in exchange for shares of Homestake Common Stock, plus the Additional Amount,
pursuant to the HCI Exchangeable Share Provisions.
"Material Adverse Effect" has the meaning assigned to it in section 1.2 of
the Arrangement Agreement.
"Notice of Application for Final Order" means the notice of the hearing to
be held by the Court to consider the application of Prime for the Final Order, a
copy of which is attached hereto as Appendix G.
"NYSE" means the New York Stock Exchange, Inc.
"OBCA" means the Ontario Business Corporations Act.
"Optional Redemption Date" means any date established by the HCI Board for
the redemption of HCI Exchangeable Shares pursuant to the HCI Exchangeable Share
Provisions, as described in "Mechanics of the Arrangement--HCI Exchangeable
Shares" provided that such date may not be earlier than December 31, 2008 unless
there are less than 1,390,000 HCI Exchangeable Shares outstanding (subject to
adjustment to give effect to subdivisions, consolidations, combinations, or
similar transactions in respect of the HCI Exchangeable Shares) held by holders
other than Homestake and its subsidiaries.
"Outside Director" means a director who is not an employee of the entity for
which he serves as director or an employee of any parent, subsidiary or other
affiliate of such entity.
A-5
<PAGE>
"OSC" means the Ontario Securities Commission.
"Plan of Arrangement" means the plan of arrangement proposed under section
252 of the Company Act substantially in the form attached hereto as Appendix C,
as amended, modified or supplemented from time to time in accordance with its
terms.
"Plutonic" means Plutonic Resources Limited, a New South Wales corporation
acquired by Homestake in April 1998.
"Policy 9.1" means Policy 9.1 of the OSC.
"Policy Q-27" means Policy Q-27 of the Quebec Commission.
"Prime" means Prime Resources Group Inc., a company incorporated under the
laws of the Province of British Columbia.
"Prime Articles" means the articles of Prime, as amended from time to time.
"Prime Board" means the Board of Directors of Prime.
"Prime Board of Director Options" means the options to acquire an aggregate
of 40,000 Prime Common Shares held by M. Norman Anderson, Graham H. Scott, Alan
J. Lenczner and J. Douglas Little.
"Prime Common Shares" means the common shares without par value of Prime.
"Prime Financial Statements" means the financial statements of Prime set
forth in Appendix I.
"Prime Information Circular" means the management information circular of
Prime dated - , 1998 relating to the Prime Special Meeting.
"Prime Memorandum" means the memorandum of Prime, as amended from time to
time.
"Prime Minority Shareholders" means holders of Prime Common Shares other
than HCI and other than, to the knowledge of Prime, Homestake, HCI and HCH and
any of their respective directors and senior officers after reasonable inquiry:
(i) any person or company which alone or in combination with others holds a
sufficient number of securities or has contractual rights sufficient to affect
materially the control of Homestake; (ii) any person or company in respect of
which a person or company referred to in clause (i) above, alone or in
combination with others, holds a sufficient number of securities or has
contractual rights sufficient to affect materially its control; (iii) any person
or company in respect of which Homestake, HCH or HCI alone or in combination
with others holds a sufficient number of securities or has contractual rights
sufficient to affect materially its control; (iv) any person or company who
beneficially owns, directly or indirectly, voting securities of Prime or
Homestake or who exercises control or direction over voting securities of Prime
or Homestake or a combination or who exercises control or direction over voting
securities of Prime or Homestake or a combination of both carrying more than 10%
of the voting rights carried by any class of voting securities of Prime or
Homestake for the time being outstanding; (v) any director or senior officer of
Prime, Homestake, HCI or HCH or any other companies referred to in items (i) to
(iv) above (other than a director or senior officer of Prime, who is independent
from Homestake, HCH or HCI for purposes of qualifying to serve as a member of
the special committee of the board of directors of Prime); (vi) any person or
company acting jointly or in concert with any of the foregoing; or (vii) any
affiliate (as such term is defined in the Securities Act (Ontario) or Securities
Act (Quebec)) of any of the foregoing.
"Prime Outside Director Plan" means the Director's Stock Option Plan of
Prime amended as of May 22, 1997.
"Prime Record Date" means - , 1998, the record date for the Prime Special
Meeting.
"Prime Shareholders" means the holders of the Prime Common Shares.
A-6
<PAGE>
"Prime Special Committee" means the special committee of independent
directors of Prime appointed by the Prime Board on May 27, 1998. The members of
the Prime Special Committee are Alan J. Lenczner, J. Douglas Little and Graham
H. Scott (Chairman).
"Prime Special Meeting" means the extraordinary general meeting of Prime
Shareholders to be held to consider and vote upon the Arrangement Resolution.
"Quebec Commission" means the COMMISSION DES VALEURS MOBILIERES DU QUEBEC.
"RBCDS" means RBC Dominion Securities Inc., financial advisor to the Prime
Special Committee.
"Redemption Call Right" means the overriding right of Homestake and HCH to
purchase all of the outstanding HCI Exchangeable Shares (other than HCI
Exchangeable Shares held by Homestake or HCH) from the holders thereof on the
date fixed for redemption thereof in exchange for shares of Homestake Common
Stock, plus the Additional Amount.
"Registrar" means the Registrar of Companies for British Columbia.
"Restated Certificate" means the Homestake Certificate, restated to (i)
increase the authorized number of shares of Homestake Common Stock from
250,000,000 to 450,000,000 shares, (ii) increase the authorized number of shares
of Series A Preferred Stock from 2,500,000 to 4,500,000 shares, (iii) create one
share of Special Voting Stock, and (iv) make certain technical changes,
primarily to reflect the existence of the Special Voting Stock.
"Retraction Call Right" means the overriding right of Homestake and HCH, in
the event of a proposed retraction of HCI Exchangeable Shares by a holder
thereof, to purchase from such holder on the Retraction Date all of the HCI
Exchangeable Shares tendered for redemption in exchange for shares of Homestake
Common Stock, plus the Additional Amount.
"Retraction Date" means a date, determined by a holder of HCI Exchangeable
Shares, on which such holder can effect a redemption of such HCI Exchangeable
Shares as further set out in the HCI Exchangeable Share Provisions.
"Retraction Request" means a duly executed notice of retraction given by a
holder of HCI Exchangeable Shares in the form of Schedule A to the HCI
Exchangeable Share Provisions, or in such other form as may be acceptable to
HCI.
"Revenue Canada" means Revenue Canada, Customs, Excise and Taxation.
"Roscoe Postle" means Roscoe Postle Associates Inc., technical advisor to
the Prime Special Committee.
"Roscoe Postle Reports" means the two reports, each dated July 28, 1998,
prepared by Roscoe Postle as described under "The Arrangement--Reports of Prime
Special Committee Technical Advisor."
"SBC Warburg" means SBC Warburg Dillon Read Inc. and its Canadian affiliate,
Bunting Warburg Inc.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the United States Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series A Preferred Stock" means the Series A Participating Cumulative
Preferred Stock, $1.00 par value, of Homestake.
"Special Voting Stock" means the one share of special voting stock, par
value US$1.00, of Homestake, which will be issued by Homestake to the Trustee
pursuant to the Trust Agreement.
"Tax Election" means an election under subsection 85(1) or subsection 85(2)
of the Canadian Tax Act.
A-7
<PAGE>
"Tax Election Filing Package" means the package described under "Tax
Consequences to Prime Shareholders--Canadian Federal Income Tax Considerations
to Prime Shareholders--Tax Elections."
"Tax Treaty" means the Income Tax Treaty between Canada and the United
States that entered into force August 16, 1984, as amended, as in effect on the
date of this Supplement.
"Trust Agreement" means the Voting, Support and Exchange Trust Agreement to
be entered into between Prime, Homestake and the Trustee, substantially in the
form of Appendix E to this Supplement.
"Trustee" means Montreal Trust Company of Canada, or any successor thereto,
pursuant to the Voting, Support and Exchange Trust Agreement.
"TSE" means The Toronto Stock Exchange.
"Unaudited Pro Forma Condensed Consolidated Financial Statements" means the
financial statements, included in the Supplement, prepared by Homestake to
illustrate the estimated effects of the Arrangement.
"US$" or "$" means United States dollars.
"U.S. GAAP" means generally accepted accounting principles in the United
States.
"Valuation" means the valuation of Prime and of the Homestake Common Stock
and HCI Exchangeable Shares to be issued as consideration in exchange for Prime
Common Shares under the Arrangement, prepared by RBCDS in accordance with Policy
9.1 and Policy Q-27 as described under "The Arrangement--Prime Special
Committee," "--RBCDS Valuation and Fairness Opinion."
"Voting Rights" means the rights of the holders of HCI Exchangeable Shares
other than Homestake and certain subsidiaries of Homestake to direct the votes
attached to the Special Voting Stock in accordance with the Trust Agreement.
"VSE" means the Vancouver Stock Exchange.
"1998 Outside Directors' Stock Compensation Plan" means the Outside
Directors' Stock Compensation Plan to be submitted for the approval of the
Homestake Stockholders at the Homestake Special Meeting.
A-8
<PAGE>
CERTAIN MEASUREMENTS
An "acre" equals 0.405 hectares.
A "centimeter" or "cm" equals 0.3937 inches.
A "foot" equals .3048 meters.
A "gram" or "gramme" equals 0.032 ounces (troy).
A "hectare" equals 2.47 acres.
A "kilogram" equals 2.2046 pounds.
A "kilometer" or "km" equals 0.62 miles.
A "long ton" refers to a long ton of 2,240 pounds or 1.016 tonnes.
A "meter" or "m" equals 39.37 inches.
A "mile" equals 1.609 kilometers.
An "ounce" is a troy ounce, which equals 31.1 grams.
A "pound" equals 0.454 kilograms.
A "short ton" refers to a short ton of 2,000 pounds or 0.907 tonnes.
A "square kilometer" equals 0.3861 square miles.
A "square mile" equals 2.590 square kilometers.
A "tonne" refers to a metric ton of 1,000 kilograms, 2,204.6 pounds or 1.102
short tons.
"TPD" refers to short tons per day.
A-9
<PAGE>
APPENDIX B
ARRANGEMENT AGREEMENT
B-1
<PAGE>
PRIME RESOURCES GROUP INC., a company incorporated under
the laws of British Columbia
(hereafter referred to as "Prime")
- and -
HOMESTAKE CANADA INC., a corporation incorporated under
the laws of Ontario
(hereafter referred to as "Homestake Canada")
- and -
HOMESTAKE CANADA HOLDINGS COMPANY, an unlimited liability
company incorporated under the laws of Nova Scotia
(hereafter referred to as "Holdco")
- and -
HOMESTAKE MINING COMPANY, a corporation incorporated under
the laws of the State of Delaware
(hereafter referred to as "Homestake")
- --------------------------------------------------------------------------------
ARRANGEMENT AGREEMENT
- --------------------------------------------------------------------------------
B-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE 1 INTERPRETATION............................................................ B-5
1.1 Definitions............................................................... B-5
1.2 Material Adverse Effect................................................... B-8
1.3 Headings and References................................................... B-8
1.4 Date for Any Action....................................................... B-8
1.5 Entire Agreement.......................................................... B-8
1.6 Currency.................................................................. B-8
1.7 Time...................................................................... B-8
1.8 Construction.............................................................. B-8
1.9 Schedules and Exhibits.................................................... B-9
ARTICLE 2 THE ARRANGEMENT AND RELATED MATTERS....................................... B-9
2.1 Interim Order............................................................. B-9
2.2 Final Order............................................................... B-9
2.3 Approval.................................................................. B-9
2.4 Arrangement............................................................... B-9
2.5 Ancillary Matters......................................................... B-10
2.6 Dissenting Shares......................................................... B-10
2.7 Adjustments for Capital Changes........................................... B-10
2.8 Prime Board of Director Options........................................... B-11
2.9 Other Effects of the Arrangement.......................................... B-11
2.10 Prime Information Circular and Homestake Proxy Statement.................. B-11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES............................................ B-12
3.1 Representations and Warranties of Prime................................... B-12
3.2 Representations and Warranties of Homestake Canada........................ B-13
3.3 Representations and Warranties of Holdco.................................. B-14
3.4 Representations and Warranties of Homestake............................... B-14
ARTICLE 4 COVENANTS................................................................. B-17
4.1 Covenants of Prime........................................................ B-17
4.2 Covenants of Homestake, Homestake Canada and Holdco....................... B-18
4.3 Cooperation, Consents and Approvals....................................... B-19
4.4 Notification.............................................................. B-19
4.5 Court Proceedings......................................................... B-19
ARTICLE 5 CONDITIONS PRECEDENT...................................................... B-19
5.1 Mutual Conditions Precedent............................................... B-19
5.2 Conditions Precedent to the Obligations of Prime.......................... B-20
5.3 Conditions Precedent to the Obligations of Homestake, Homestake Canada and
Holdco.................................................................. B-21
ARTICLE 6 AMENDMENT................................................................. B-21
6.1 Amendment................................................................. B-21
ARTICLE 7 TERMINATION OF AGREEMENT B-22
7.1 Termination............................................................... B-22
7.2 Notice of Termination..................................................... B-22
7.3 Effect of Termination..................................................... B-22
ARTICLE 8 GENERAL................................................................... B-23
</TABLE>
B-3
<PAGE>
<TABLE>
<C> <S> <C>
8.1 Nonsurvival of Representations and Warranties............................. B-23
8.2 Notices................................................................... B-23
8.3 Expenses.................................................................. B-24
8.4 Severability.............................................................. B-24
8.5 Counterparts.............................................................. B-24
8.6 Governing Law............................................................. B-24
8.7 Further Assurances........................................................ B-24
8.8 Assignment................................................................ B-24
8.9 Enforcement............................................................... B-24
</TABLE>
<TABLE>
<S> <C> <C>
Schedule 1 - Plan of Arrangement...................................... B-26
Schedule 2 - Homestake Canada Exchangeable Share Terms................ B-27
Schedule 3 - New Homestake Canada Common Shares....................... B-28
Schedule 4 - Voting, Support and Exchange Trust Agreement............. B-30
Schedule 5 - Homestake Charter Changes................................ B-31
Schedule 6 - Homestake Canada Rights Agreement........................ B-43
Schedule 7 - Homestake Rights Agreement (as proposed to be amended)... B-66
</TABLE>
B-4
<PAGE>
THIS ARRANGEMENT AGREEMENT made as of the - day of September, 1998.
AMONG:
PRIME RESOURCES GROUP INC., a company incorporated under
the laws of British Columbia
(hereafter referred to as "Prime")
- and -
HOMESTAKE CANADA INC., a corporation incorporated under
the laws of Ontario
(hereafter referred to as "Homestake Canada")
- and -
HOMESTAKE CANADA HOLDINGS COMPANY, an unlimited liability
company incorporated under the laws of Nova Scotia
(hereafter referred to as "Holdco")
- and -
HOMESTAKE MINING COMPANY, a corporation incorporated under
the laws of the State of Delaware
(hereafter referred to as "Homestake")
WHEREAS Prime intends to propose to its shareholders an arrangement under
section 252 of the COMPANY ACT (British Columbia) on the terms and conditions of
the Plan of Arrangement attached as Schedule 1;
AND WHEREAS the parties hereto have entered into this Agreement setting out
the terms and conditions on which the Arrangement will be carried out;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the premises
and the respective covenants and agreements herein contained, the parties hereto
covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS -- In this Agreement, unless there is something in the
subject matter or context inconsistent herewith, the following terms shall have
the following meanings:
"ACT" means the COMPANY ACT (British Columbia);
"AGREEMENT" means this Arrangement Agreement, including the Plan of
Arrangement;
"ARRANGEMENT" means an arrangement under the provisions of section 252 of
the Act on the terms and conditions set forth in the Plan of Arrangement and
any amendment or variation thereto made in accordance with the terms
thereof;
"ARRANGEMENT RESOLUTION" means the special resolution of the holders of
Prime Common Shares approving the Arrangement at the Prime Meeting;
"BCSC" means the British Columbia Securities Commission;
B-5
<PAGE>
"BUSINESS DAY" means a day, other than a Saturday, a Sunday or a statutory
holiday, when banks are generally open in each of Vancouver, British
Columbia, Toronto, Ontario and San Francisco, California for the transaction
of banking business;
"COURT" means the Supreme Court of British Columbia;
"DISCLOSURE LETTER" means the disclosure letter of Homestake of even date
herewith;
"DISSENTING SHARES" shall have the meaning set forth in Section 2.6;
"EFFECTIVE DATE" means the date on which the Registrar accepts a certified
copy of the Final Order for filing;
"EFFECTIVE TIME" means 12.01 a.m., Vancouver time, on the Effective Date;
"EXCHANGE ACT" means the SECURITIES EXCHANGE ACT OF 1934, as amended, of the
United States;
"EXCHANGE RATIO" means 0.74 Homestake Canada Exchangeable Shares or 0.74
shares of Homestake Common Stock, as the case may be, exchanged for one
Prime Common Share under the Arrangement;
"FINAL ORDER" means the final order of the Court made in connection with the
approval of the Arrangement, as such order may be amended or modified by the
highest court to which an appeal may be applied for;
"FORM S-3" shall have the meaning set forth in Section 2.10(a);
"FORM S-4" shall have the meaning set forth in Section 2.10(a);
"HOMESTAKE ASSOCIATED RIGHT" means the rights, if any, as defined in the
Homestake Rights Agreement, as the same may hereafter be amended, varied,
revised or extended in accordance with the terms thereof;
"HOMESTAKE CANADA ASSOCIATED RIGHT" means the rights, if any, as defined in
the Homestake Canada Rights Agreement, as the same may hereafter be amended,
varied, revised or extended in accordance with the terms thereof;
"HOMESTAKE CANADA EXCHANGEABLE SHARES" means shares of Homestake Canada
having rights, privileges, restrictions and conditions substantially as set
forth in Schedule 2 to this Agreement;
"HOMESTAKE CANADA RIGHTS AGREEMENT" means the agreement set forth in
Schedule 6 to this Agreement;
"HOMESTAKE CHARTER CHANGES" means the amendment and restatement of the
Restated Certificate of Incorporation of Homestake, as set forth in Schedule
5 to this Agreement;
"HOMESTAKE COMMON STOCK" means shares of common stock, par value US$1.00 per
share, of Homestake;
"HOMESTAKE MEETING" means the meeting of the stockholders of Homestake to
approve the adoption of the Homestake Charter Changes;
"HOMESTAKE PROXY STATEMENT" means a proxy statement, including any
supplement attached thereto, issued by Homestake in relation to the approval
of the adoption of the Homestake Charter Changes;
"HOMESTAKE RIGHTS AGREEMENT" means the Homestake Rights Agreement dated as
of October 16, 1987, as amended, between Homestake and Bank Boston NA, as
proposed to be further amended as set forth in Schedule 7 to this Agreement;
"HOMESTAKE SEC DOCUMENT" means any report, schedule, form, statement,
registration statement, definitive proxy statement or other document filed
by Homestake with the SEC;
B-6
<PAGE>
"HOMESTAKE SPECIAL VOTING STOCK" means the Special Voting Stock, par value
US$1.00 per share, of Homestake, of which one share will be issued by
Homestake to and deposited with the Trustee pursuant to the Voting, Support
and Exchange Trust Agreement set forth in Schedule 4 to this Agreement;
"HOMESTAKE SUBSIDIARY" means each corporation or joint venture (other than
Prime) in which Homestake beneficially owns or controls, directly or
indirectly, more than 50% of the equity, voting rights, profits interest,
capital or similar interest, where the fair market value of Homestake's
interest in such entity, as of the date of this Agreement, is greater than
US$25,000,000;
"INTERIM ORDER" means the interim order of the Court providing for the
calling and holding of the Prime Meeting and other procedural matters
following the application contemplated in Section 2.1;
"LETTER OF TRANSMITTAL" means the letter of acceptance and transmittal to be
forwarded by Prime to holders of Prime Common Shares with the Prime
Information Circular or such other equivalent form of letter of acceptance
and transmittal acceptable to Prime and Homestake acting reasonably;
"MINORITY SHAREHOLDERS" means holders of Prime Common Shares other than
Homestake Canada and other than, to the knowledge of Prime, Homestake,
Holdco and Homestake Canada and any of their respective directors and senior
officers after reasonable inquiry: (i) any person or company which alone or
in combination with others holds a sufficient number of securities or has
contractual rights sufficient to affect materially the control of Homestake;
(ii) any person or company in respect of which a person or company referred
to in clause (i) above, alone or in combination with others, holds a
sufficient number of securities or has contractual rights sufficient to
affect materially its control; (iii) any person or company in respect of
which Homestake, Holdco or Homestake Canada alone or in combination with
others holds a sufficient number of securities or has contractual rights
sufficient to affect materially its control; (iv) any person or company who
beneficially owns, directly or indirectly, voting securities of Prime or
Homestake or who exercises control or direction over voting securities of
Prime or Homestake or a combination of both carrying more than 10% of the
voting rights carried by any class of voting securities of Prime or
Homestake for the time being outstanding; (v) any director or senior officer
of Prime, Homestake, Holdco or Homestake Canada or any other companies
referred to in items (i) to (iv) above (other than a director or senior
officer of Prime, who is independent from Homestake, Holdco or Homestake
Canada for purposes of qualifying to serve as a member of the special
committee of the board of directors of Prime); (vi) any person or company
acting jointly or in concert with any of the foregoing; or (vii) any
affiliate (as such term is defined in the SECURITIES ACT (Ontario) or
SECURITIES ACT (Quebec)), of any of the foregoing;
"1933 ACT" means the SECURITIES ACT OF 1933, as amended, of the United
States;
"OSC" means the Ontario Securities Commission;
"PLAN OF ARRANGEMENT" means the Plan of Arrangement set out in Schedule 1
and any amendment thereto or variation thereof;
"PRIME BOARD OF DIRECTOR OPTIONS" means the options to acquire 40,000 Prime
Common Shares held by directors of Prime and outstanding as at the date
hereof;
"PRIME COMMON SHARES" means the common shares without par value of Prime;
"PRIME MEETING" means the extraordinary general meeting of shareholders of
Prime (including any adjournment thereof) to be held to consider and, if
deemed advisable, to approve the Arrangement;
"PRIME INFORMATION CIRCULAR" shall have the meaning as set forth in Section
2.10;
"PRIME OUTSIDE DIRECTOR'S OPTION PLAN" means the option plan for the outside
directors of Prime entitled "Director's Stock Option Plan" dated as of May
22, 1997;
B-7
<PAGE>
"PRIME SEC DOCUMENT" means any report, schedule, form, statement,
registration statement, definitive proxy statement or other document filed
by Prime with the SEC;
"REGISTRAR" means the registrar of companies appointed under section 320 of
the Act;
"SEC" means the Securities and Exchange Commission of the United States;
"TAXES" means all Federal, provincial, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties
applicable thereto;
"TAX RETURNS" means all Federal, provincial, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended tax return relating to Taxes;
"TRUSTEE" means Montreal Trust Company of Canada; and
"VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT" means the agreement set forth
in Schedule 4 to this Agreement.
1.2 MATERIAL ADVERSE EFFECT -- In this Agreement, any reference to any
event, change or effect being "material" with respect to any entity or group of
entities means any material event, change or effect related to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
or results of operations of such entity or group of entities, taken as a whole.
In this Agreement, the term "Material Adverse Effect" used with respect to a
party means any event, change or effect that is, or is reasonably likely to be,
adverse, in a material way, to the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations or results of operations
or prospects of such party and its subsidiaries, taken as a whole, but shall not
include or be deemed to result from any change in the market value of Homestake
Common Stock or Prime Common Shares or any adverse effect resulting from changes
in general economic conditions or conditions generally affecting gold or silver
prices.
1.3 HEADINGS AND REFERENCES -- The division of this Agreement into Articles
and Sections and the insertion of headings are for convenience of reference only
and do not affect the construction or interpretation of this Agreement. Unless
otherwise specified, references to Articles, Sections and Schedules are to
Articles and Sections of, and Schedules to, this Agreement.
1.4 DATE FOR ANY ACTION -- If any date on which any action is required or
permitted to be taken hereunder is not a Business Day, such action shall be
required or permitted to be taken on or by the next succeeding day which is a
Business Day.
1.5 ENTIRE AGREEMENT -- This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior arrangements, understandings, negotiations and discussions, whether oral
or written, among the parties with respect to the subject matter hereof.
1.6 CURRENCY -- All references to cash or currency in this Agreement are to
Canadian dollars unless otherwise indicated.
1.7 TIME -- Unless otherwise indicated, all times expressed herein are
local time, Vancouver, British Columbia.
1.8 CONSTRUCTION -- In this Agreement:
(a) words denoting the singular include the plural and vice versa and words
denoting any gender include all genders;
(b) the word "including" shall mean "including without limitation"; and
(c) any reference to a statute shall mean the statute in force as at the
date hereof and any regulation in force thereunder, unless otherwise
expressly provided.
B-8
<PAGE>
1.9 SCHEDULES AND EXHIBITS -- The following Schedules are attached hereto
and form part of this Agreement:
<TABLE>
<S> <C>
Schedule 1 - Plan of Arrangement
Schedule 2 - Homestake Canada Exchangeable Share Terms
Schedule 3 - New Homestake Canada Common Shares
Schedule 4 - Voting, Support and Exchange Trust Agreement
Schedule 5 - Homestake Charter Changes
Schedule 6 - Homestake Canada Rights Agreement
Schedule 7 - Homestake Rights Agreement, as proposed to be amended
</TABLE>
ARTICLE 2
THE ARRANGEMENT AND RELATED MATTERS
2.1 INTERIM ORDER -- As soon as practicable, but in any event not later
than March 1, 1999, and subject to compliance with the terms and conditions
herein, Prime shall apply to the Court pursuant to section 252 of the Act for
the Interim Order.
2.2 FINAL ORDER -- If the Arrangement is approved at the Prime Meeting in
accordance with the Interim Order, Prime will take, as soon as reasonably
possible, the necessary steps to submit the Arrangement to the Court and apply
for a Final Order in such fashion as the Court may direct approving the
Arrangement, subject to the satisfaction, waiver or release of the conditions
set forth in Article 5. If the Final Order is obtained, subject to the
satisfaction, waiver or release of the conditions set forth in Article 5, Prime
will, in consultation with Homestake, file a certified copy of the Final Order
for acceptance by the Registrar to give effect to the Arrangement pursuant to
section 252 of the Act.
2.3 APPROVAL -- The Interim Order sought by Prime shall provide that, for
the purpose of the Prime Meeting, the requisite majority for the approval of the
Arrangement by the shareholders of Prime shall be:
(a) seventy-five percent (75%) of the votes cast by the holders of Prime
Common Shares who vote in respect of the Arrangement Resolution; and
(b) two-thirds (66 2/3%) of the votes cast by the Minority Shareholders who
vote in respect of the Arrangement Resolution.
2.4 ARRANGEMENT -- Pursuant to the Arrangement the following transactions
shall occur and shall be deemed to occur on the Effective Date in the following
order without any further act or formality:
(a) The Prime Common Shares, other than the Prime Common Shares held by (i)
Homestake Canada; (ii) holders who elect the direct exchange option for
Homestake Common Stock described in Section 2.4(b); and (iii) holders who
have exercised their rights of dissent in accordance with Article 4 of
the Plan of Arrangement (and who ultimately are entitled to be paid fair
value for such shares), will be acquired by Homestake Canada in exchange
for Homestake Canada Exchangeable Shares at the Exchange Ratio. No
fractional Homestake Canada Exchangeable Shares will be delivered. In
lieu thereof, each holder of a Prime Common Share who would otherwise be
entitled to receive a fraction of a Homestake Canada Exchangeable Share
shall be paid by Homestake Canada an amount determined in accordance with
the Plan of Arrangement;
(b) the Prime Common Shares held by holders who so elect in the Letter of
Transmittal will be acquired by Holdco in exchange for Homestake Common
Stock at the Exchange Ratio. No fractional shares of Homestake Common
Stock will be delivered. In lieu thereof, each holder of a Prime Common
Share who would otherwise be entitled to receive a fraction of a share of
Homestake Common Stock shall be paid by Holdco an amount determined in
accordance with the Plan of Arrangement;
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(c) upon the exchanges referred to in Sections 2.4(a) or (b) above, each
holder of Prime Common Shares whose shares have been so exchanged shall
cease to be a holder of Prime Common Shares, shall have its name removed
from the register of members of Prime and shall become the holder of a
number of duly issued and fully paid Homestake Canada Exchangeable Shares
or duly issued and fully paid shares of Homestake Common Stock, as the
case may be, determined in accordance with Sections 2.4(a) or (b) above,
and the name of such holder receiving at least one Homestake Canada
Exchangeable Share or one share of Homestake Common Stock, as the case
may be, shall be added to the register of holders of Homestake Canada
Exchangeable Shares or Homestake Common Stock, as the case may be; and
(d) upon the exchanges referred to in Sections 2.4(a) or (b) above, each
holder of Prime Common Shares whose shares have been so exchanged for (i)
Homestake Canada Exchangeable Shares shall also receive one Homestake
Canada Associated Right with each Homestake Canada Exchangeable Share
received or (ii) shares of Homestake Common Stock shall also receive one
Homestake Associated Right with each share of Homestake Common Stock
received.
2.5 ANCILLARY MATTERS -- On or before the Effective Date:
(a) Homestake, Homestake Canada and the Trustee shall execute and deliver
the Voting, Support and Exchange Trust Agreement;
(b) Homestake shall file with the Delaware Secretary of State the Homestake
Charter Changes;
(c) Homestake shall amend the Homestake Rights Agreement in the form set
forth in Schedule 7;
(d) Homestake Canada shall adopt the Homestake Canada Rights Agreement; and
(e) the articles of incorporation of Homestake Canada shall be amended to
provide for:
(i) the authorization of an unlimited number of Homestake Canada
Exchangeable Shares; and
(ii) the replacement of the rights, privileges, restrictions and
conditions attaching to the common shares of Homestake Canada with
those set forth in Schedule 3 to this Agreement.
2.6 DISSENTING SHARES -- Holders of Prime Common Shares may exercise rights
of dissent with respect to such shares in connection with the Arrangement
pursuant to and in the manner set forth in the Plan of Arrangement (shares held
by such holders referred to as "Dissenting Shares"). Prime shall give Homestake:
(a) prompt notice of any written notice of a dissent, withdrawal of such
notice, and any other instruments served pursuant to the right of dissent
and received by Prime; and
(b) the opportunity to participate in all negotiations and proceedings with
respect to such rights. Prime shall not, except with the prior written
consent of Homestake or as contemplated by the Plan of Arrangement,
voluntarily make any payment with respect to any such rights or offer to
settle or settle any such rights.
2.7 ADJUSTMENTS FOR CAPITAL CHANGES -- If, prior to the Effective Date,
Homestake or Prime recapitalizes through a subdivision of any of its outstanding
shares into a greater number of shares or a consolidation of any of its
outstanding shares into a lesser number of shares, or reorganizes, reclassifies
or otherwise changes any of its outstanding shares into the same or a different
number of shares of other classes, or declares a dividend on any of its
outstanding shares payable in shares of its capital stock or securities
convertible into shares of its capital stock, then the Exchange Ratio will be
adjusted appropriately so as to maintain the relative proportionate interests of
the holders of Prime Common Shares and Homestake Common Stock as set out in the
Plan of Arrangement.
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2.8 PRIME BOARD OF DIRECTOR OPTIONS -- As of the Effective Time, the Prime
Board of Directors Options shall be terminated in accordance with the provisions
of Sections 7.5 and 7.6 of the Prime Outside Director's Option Plan.
2.9 OTHER EFFECTS OF THE ARRANGEMENT -- At the Effective Date: (a) the
memorandum and articles of Prime immediately prior to the Effective Time will
continue as the memorandum and articles of Prime, subject to later amendment;
(b) each Prime Common Share outstanding immediately prior to the Effective Date,
other than Dissenting Shares, will be exchanged as provided in Sections 2.4(a)
and (b); and (c) the Arrangement will, from and after the Effective Date, have
all of the effects provided by applicable law, including, without limitation,
the Act.
2.10 PRIME INFORMATION CIRCULAR AND HOMESTAKE PROXY STATEMENT --
(a) As soon as practicable after execution of this Agreement, Prime, in
consultation with Homestake, taking into account Homestake's comments
thereon and subject to Homestake's approval, such approval limited solely
to ensuring that the final text of the document complies with all
applicable laws, shall prepare a management information circular with
respect to the Prime Meeting (such circular, including any supplement
attached thereto, being hereinafter referred to as the "Prime Information
Circular"). If either Homestake or Homestake Canada determines on the
advice of its counsel that the issue of the Homestake Canada Exchangeable
Shares or the Homestake Common Stock pursuant to the Arrangement is
required to be registered under the 1933 Act, then Homestake Canada and
Homestake shall file with the SEC a joint registration statement on Form
S-4 (or other applicable form) ("Form S-4"), and the Prime Information
Circular shall also constitute the prospectus of Homestake Canada and
Homestake with respect to such issue, and shall be included in the
registration statement. Notwithstanding anything in this Agreement to the
contrary, Homestake Canada and Homestake shall be under no obligation to
file a joint registration statement if Homestake Canada and Homestake
shall have determined on the advice of their counsel that the issue of
the Homestake Canada Exchangeable Shares and Homestake Common Stock
pursuant to the Arrangement is exempt from the registration requirements
of Section 5 of the 1933 Act by virtue of Section 3(a)(10) thereof. If
Homestake determines on the advice of its counsel that it is necessary to
file a registration statement in order to register the Homestake Common
Stock to be issued from time to time after the Effective Date upon
exchange of the Homestake Canada Exchangeable Shares, then Homestake
shall file a registration statement on Form S-3 (or other applicable
form) ("Form S-3") with the SEC and use its reasonable best efforts to
maintain the effectiveness of such registration for such period as such
Homestake Canada Exchangeable Shares remain outstanding, and Homestake
shall use all reasonable efforts to cause such registration statement to
become and remain effective. Notwithstanding anything herein to the
contrary, Homestake shall be under no obligation to file the registration
statement if it shall have determined on the advice of its counsel that
the issue of Homestake Common Stock upon exchange of the Homestake Canada
Exchangeable Shares after the Effective Date is exempt from the
registration requirements of Section 5 of the 1933 Act by virtue of
Section 3(a)(9) thereof. In all circumstances, Homestake and Homestake
Canada shall make all such filings and otherwise comply with all
applicable requirements, in connection with all issues of Homestake
Common Stock and Homestake Canada Exchangable Shares contemplated hereby.
(b) As soon as practicable after execution of this Agreement, Homestake
shall prepare the Homestake Proxy Statement.
(c) Each party shall promptly furnish to the other parties all information
concerning such party and its shareholders as may be reasonably required
in connection with any action contemplated by this Section 2.10. The
Prime Information Circular and, if required, the registration statements
referenced in Section 2.10(a), and the Homestake Proxy Statement shall
comply in all material
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respects with all applicable requirements of law. Each of Homestake,
Homestake Canada and Prime will notify the other promptly of the receipt
of any comments from the OSC, BCSC, other Canadian securities
commissions, the SEC or its staff and of any request by the OSC, BCSC,
other Canadian securities commissions, the SEC or its staff for
amendments or supplements to the Prime Information Circular, the Form
S-4, the Form S-3 or the Homestake Proxy Statement or for additional
information, and will supply the other with copies of all correspondence
with the OSC, BCSC, other Canadian securities commissions, the SEC or its
staff with respect to the Prime Information Circular, the Form S-4, the
Form S-3 or the Homestake Proxy Statement. Whenever any event occurs
which should be set forth in an amendment or supplement to the Prime
Information Circular, the Form S-4, the Form S-3 or the Homestake Proxy
Statement, Homestake and Homestake Canada or Prime, as the case may be,
shall promptly inform the others of such occurrence and cooperate in
filing with the OSC, BCSC, other Canadian securities commissions, the SEC
or its staff, and/or mailing to shareholders of Prime or Homestake, such
amendment or supplement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF PRIME -- Prime hereby represents and
warrants to Homestake, Holdco and Homestake Canada that:
(a) Prime is a company duly incorporated and validly subsisting under the
laws of the Province of British Columbia;
(b) the board of directors of Prime has duly authorized the execution and
delivery of this Agreement and the transactions contemplated by this
Agreement;
(c) the execution and delivery of this Agreement does not, and the
Arrangement will not, result in a breach or violation of any term or
provision of Prime's memorandum or articles;
(d) the authorized capital of Prime consists of 400,000,000 Prime Common
Shares and 300,000,000 preference shares without par value of which not
more than 76,073,913 Prime Common Shares (and up to an additional 40,000
Prime Common Shares which may be issuable under the Prime Outside
Director's Option Plan) will be issued and outstanding on the Effective
Date;
(e) since December 31, 1996, Prime has filed all forms, reports and
documents with the BCSC required to be filed by it pursuant to the
SECURITIES ACT (British Columbia) and the regulations promulgated
thereunder, the comparable statutes and regulations of all other Canadian
provinces, and the applicable policies and rules of the BCSC and all
other Canadian provincial securities regulatory authorities having
jurisdiction. None of the forms, reports or documents filed by Prime with
the BCSC, at the time filed or as subsequently amended, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading;
(f) Prime has filed each Prime SEC Document which Prime was required to file
with the SEC since December 31, 1996. As of their respective dates or, in
the case of registration statements, their effective dates (or if amended
or superseded by a filing prior to the date of this Agreement, then on
the date of such filing), none of the Prime SEC Documents (including all
schedules thereto and documents incorporated by reference therein)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading, and the Prime SEC Documents complied when
filed in all material respects with the then
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<PAGE>
applicable requirements of the 1933 Act or the Exchange Act, as the case
may be, and the rules and regulations promulgated by the SEC thereunder;
(g) no information supplied or to be supplied by Prime for inclusion in the
Prime Information Circular or the Homestake Proxy Statement (and, if
filed, the Form S-4) will, at the time the Prime Information Circular is
mailed to the shareholders of Prime and at the time of the Prime Meeting
(and, if filed, at the time the Form S-4 is declared effective) or at the
time the Homestake Proxy Statement is mailed to the stockholders of
Homestake and at the time of the Homestake Meeting, as the case may be,
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 are
made, not misleading. The Prime Information Circular will comply as to
form in all material respects with the provisions of applicable Canadian
securities laws and the rules and regulations promulgated thereunder;
(h) Prime is not insolvent within the meaning of the Act; and
(i) no waivers, consents or approvals are required to be obtained from
parties to agreements, leases and other contracts to which Prime is a
party in order to give effect to the Arrangement other than such waivers,
consents and approvals which have been or will be obtained prior to the
Effective Date.
3.2 REPRESENTATIONS AND WARRANTIES OF HOMESTAKE CANADA -- Homestake Canada
hereby represents and warrants to Prime that:
(a) Homestake Canada is a corporation duly incorporated and validly
subsisting under the laws of Ontario;
(b) at the Effective Time, the authorized capital of Homestake Canada will
consist of an unlimited number of Common Shares, an unlimited number of
Homestake Canada Exchangable Shares and an unlimited number of third
preference shares of which 10,000,000 have been designated as Series 1
and no such shares are outstanding at the date hereof other than as are
described in the Disclosure Letter;
(c) all necessary corporate action has been taken on the part of Homestake
Canada in order to authorize the execution and delivery of this Agreement
by Homestake Canada and all necessary corporate action has been taken or
will be taken prior to the Effective Date on the part of Homestake Canada
in order to authorize the consummation by Homestake Canada of the
transactions contemplated by this Agreement, including, without
limitation, the issuance of the Homestake Canada Exchangeable Shares and
Homestake Canada has all necessary corporate power and capacity to enter
into this Agreement and to consummate the transactions contemplated
herein;
(d) the execution and delivery of this Agreement does not, and the
completion of the Arrangement will not, result in a breach or violation
of any term or provision of Homestake Canada's articles of incorporation
or by-laws;
(e) no waivers, consents or approvals are required to be obtained from
parties to agreements, leases and other contracts to which Homestake
Canada is a party in order to give effect to the Arrangement other than
such waivers, consents and approvals which have been or will be obtained
prior to the Effective Date; and
(f) upon the issuance of the Homestake Canada Exchangeable Shares under the
Arrangement, as contemplated by this Agreement, such Homestake Canada
Exchangeable Shares will be outstanding as duly and validly issued and
fully paid and non-assessable.
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<PAGE>
3.3 REPRESENTATIONS AND WARRANTIES OF HOLDCO -- Holdco hereby represents
and warrants to Prime, that:
(a) Holdco is an unlimited liability company organized and validly
subsisting under the laws of Nova Scotia;
(b) all necessary corporate action has been taken on the part of Holdco in
order to authorize the execution and delivery of this Agreement by Holdco
and all necessary corporate action has been taken or will be taken prior
to the Effective Date on the part of Holdco in order to authorize the
consummation by Holdco of the transactions contemplated by this Agreement
and Holdco has all necessary corporate power and capacity to enter into
this Agreement and to consummate the transactions contemplated herein;
(c) the execution and delivery of the Agreement does not, and the
Arrangement will not, result in any breach or violation of any term or
provision of Holdco's memorandum of incorporation or by-laws; and
(d) no waivers, consents or approvals are required to be obtained from
parties to agreements, leases and other contracts to which Holdco is a
party in order to give effect to the Arrangement, other than such
waivers, consents and approvals which have been or will be obtained prior
to the Effective Date.
3.4 REPRESENTATIONS AND WARRANTIES OF HOMESTAKE -- Homestake hereby
represents and warrants to Prime, that:
(a) Homestake and each Homestake Subsidiary is a corporation or joint
venture duly incorporated or formed, as the case may be, and duly
organized and validly existing under its respective jurisdiction of
incorporation or formation and each of Homestake and each Homestake
Subsidiary has all necessary power and capacity to own its assets and to
carry on business as presently conducted, and, but for the approval of
the Homestake Charter Changes, Homestake has all necessary corporate
power and capacity to enter into this Agreement and consummate the
transactions contemplated herein;
(b) other than as disclosed in the Disclosure Letter, Homestake is the
beneficial owner of all of the issued and outstanding shares or other
interests of each Homestake Subsidiary, and is the beneficial owner of
the shares or other interests described in the Disclosure Letter in
respect of those Homestake Subsidiaries where Homestake does not own all
of the issued and outstanding shares or other interests;
(c) the board of directors of Homestake has duly authorized the execution
and delivery of this Agreement and the transactions contemplated by this
Agreement;
(d) the execution and delivery of this Agreement does not, and, assuming the
effectiveness of the Homestake Charter Changes, the completion of the
Arrangement will not, result in a breach or violation of any term or
provision of Homestake's Restated Certificate of Incorporation or by-
laws;
(e) as of the date of this Agreement, Homestake's authorized capital
consists of 250,000,000 shares of Homestake Common Stock and 10,000,000
shares of preferred stock (par value US$1.00 per share) of which
2,500,000 have been designated as "Series A" preferred shares. The issued
capital of Homestake as at September 24,1998 is as set forth in the
Disclosure Letter. As of the date of this Agreement, the number of shares
of Homestake Common Stock which have been reserved for issuance in
connection with options, warrants, conversion privileges or other rights,
agreements, arrangements or other commitments obligating Homestake to
issue or sell any shares of Homestake Common Stock or securities or
obligations convertible into or exchangable for any shares of Homestake
Common Stock is as set forth in the Disclosure Letter;
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(f) upon issuance of the Homestake Common Stock under the Arrangement and as
contemplated by this Agreement, such shares of Homestake Common Stock
will be outstanding as duly and validly issued and fully paid and
non-assessable;
(g) Homestake has filed each Homestake SEC Document which Homestake was
required to file with the SEC since December 31, 1996. As of their
respective dates or, in the case of registration statements, their
effective dates (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing), none of the
Homestake SEC Documents (including all schedules thereto and documents
incorporated by reference therein) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and the
Homestake SEC Documents complied when filed in all material respects with
the then applicable requirements of the 1933 Act or the Exchange Act, as
the case may be, and the rules and regulations promulgated by the SEC
thereunder;
(h) none of the information supplied or to be supplied by Homestake to Prime
for inclusion in the Prime Information Circular will, at the time the
Prime Information Circular is mailed to the shareholders of Prime and at
the time of the Prime Meeting, 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 are made, not misleading;
(i) no waivers, consents or approvals are required to be obtained from
parties to agreements, leases and other contracts to which Homestake is a
party in order to give effect to the Arrangement other than such waivers,
consents and approvals which have been, or will be, obtained prior to the
Effective Time;
(j) except as disclosed in the Disclosure Letter, there is no suit, action
or proceeding pending or, to the knowledge of Homestake, threatened
against Homestake or any Homestake Subsidiary that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect upon Homestake, and there is no judgment, decree, injunction, rule
or order of any applicable governmental or other regulatory authority or
arbitrator with jurisdiction over Homestake or any Homestake Subsidiary
outstanding against Homestake or any Homestake Subsidiary causing, or
which insofar as reasonably can be foreseen, in the future would have, a
Material Adverse Effect upon Homestake;
(k) except as disclosed in the Disclosure Letter, since December 31, 1997,
to the date of this Agreement, Homestake has conducted its business only
in the ordinary course and there has not been, since such date, any
event, change or effect that has had or could reasonably be expected to
have a Material Adverse Effect upon Homestake;
(l) Except as disclosed in the Disclosure Letter:
(i) there is no material environmental liability, nor factors likely to
give rise to any material environmental liability, affecting any of
the material properties of Homestake or any Homestake Subsidiary
apart from those disclosed in any Homestake SEC Document or in the
Disclosure Letter that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect upon
Homestake; and
(ii) neither Homestake nor any Homestake Subsidiary has materially
violated or materially infringed any environmental law now in
effect nor has any such entity materially violated or materially
infringed any then current environmental law as applied at that
time, other than such violations or infringements that,
individually or in the aggregate, have not had and could not
reasonably be expected to have a Material Adverse Effect upon
Homestake;
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(m) each of Homestake and each Homestake Subsidiary has good and marketable
title, applying customary standards in the mining industry, to its
operating properties and properties with proven and probable ore reserves
(other than property as to which the applicable entity is a lessee, in
which case it has a valid leasehold interest), except for such defects in
title that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on Homestake;
(n) the proven and probable reserves of Homestake as set forth in its Annual
Report on Form 10-K for the year ended December 31, 1997 were prepared in
accordance with accepted engineering practices and were, at such date, in
compliance in all material respects with the requirements applicable to
the presentation of such reserves in documents filed with the SEC;
(o) each of Homestake and each Homestake Subsidiary has its assets insured
against loss or damages as is appropriate to its business and assets, in
such amounts and against such risks as are customarily carried and
insured against by owners of comparable businesses and assets, and such
insurance coverages will be continued in full force and effect to and
including the Effective Date other than those insurance coverages in
respect of which the failure to continue in full force and effect could
not reasonably be expected to have a Material Adverse Effect on
Homestake;
(p) no consent, approval, order or authorization of, or registration,
declaration or filing with, any applicable federal, state, provincial,
local or foreign governmental or other regulatory authority with
jurisdiction over Homestake or any Homestake Subsidiary (a "Governmental
Authority") is required to be obtained by Homestake or any of the
Homestake Subsidiaries in connection with the execution and delivery of
this Agreement or the Plan of Arrangement or the consummation of the
transactions contemplated hereby or thereby, except for those consents,
orders, authorizations, declarations, registrations or approvals which
are contemplated by this Agreement or the Plan of Arrangement or those
consents, approvals, orders, authorizations, registrations, declarations
or filings that, if not obtained, would not prevent or delay the
consummation of the Arrangement or otherwise prevent Homestake from
performing its obligations under this Agreement and could not reasonably
be expected to have a Material Adverse Effect on Homestake;
(q) except as disclosed in the Disclosure Letter, each of Homestake and each
Homestake Subsidiary has all permits, licenses, certificates of
authority, orders, and approvals of, and has made all filings,
applications and registrations with, applicable Governmental Authorities
that are required in order to permit it to carry on its business as
presently conducted, except for such permits, licenses, certificates,
orders, filings, applications and registrations, the failure to have or
make, which, individually or in the aggregate, have not had and could not
reasonably be expected to have a Material Adverse Effect on Homestake;
(r) the financial statements of Homestake included in any Homestake SEC
Document complied as to form in all material respects with the then
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance
with U.S. GAAP applied on a consistent basis during the periods involved
(except as may have been indicated in the notes thereto or, in the case
of the unaudited statements, as permitted by Form 10-Q promulgated by the
SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, year-end audit adjustments) the consolidated
financial position of Homestake and its consolidated subsidiaries as at
the respective dates thereof and the consolidated results of their
operations and cash flows for the respective periods then ended. Except
as disclosed in any Homestake SEC Document or in the Disclosure Letter,
neither Homestake nor any of the Homestake Subsidiaries has any
liabilities, accrued, contingent or otherwise, that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect on Homestake;
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<PAGE>
(s) Homestake and the Homestake Subsidiaries have complied, in the conduct
of their respective businesses, with all applicable federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto, except where the failure to comply
would not be reasonably likely, individually or in the aggregate, to have
a Material Adverse Effect on Homestake. Homestake has not been notified
by any Governmental Authority of any investigation with respect to
Homestake or any Homestake Subsidiary that is pending or threatened, nor
has any Governmental Authority notified Homestake of such entity's
intention to commence or to conduct any investigation that would be
reasonably likely to have a Material Adverse Effect on Homestake;
(t) (i) Homestake and each Homestake Subsidiary have timely filed (or have
had timely filed on their behalf) or will timely file or cause to
be timely filed, all material Tax Returns required by applicable
law to be filed by any of them prior to or as of the Effective Time
other than those Tax Returns the failure of which to file has not
had and could not reasonably be expected to have a Material Adverse
Effect upon Homestake;
(ii) all such Tax Returns are, or will be at the time of filing, true,
complete and correct in all respects other than in circumstances
where the failure of such Tax Returns to be true, complete and
correct in all respects has not had and could not reasonably be
expected to have a Material Adverse Effect upon Homestake;
(iii) Homestake and each Homestake Subsidiary have paid (or have had paid
on their behalf) or, where payment is not yet due, have established
(or have had established on their behalf and for their sole benefit
and recourse) or will establish or cause to be established on or
before the Effective Time an adequate accrual for the payment of
all Taxes due with respect to any period ending prior to or as of
the Effective Time, except where the failure to pay or establish
adequate accruals has not had and could not reasonably be expected
to have a Material Adverse Effect upon Homestake; and
(iv) except as set forth in the Disclosure Letter, no deficiencies for
any Taxes have been proposed, asserted or assessed against
Homestake or any Homestake Subsidiary other than those Taxes the
proposal or assertion of, or the assessment against, have not had
and could not reasonably be expected to have a Material Adverse
Effect upon Homestake, and no requests for waivers of the time to
assess any such material Taxes are pending; and
(u) except as disclosed in any Homestake SEC Document filed prior to the
date of this Agreement, to Homestake's knowledge, neither it nor any
Homestake Subsidiary is in default under, and there exists no event,
condition or occurrence which, after notice or lapse of time, or both,
would constitute such a default by Homestake or any Homestake Subsidiary
under, any contract or agreement to which Homestake or any Homestake
Subsidiary is a party and which would, if terminated due to such default,
have, insofar as can reasonably be foreseen, a Material Adverse Effect
upon Homestake.
ARTICLE 4
COVENANTS
4.1 COVENANTS OF PRIME -- During the period from the date of this Agreement
to the Effective Date, Prime shall carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted and
in compliance in all material respects with all applicable laws and regulations.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the
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Effective Date, except as expressly contemplated by this Agreement and the Plan
of Arrangement or as otherwise approved in writing by Homestake, Prime shall
not:
(a) enter into any transaction or perform any act which might interfere with
or be inconsistent with the successful completion of the Arrangement or
which would render inaccurate any of the representations and warranties
set forth herein if such representations and warranties were made at a
date subsequent to such transaction or act and all references to the date
hereof were references to such later date;
(b) take or fail to take any action within its reasonable control which
would result in a condition precedent to the Arrangement not being
satisfied;
(c) other than with respect to options to purchase up to 40,000 Prime Common
Shares which may be issuable under the Prime Outside Director's Option
Plan, allot or issue any shares, or enter into or have outstanding any
subscriptions, warrants, options or other agreements or commitments
obligating it to issue any shares;
(d) declare, set aside or pay any dividends (other than in the normal
course) on, or make any other distributions in respect of, any of its
shares of capital stock;
(e) subdivide, consolidate or reclassify any of its shares of capital stock
or issue or authorize the issue of any other securities in its capital
stock in respect of, in lieu of or in substitution for shares of its
capital stock;
(f) purchase, redeem or otherwise acquire any shares of capital stock of
Prime or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities, other than as required in
connection with the exercise of Prime Board of Director Options;
(g) amend its memorandum or articles; or
(h) authorize any of, or commit or agree to take any of, the foregoing
actions.
4.2 COVENANTS OF HOMESTAKE, HOMESTAKE CANADA AND HOLDCO -- During the
period from the date of this Agreement to the Effective Date, each of Homestake,
Homestake Canada and Holdco will carry on its business in the usual and ordinary
course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws and regulations.
Without limiting the generality of the foregoing, except as contemplated in this
Agreement and the Plan of Arrangement, during the period from the date of this
Agreement until the Effective Date, each of Homestake, Holdco and Homestake
Canada agrees, except with the prior written agreement of Prime, that:
(a) it will not enter into any transaction or perform any act that would
reasonably be expected to interfere with or be inconsistent with the
successful completion of the Arrangement or which would render inaccurate
any of the representations and warranties set forth herein if such
representations and warranties were made at a date subsequent to such
transaction or act and all references to the date hereof were references
to such later date;
(b) it will use all reasonable efforts (i) to cause the Homestake Canada
Exchangeable Shares issuable pursuant to the Arrangement to have been
conditionally approved for listing on The Toronto Stock Exchange by the
Effective Date, or, in the event that the distribution requirements of
The Toronto Stock Exchange cannot be met, on another Canadian stock
exchange listed in Section 3200 of the Regulation made under the INCOME
TAX ACT (Canada); and (ii) to cause the shares of Homestake Common Stock
issuable pursuant to the Arrangement, including through the exchange of
the Homestake Canada Exchangeable Shares from time to time, to have been
approved for listing on the New York Stock Exchange, by the Effective
Date subject to notice of issuance; and
B-18
<PAGE>
(c) it will not take or fail to take any action within its control (other
than an action or a failure to take any action on the part of Prime which
is undertaken or failed to be undertaken in the situation where the
representatives of Homestake, Homestake Canada or Holdco on the Board of
Directors of Prime did not participate in such decision) which would
result in a condition precedent to the Arrangement not being satisfied.
4.3 COOPERATION, CONSENTS AND APPROVALS -- Each party will cooperate and
use their respective reasonable efforts to:
(a) obtain, before the Effective Date, all authorizations, waivers,
exemptions, consents, orders and other approvals from domestic or foreign
courts, governmental or regulatory agencies, boards, commissions or other
authorities, shareholders and third parties as are necessary for the
consummation of the transactions contemplated hereby; and
(b) satisfy each of the conditions precedent to be satisfied by it and to
take, or cause to be taken, all other action and to do, or cause to be
done, all other things necessary or advisable under applicable laws and
regulations to permit the completion of the Arrangement in accordance
with the provisions of this Agreement and the Plan of Arrangement.
Each party will vigorously defend or cause to be defended any lawsuits or other
legal proceedings brought against it challenging this Agreement or the
completion of the Arrangement.
4.4 NOTIFICATION -- Each party will promptly notify the other if any of the
representations and warranties made by it in this Agreement ceases to be true,
accurate and complete in any material respect and of any failure to comply in
any material respect with any of its obligations hereunder.
4.5 COURT PROCEEDINGS -- Prime shall permit Homestake to review and comment
upon drafts of all material to be filed with the Court in connection with the
Arrangement prior to the service and filing of that material and will give
reasonable consideration to such comments. In addition, Prime will not object to
counsel to Homestake or Homestake Canada making such submissions on the hearing
of the motion of the Interim Order and the application for the Final Order as
such counsel deems appropriate provided that Prime is advised of the nature of
any submissions not reasonably contemplated in the material to be filed with the
Court prior to the hearing. Prime shall also provide counsel to Homestake on a
timely basis with copies of any notice of appearance and evidence served on
Prime or its counsel in respect of the application for the Final Order or any
appeal therefrom.
ARTICLE 5
CONDITIONS PRECEDENT
5.1 MUTUAL CONDITIONS PRECEDENT -- The obligations of each party to
complete the Arrangement are subject to the fulfilment or mutual waiver by the
parties on or before the Effective Date of the following conditions:
(a) the Interim Order shall have been obtained in form and substance
satisfactory to each of the parties, acting reasonably;
(b) the Arrangement, with or without amendment, shall have been approved at
the Prime Meeting by the requisite majorities of Prime shareholders, as
provided in the Interim Order;
(c) the Final Order shall have been obtained in form and substance
satisfactory to each of the parties, acting reasonably;
(d) the Form S-3 and Form S-4, if filed, shall have been declared effective
under the 1933 Act and shall not be the subject of any stop-order or
proceedings seeking a stop-order, and the Prime Information Circular
shall on the Effective Date not be subject to any similar proceedings
B-19
<PAGE>
commenced or threatened by the SEC, the BCSC or other relevant Canadian
securities regulatory authorities;
(e) no order or decree of any domestic or foreign court, tribunal,
governmental agency or other regulatory authority or administrative
agency, board or commission, and no law, regulation, policy, directive or
authority shall have been enacted, promulgated, made, issued or applied
to cease trade, enjoin, prohibit or impose material limitations on, the
Arrangement or the transactions contemplated thereby;
(f) there shall not exist any prohibition at law against the completion of
the Arrangement;
(g) this Agreement shall not have been terminated pursuant to the provisions
hereof;
(h) the adoption of the Homestake Charter Changes shall have been approved
by the Homestake stockholders; and
(i) Prime, Homestake Canada, Holdco and Homestake shall be satisfied, acting
reasonably, that all regulatory filings have been made, rulings and
orders obtained and other proceedings taken so that the Homestake Canada
Exchangeable Shares and the shares of Homestake Common Stock issuable as
contemplated hereby will be issued and distributed in accordance with, or
on the basis of exemptions from, the registration and prospectus
requirements of applicable United States and Canadian securities laws and
that such Homestake Canada Exchangeable Shares and shares of Homestake
Common Stock will be "freely tradeable" in Canada by the Prime
shareholders to whom they are issued or delivered, subject to
restrictions on the sale of securities by "control persons" and other
customary restrictions under such laws and the shares of Homestake Common
Stock will be "freely tradeable" in the United States by the Prime
shareholders to whom they are issued or delivered subject to restrictions
applicable to trades by affiliates and other customary restrictions under
applicable United States and state securities laws.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRIME -- The obligations of
Prime hereunder are subject to the fulfilment or satisfaction on or before the
Effective Date of each of the following conditions (which are for the sole
benefit of Prime and may be waived by it in its sole discretion):
(a) the representations and warranties of Homestake Canada, Holdco and
Homestake set forth in Sections 3.2, 3.3 and 3.4, respectively, shall be
true and accurate when made and on and as of the Effective Date with the
same force and effect as if they had been made at the Effective Date
except to the extent that the failure of such representations and
warranties to be true and accurate has not had and would not be
reasonably likely to have a Material Adverse Effect on Homestake, and
Prime shall receive a certificate to such effect executed by a
Vice-President or the Chief Financial Officer of Homestake on behalf of
Homestake;
(b) Homestake shall have amended the Homestake Rights Agreement as set forth
in Schedule 7 and Homestake Canada shall have adopted the Homestake
Canada Rights Agreement;
(c) each of Homestake, Homestake Canada and Holdco shall have performed and
complied in all material respects with all of its covenants required to
be performed by it under this Agreement and the Plan of Arrangement on or
before the Effective Date, and Prime shall receive a certificate to such
effect signed by a Vice President or the Chief Financial Officer of
Homestake on behalf of Homestake;
(d) the Homestake Canada Exchangeable Shares issuable pursuant to the
Arrangement shall have been conditionally approved for listing on The
Toronto Stock Exchange subject to satisfaction of customary conditions
or, in the event that the distribution requirements of The Toronto Stock
Exchange cannot be met, on another Canadian stock exchange listed in
Section 3200 of the Regulation made under the Income Tax Act (Canada),
and the shares of Homestake Common Stock issuable pursuant to the
Arrangement, including through the exchange of the Homestake
B-20
<PAGE>
Canada Exchangeable Shares from time to time, shall have been approved
for listing on the New York Stock Exchange, subject to notice of
issuance;
(e) since the date of this Agreement and other than as discussed in the
Disclosure Letter, there shall not have been one or more events or
changes that has had or would be reasonably likely to have a Material
Adverse Effect on Homestake and neither Homestake, nor any of its
subsidiaries, shall have taken any action which would have a Material
Adverse Effect on Homestake; and
(f) Prime shall have received opinions addressed to it, satisfactory to it,
acting reasonably, from counsel to Homestake Canada and Homestake to the
effect that the Homestake Canada Exchangeable Shares and the shares of
Homestake Common Stock issuable as contemplated hereby, respectively,
will, when issued, be duly and validly issued and outstanding as fully
paid and non-assessable.
5.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOMESTAKE, HOMESTAKE CANADA
AND HOLDCO -- The obligations of Homestake, Homestake Canada and Holdco
hereunder are subject to the fulfilment or satisfaction on or before the
Effective Date, of each of the following conditions (which are for the sole
benefit of Homestake, Homestake Canada and Holdco and may be waived by them in
their sole discretion):
(a) the representations and warranties of Prime set forth in Section 3.1
shall be true and accurate when made and on and as of the Effective Date
with the same force and effect as if they had been made at the Effective
Date except to the extent that the failure of such representations and
warranties to be true and accurate (i) is the result of action taken by
Homestake or Homestake Canada in respect of the affairs of Prime; or (ii)
has not had and would not be reasonably likely to have a Material Adverse
Effect on Prime, and Homestake shall receive a certificate to such effect
executed by a Vice President or the Chief Financial Officer of Prime on
behalf of Prime;
(b) Prime shall have performed and complied in all material respects with
all of its covenants required to be performed by it under this Agreement
and the Plan of Arrangement on or before the Effective Date, and
Homestake, Homestake Canada and Holdco shall receive a certificate to
such effect signed by a Vice President or the Chief Financial Officer of
Prime on behalf of Prime;
(c) since the date of this Agreement, there shall not have been one or more
events or changes that has had or would be reasonably likely to have a
Material Adverse Effect on Prime and neither Prime, nor any of its
subsidiaries, shall have taken any action which would have a Material
Adverse Effect on Prime; and
(d) there shall be no more than 3,758,291 Dissenting Shares in the
aggregate.
ARTICLE 6
AMENDMENT
6.1 AMENDMENT -- This Agreement may, at any time and from time to time
before or after the holding of the Prime Meeting but not later than the
Effective Date, be amended by written agreement of the parties hereto without,
subject to applicable law, further notice to or authorization on the part of
their respective shareholders and any such amendment may, without limitations:
(a) change the time for performance of any of the obligations or acts of the
parties hereunder;
(b) waive any inaccuracies or modify any representation or warranty
contained herein or in any document delivered pursuant to this Agreement;
or
(c) waive compliance with or modify any of the conditions precedent
contained herein
B-21
<PAGE>
provided that no such amendment shall decrease the number of Homestake Canada
Exchangeable Shares or shares of Homestake Common Stock to be received by the
shareholders of Prime in exchange for each Prime Common Share pursuant to the
Arrangement without the approval of such shareholders in the same manner as
required for the approval of the Arrangement or in such other manner as may be
ordered by the Court.
ARTICLE 7
TERMINATION OF AGREEMENT
7.1 TERMINATION -- This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Arrangement by the
shareholders of Prime or the approval of the adoption of the Homestake Charter
Changes by the stockholders of Homestake:
(a) by mutual agreement;
(b) by Prime, if there has been a breach by Homestake, Holdco or Homestake
Canada of any representation, warranty, covenant, or agreement set forth
in this Agreement on the part of Homestake, Holdco or Homestake Canada,
or if any representation or warranty of Homestake, Holdco or Homestake
Canada shall have become untrue, in either case which has or is
reasonably likely to have a Material Adverse Effect on Homestake, and
which Homestake, Holdco or Homestake Canada fails to cure within 15
Business Days after written notice thereof from Prime (except that no
cure period shall be provided for a breach by Homestake, Holdco or
Homestake Canada which by its nature cannot be cured);
(c) by Homestake, Homestake Canada or Holdco if there has been a breach by
Prime of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of Prime or if any representation or warranty
of Prime shall have become untrue, in either case other than as a result
of action taken by Homestake or Homestake Canada in respect of Prime,
which has or is reasonably likely to have a Material Adverse Effect on
Prime and which Prime fails to cure within 15 Business Days after written
notice thereof from Homestake (except that no cure period shall be
provided for a breach by Prime which by its nature cannot be cured);
(d) by any party (provided that such party is not then in breach of this
Agreement) if the shareholders of Prime do not approve the Arrangement by
the requisite majorities at the Prime Meeting or the stockholders of
Homestake do not approve the adoption of the Homestake Charter Changes;
(e) by either Prime or Homestake, if all the conditions for completing the
Arrangement shall not have been satisfied or waived on or before 5:00
p.m. on March 1, 1999 other than as a result of a breach of this
Agreement by the terminating party; and
(f) by any party, if a permanent injunction or other order by any U.S. or
Canadian federal, provincial or state court shall have been issued and
shall have become final and non-appealable which would (i) make illegal
or otherwise restrain or prohibit the consummation of the Arrangement;
(ii) prohibit the ownership or operation by Homestake, Homestake Canada
or Holdco of all of the business or assets of Prime; or (iii) compel
Homestake, Homestake Canada or Holdco to dispose of or hold separate all
or any material portion of the business or assets of Prime.
7.2 NOTICE OF TERMINATION -- Any termination of this Agreement under
Section 7.1 above will be effective upon the delivery of written notice by the
terminating party to the other parties hereto.
7.3 EFFECT OF TERMINATION -- In the case of any termination of this
Agreement as provided in this Article 7 this Agreement shall be of no further
force and effect (except as provided in Article 8), and nothing herein shall
relieve any party from liability for any breach of this Agreement.
B-22
<PAGE>
ARTICLE 8
GENERAL
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES -- None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Date of the Arrangement.
This Section 8.1 shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Effective Date of the
Arrangement.
8.2 NOTICES -- Any notice which a party may desire to give or serve upon
another party shall be in writing and may be delivered, sent by facsimile
transmission or mailed by prepaid registered mail, return receipt requested, to
the following addresses:
(a) in the case of Prime:
1055 West Georgia Street
Suite 1100
Vancouver, British Columbia
V6E 3P3
Attention: Walter Segsworth
Facsimile No.: (604) 687-3984
with a copy to:
Lawson Lundell Lawson & McIntosh
1600-925 West Georgia Street
Vancouver, British Columbia
V6C 3L2
Attention: A.W. Ryan
Facsimile No.: (604) 669-1620
(b) in the case of Homestake, Holdco and Homestake Canada:
c/o Homestake Mining Company
650 California Street
San Francisco, CA, 94108-2788
Attention: Wayne Kirk
Facsimile No.: (415) 397-0952
with a copy to:
Osler, Hoskin & Harcourt
Suite 6600
First Canadian Place
100 King Street West
Toronto, Ontario
M5X 1B8
Attention: H.B. (Clay) Horner
Facsimile No.: (416) 862-6666
or to such other addresses as the party to or upon whom notice is to be given or
served has communicated to the other parties by notice given or served in the
manner provided for in this section. In the case of delivery, notice shall be
deemed to be given on the date of delivery, in the case of facsimile
transmission, notice shall be deemed to be given on the next Business Day after
the date of receipt of such transmission, and in the case of mailing, notice
shall be deemed to be given on the third Business Day after such mailing.
B-23
<PAGE>
8.3 EXPENSES -- Each of Homestake, Homestake Canada and Holdco shall pay
its own costs incurred in connection with the Arrangement. Prime shall pay its
own costs incurred in connection with the Arrangement except that if the
Arrangement is not completed and this Agreement has not been terminated in
accordance with the provisions of Section 7.1(c), Homestake Canada shall
reimburse Prime for its out-of-pocket expenses incurred in connection with the
Arrangement. In all circumstances Homestake Canada shall reimburse Prime for the
costs of the valuation and fairness opinion provided by RBC Dominion Securities
Inc. and the costs of the reserve review and audit work and other services
rendered by Roscoe Postle Associates Inc.
8.4 SEVERABILITY -- If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
8.5 COUNTERPARTS -- This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
8.6 GOVERNING LAW -- This Agreement shall be governed by and construed in
accordance with the laws of the Province of British Columbia.
8.7 FURTHER ASSURANCES -- Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
8.8 ASSIGNMENT -- Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
8.9 ENFORCEMENT -- The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached . It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of Canada located in the
province of British Columbia, this being in addition to any other remedy to
which they are entitled at law or in equity.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the
date first written above.
B-24
<PAGE>
PRIME RESOURCES GROUP INC.
<TABLE>
<S> <C> <C>
By: ---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
</TABLE>
HOMESTAKE CANADA INC.
<TABLE>
<S> <C> <C>
By: ---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
</TABLE>
HOMESTAKE CANADA HOLDINGS COMPANY
<TABLE>
<S> <C> <C>
By: ---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
</TABLE>
HOMESTAKE MINING COMPANY
<TABLE>
<S> <C> <C>
By: ---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
</TABLE>
B-25
<PAGE>
SCHEDULE 1
PLAN OF ARRANGEMENT
THE PLAN OF ARRANGEMENT IS ATTACHED AS
APPENDIX C TO THIS SUPPLEMENT
B-26
<PAGE>
SCHEDULE 2
HOMESTAKE CANADA EXCHANGEABLE
SHARE TERMS
THE HOMESTAKE CANADA EXCHANGEABLE
SHARE TERMS ARE
ATTACHED AS APPENDIX D TO THIS SUPPLEMENT
B-27
<PAGE>
SCHEDULE 3
NEW HOMESTAKE CANADA COMMON SHARES
B-28
<PAGE>
SCHEDULE 3
to the Arrangement Agreement made as of September 28, 1998
among Prime Resources Group Inc., Homestake Canada Inc.,
Homestake Canada Holdings Company and Homestake Mining Company
HOMESTAKE CANADA INC.
PROVISIONS IN ARTICLES RE RIGHTS
AND PRIVILEGES OF COMMON SHARES
1.1 DIVIDENDS
Subject to the prior rights of the holders of the Exchangeable Shares and
any other shares ranking senior to the Common Shares with respect to priority in
the payment of dividends, the holders of Common Shares shall be entitled to
receive dividends and the Corporation shall pay dividends thereon, as and when
declared by the board of directors of the Corporation out of the assets of the
Corporation properly applicable to the payment of dividends, in such amount and
in such form as the board of directors may from time to time determine and all
dividends that the directors may declare on the Common Shares shall be declared
and paid in equal amounts per share on all Common Shares at the time
outstanding.
2.1 DISSOLUTION
In the event of the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Exchangeable
Shares and any other shares ranking senior to the Common Shares with respect to
priority in the distribution of assets upon dissolution, liquidation or winding
up, the holders of the Common Shares shall be entitled to participate rateably
in any distribution of the assets of the Corporation for the purposes of winding
up its affairs.
3.1 VOTING RIGHTS
The holders of the Common Shares shall be entitled to receive notice of and
to attend all meetings of the shareholders of the Corporation, and shall have
one vote for each Common Share held at all meetings of the shareholders of the
Corporation, except for meetings at which only holders of another specified
class or series of shares of the Corporation are entitled to vote separately as
a class series.
B-29
<PAGE>
SCHEDULE 4
VOTING, SUPPORT AND
EXCHANGE TRUST AGREEMENT
THE VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT IS
ATTACHED AS APPENDIX E TO THIS SUPPLEMENT
B-30
<PAGE>
SCHEDULE 5
HOMESTAKE CHARTER CHANGES
B-31
<PAGE>
- --------------------------------------------------------------------------------
FOR EDGAR FILING, LANGUAGE THAT WILL BE ADDED IS PRECEDED BY A "{" AND FOLLOWED
BY A "}". LANGUAGE THAT WILL BE ELIMINATED IS PRECEDED BY A "<#>" AND FOLLOWED
BY A "</#>".
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
(MATERIAL PRESENTED IN BOLD ITALICS TYPE REFLECTS A PROPOSED ADDITION TO BE
EFFECTED BY THE RESTATED CERTIFICATE. MATERIAL THROUGH WHICH A LINE HAS BEEN
DRAWN REFLECTS A PROPOSED DELETION.)
RESTATED CERTIFICATE OF INCORPORATION
OF
HOMESTAKE MINING COMPANY
In accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, HOMESTAKE MINING COMPANY does hereby
amend and restate its RESTATED Certificate of Incorporation. HOMESTAKE MINING
COMPANY was incorporated under the name HOMESTAKE MINING CORPORATION, and the
original Certificate of Incorporation was filed with the Secretary of State on
November 28, 1983. This Restated Certificate of Incorporation was duly adopted
by the Stockholders and the Board of Directors of the Company in accordance with
Sections 242 and 245 of the Delaware General Corporation Law, as amended.
The text of the Restated Certificate of Incorporation is hereby amended and
restated so as to read in its entirety as follows:
ONE: The name of this corporation is
HOMESTAKE MINING COMPANY.
TWO: The address of the registered office of the Company in the State of
Delaware is <#>100 West Tenth</#> {1209 ORANGE Street}, in the City of
Wilmington, County of New Castle, and the name of its registered agent at that
address is The Corporation Trust Company.
THREE: The purpose of the Company is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOUR: The total number of shares of all classes of stock which the Company
is authorized to issue is <#>260,000,000</#> {460,000,001} shares. Of these,
250,000,000 450,000,000 shares shall be shares of common stock and the par value
of each such share shall be $1.00 ("Common Stock"), <#>and</#> 10,000,000 shares
shall be shares of preferred stock and the par value of each such share shall be
$1.00 ("Preferred Stock"), {AND ONE SHARE SHALL BE A SHARE OF SPECIAL VOTING
STOCK WITH CERTAIN VOTING RIGHTS AND THE PAR VALUE OF SUCH SHARE SHALL BE $1.00
("SPECIAL VOTING STOCK").} The aggregate par value of all shares is
<#>260,000,000</#> {$460,000,001}.
The number of shares of Preferred Stock authorized by this Article FOUR may
be increased or decreased (but not below the number of shares then outstanding)
by the affirmative vote of the holders of a majority of the <#>Common</#> {TOTAL
VOTING POWER OF ALL OUTSTANDING SHARES OF THE COMMON STOCK AND SPECIAL VOTING}
Stock of the Company and, subject to any limitation imposed in any resolution
adopted by the Board of Directors providing for the issue of any particular
series of Preferred Stock, the holders of Preferred Stock shall not be entitled
to vote upon any such increase or decrease.
{THE RECORD HOLDER OF THE SPECIAL VOTING STOCK SHALL NOT BE ENTITLED TO
RECEIVE ANY DIVIDENDS OR OTHER DISTRIBUTIONS OR TO RECEIVE OR PARTICIPATE IN ANY
DISTRIBUTION OF ASSETS UPON ANY VOLUNTARY OR INVOLUNTARY LIQUIDATION,
DISSOLUTION OR WINDING UP OF THE COMPANY. EXCEPT AS OTHERWISE REQUIRED BY
APPLICABLE LAW, AT EACH ANNUAL OR SPECIAL MEETING OF STOCKHOLDERS OF THE COMPANY
THE RECORD HOLDER OF THE SPECIAL VOTING STOCK SHALL BE ENTITLED TO VOTE ON ALL
MATTERS SUBMITTED TO A VOTE OF THE HOLDERS OF THE COMMON STOCK, VOTING TOGETHER
WITH THE HOLDERS OF THE COMMON STOCK AS A SINGLE CLASS (EXCEPT AS OTHERWISE
PROVIDED HEREIN OR BY APPLICABLE LAW), AND THE RECORD HOLDER OF THE SPECIAL
VOTING STOCK SHALL BE ENTITLED TO CAST ON ANY SUCH MATTER A NUMBER OF VOTES
EQUAL TO THE NUMBER OF EXCHANGEABLE SHARES ("EXCHANGEABLE SHARES") OF HOMESTAKE
CANADA INC. AND ITS SUCCESSORS AT LAW, WHETHER BY MERGER, AMALGAMATION OR
OTHERWISE, OUTSTANDING AS OF THE RECORD DATE FOR SUCH ANNUAL OR SPECIAL MEETING
OF STOCKHOLDERS, WHICH ARE NOT OWNED BY THE COMPANY OR ANY SUBSIDIARY OF THE
COMPANY. AT SUCH TIME AS NO
B-32
<PAGE>
EXCHANGEABLE SHARES (OTHER THAN EXCHANGEABLE SHARES OWNED BY THE COMPANY OR ANY
SUBSIDIARY OF THE COMPANY) SHALL BE OUTSTANDING AND THERE ARE NO SHARES OF
STOCK, DEBT, OPTIONS OR OTHER AGREEMENTS WHICH COULD GIVE RISE TO THE ISSUANCE
OF ANY EXCHANGEABLE SHARES TO ANY PERSON (OTHER THAN THE COMPANY OR ANY
SUBSIDIARY OF THE COMPANY), THE SHARE OF SPECIAL VOTING STOCK SHALL
AUTOMATICALLY BE REDEEMED FOR $1.00, AND UPON ANY SUCH REDEMPTION OR OTHER
PURCHASE OR ACQUISITION OF THE SPECIAL VOTING STOCK BY THE COMPANY THE SHARE OF
SPECIAL VOTING STOCK SHALL BE DEEMED RETIRED AND CANCELED AND MAY NOT BE
REISSUED.}
FIVE: The Board of Directors shall have the authority, subject to
limitations prescribed by law and the provisions of this Article FIVE, to
determine and provide for the issuance of Preferred Stock in one or more series
and to establish or alter the number of shares to be included in each such
series, and to fix the voting powers, designations, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions of the shares of each such series of Preferred
Stock.
The Board of Directors shall have the authority, subject to the limitations
stated in any resolution or resolutions originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any such series
subsequent to the issuance of shares of that series. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status of authorized but unissued shares of Preferred
Stock.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, the authority to determine, by resolution or
resolutions providing for the issue of shares of each series, the following: (1)
the number of shares in and distinctive designation of each series; (2) the
dividend rate on each series and whether dividends shall be cumulative; (3) the
voting rights, if any, of the shares of each series in addition to those
required by law, including the number of votes per share and any rights of the
shares of each series to vote as a separate class in connection with any
specified transaction or item of business; (4) whether each series shall have
conversion privileges and, if so, the terms and conditions of such conversion;
(5) whether the shares of each series shall be redeemable and, if so, the terms
and conditions of such redemption; (6) the rights of each series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company;
(7) whether each series shall be subject to the operation of a purchase,
retirement or sinking fund and, if so, the terms and conditions thereof; and (8)
any other preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions of each series.
DESIGNATION OF SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK SETTING
FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF SUCH SERIES OF PREFERED STOCK.
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
Section 1. DESIGNATION AND NUMBER OF SHARES. The shares of such series
shall be designated as "Series A Participating Cumulative Preferred Stock" (the
"Series A Preferred Stock"). The par value of each share of the Series A
Preferred Stock shall be $1.00. The number of shares <#>initially</#>
constituting the Series A Preferred Stock shall be <#>2,500,000</#> {4,500,000};
PROVIDED HOWEVER, that if more than a total of <#>2,500,000</#> {4,500,000}
shares of Series A Preferred Stock shall be issuable upon the exercise of Rights
issued pursuant to the Rights Agreement dated as of October 16, 1987, as
amended, (the "Rights Agreement"), the Board of Directors of the
<#>Corporation</#> {COMPANY}, pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware, shall direct by resolution or
resolutions that a certificate be properly executed, acknowledged, filed and
recorded, in accordance with the provisions of Section 103 thereof, providing
for the total number of shares of Series A Preferred Stock authorized to be
issued be increased (to the extent that <#>the</#> {THIS RESTATED} Certificate
of Incorporation then permits) to the largest number of whole shares (rounded up
to the nearest whole number) issuable upon exercise of such Rights.
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Section 2. DIVIDENDS OR DISTRIBUTIONS.
(a) Subject to the prior and superior rights of the holders of shares of any
other series of Preferred Stock or other class of capital stock not by its terms
ranking on a parity with, or junior to, the shares of Series A Preferred Stock
with respect to dividends, the holders of shares of the Series A Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors,
out of the assets of the <#>Corporation</#> {COMPANY} legally available
therefor, (1) quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or a
fraction of a share of Series A Preferred Stock, of $10 per whole share (rounded
to the nearest cent) less the amount of all cash dividends declared on the
Series A Preferred Stock pursuant to the following clause (2) since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock, and (2) dividends payable in
cash on the payment date for each cash dividend declared on the Common Stock in
an amount per whole share (rounded to the nearest cent) equal to the Formula
Number then in effect times the cash dividends then to be paid on each share of
Common Stock. In addition, if the <#>Corporation</#> {COMPANY} shall pay any
dividend or make any distribution on the Common Stock payable in assets,
securities or other forms of noncash consideration (other than dividends or
distributions solely in shares of Common Stock), then, in each such case, the
<#>Corporation</#> {COMPANY} shall simultaneously pay or make on each
outstanding share of Series A Preferred Stock a dividend or distribution in like
kind of the Formula Number then in effect times such dividend or distribution on
each share of the Common Stock. As used herein, the "Formula Number" shall be
100; PROVIDED, HOWEVER, that if at any time after November 2, 1987, the
<#>Corporation</#> {COMPANY} shall (i) declare or pay any dividend on the Common
Stock payable in shares of Common Stock or make any distribution on the Common
Stock in shares of Common Stock, (ii) subdivide (by a stock split or otherwise)
the outstanding shares of Common Stock into a larger number of shares of Common
Stock or (iii) combine (by a reverse stock split or otherwise) the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, then in
each such event the Formula Number shall be adjusted to a number determined by
multiplying the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of shares of Common Stock that
are outstanding immediately after such event and the denominator of which is the
number of shares that are outstanding immediately prior to such event (and
rounding the result to the nearest whole number); and PROVIDED FURTHER, that if
at any time after November 2, 1987, the <#>Corporation</#> {COMPANY} shall issue
any shares of its capital stock in a reclassification or change of the
outstanding shares of Common Stock (including any such reclassification or
change in connection with a merger in which the <#>Corporation</#> {COMPANY} is
the surviving corporation), then in each such event the Formula Number shall be
appropriately adjusted to reflect such reclassification or change.
(b) The <#>Corporation</#> {COMPANY} shall declare a dividend or
distribution on the Series A Preferred Stock as provided in Section 2(a)
immediately prior to or at the same time it declares a dividend or distribution
on the Common Stock (other than a dividend or distribution solely in shares of
Common Stock); PROVIDED, HOWEVER, that, in the event no dividend or distribution
(other than a dividend or distribution in shares of Common Stock) shall have
been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $10 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a dividend or distribution declared
thereon, which record date shall be the same as the record date for any
corresponding dividend or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from and after the Quarterly Dividend Payment Date
next preceding the date of original issue of
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<PAGE>
such shares of Series A Preferred Stock; PROVIDED, HOWEVER, that dividends on
such shares which are originally issued after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and on or prior to the next succeeding Quarterly
Dividend Payment Date shall begin to accrue and be cumulative from and after
such Quarterly Dividend Payment Date. Notwithstanding the foregoing, dividends
on shares of Series A Preferred Stock which are originally issued prior to the
record date for the first Quarterly Dividend Payment, shall be calculated as if
cumulative from and after the March 1, June 1, September 1 or December 1, as the
case may be, next preceding the date of original issuance of such shares.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding.
(d) So long as any shares of the Series A Preferred Stock are outstanding,
no dividends or other distributions shall be declared, paid or distributed, or
set aside for payment or distribution, on the Common Stock unless, in each case,
the dividend required by this Section 2 to be declared on the Series A Preferred
Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a number of
votes equal to the Formula Number then in effect, for each share of Series A
Preferred Stock held of record on each matter on which holders of the Common
Stock or stockholders generally are entitled to vote, multiplied by the maximum
number of votes which the holders of the Common Stock or stockholders generally
then have with respect to such matter.
(b) Except as otherwise provided herein or by applicable law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class for the election of directors of the
<#>Corporation</#> {COMPANY} and on all other matters submitted to a vote of
stockholders of the <#>Corporation</#> {COMPANY}.
(c) If at the time of any annual meeting of stockholders for the election of
directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Stock are in
default, the number of directors constituting the Board of Directors of the
<#>Corporation</#> {COMPANY} shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of
the <#>Corporation</#> {COMPANY}, the holders of record of the Series A
Preferred Stock, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears have
been paid or declared and set apart for payment prior thereto, to vote for the
election of two directors of the <#>Corporation</#> {COMPANY}, the holders of
any Series A Preferred Stock being entitled to cast a number of votes per share
of Series A Preferred Stock equal to the Formula Number. Until the default in
payments of all dividends which permitted the election of said directors shall
cease to exist any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or without cause,
only by the affirmative vote of the holders of the shares at the time entitled
to cast a majority of the votes entitled to be cast for the election of any such
director at a special meeting of such holders called for that purpose, and any
vacancy thereby created may be filled by the vote of such holders. If and when
such default shall cease to exist, the holders of the Series A Preferred Stock
shall be divested of the foregoing special voting rights, subject to revesting
in the event of each and every subsequent like default in payments of dividends.
Upon the termination of the foregoing special voting rights, the terms of office
of all persons who may have been elected directors pursuant to said special
voting rights shall forthwith terminate, and the number of directors
constituting the Board of
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<PAGE>
Directors shall be reduced by two. The voting rights granted by this Section
3(c) shall be in addition to any other voting rights granted to the holders of
the Series A Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for authorizing or taking any
corporate action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions payable
on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the <#>Corporation</#> {COMPANY} shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
provided that the Corporation {COMPANY} may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the <#>Corporation</#> {COMPANY} ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock: or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(b) The <#>Corporation</#> {COMPANY} shall not permit any subsidiary of the
<#>Corporation</#> {COMPANY} to purchase or otherwise acquire for consideration
any shares of stock of the <#>Corporation</#> {COMPANY} unless the
<#>Corporation</#> {COMPANY} could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the <#>Corporation</#> {COMPANY}, whether voluntary or
involuntary, no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution, or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received an amount equal to the
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, plus an amount equal to the greater of (x) $75 per
share or (y) an aggregate amount per share equal to the Formula Number then in
effect times the aggregate amount to be distributed per share to holders of
Common Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all other such parity stock in proportion to
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<PAGE>
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
Section 6. CONSOLIDATION, MERGER, ETC. In case the <#>Corporation</#>
{COMPANY} shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash or any other property, then in any such
case the then outstanding shares of Series A Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share equal to the
Formula Number then in effect times the aggregate amount of stock, securities,
cash or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is exchanged or changed.
Section 7. NO REDEMPTION; NO SINKING FUND.
(a) The shares of Series A Preferred Stock shall not be subject to
redemption by the <#>Corporation</#> {COMPANY} or at the option of any holder of
Series A Preferred Stock; {PROVIDED, HOWEVER}, that the <#>Corporation</#>
{COMPANY} may purchase or otherwise acquire outstanding shares of Series A
Preferred Stock in the open market or by offer to any holder or holders of
shares of Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
Section 8. RANKING. The Series A Preferred Stock shall rank junior to all
other series of Preferred Stock of the <#>Corporation</#> {COMPANY}, unless the
Board of Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
Section 9. FRACTIONAL SHARES. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is not smaller than one
one-hundredth (l/l00th) of a share or any integral multiple of such fraction. In
lieu of fractional shares, the <#>Corporation</#> {COMPANY}, prior to the first
issuance of a share or a fraction of a share of Series A Preferred Stock, may
elect (1) to issue certificates evidencing such authorized fraction of a share
of Series A Preferred Stock or (2) to issue depository receipts evidencing such
authorized fraction of a share of Series A Preferred Stock pursuant to an
appropriate agreement between the <#>Corporation</#> {COMPANY} and a depository
selected by the <#>Corporation</#> {COMPANY}, provided that such agreement shall
provide that the holders of such depository receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Series A Preferred Stock.
Section 10. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the <#>Corporation</#> {COMPANY} in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors pursuant to the provisions of Article FIVE <#>of the Certificate of
Incorporation</#> {HEREOF}.
Section 11. AMENDMENT. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred Stock
as provided herein shall be amended in any manner which would alter or change
the powers, preferences, rights or privileges of the holders of Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least 66 2/3% of the outstanding shares of Series A Preferred
Stock, voting as a separate class.
SIX: No holder of shares of stock of any class of the Company shall be
entitled as of right to purchase or subscribe for any part of any unissued stock
of the Company or of any new or additional authorized stock of the Company of
any class whatsoever, or of any issue of securities of the Company convertible
into stock, whether such stock or securities be issued for money or for a
consideration other than money or by way of dividend, but any such unissued
stock or such new or additional authorized stock or such securities
B-37
<PAGE>
convertible into stock may be issued and disposed of to such persons, firms,
corporations and associations, and upon such terms as may be deemed advisable by
the Board of Directors without offering to stockholders then of record or any
class of stockholders any thereof upon any terms.
SEVEN: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the by-laws of the Company.
EIGHT: The number of directors of the Company shall be fixed from time to
time by a by-law or amendment thereof duly adopted by the Board of Directors or
by the stockholders, or except as may be set forth in a certificate filed under
Section 151(g) of the General Corporation Law of the State of Delaware pursuant
to Article FIVE hereof.
NINE: The Board of Directors shall be and is divided into three classes,
Class I, Class II and Class III, as nearly equal in number of directors as
possible, with the term of office of the directors of one class expiring each
year. Each director shall be elected to serve for a term ending on the date of
the third annual meeting of stockholders following the annual meeting of
stockholders at which such director was elected.
In the event of any change in the authorized number of directors, the Board
of Directors shall apportion any newly created directorships to, or reduce the
number of directorships in, such class or classes as shall, so far as possible,
equalize the number of directors in each class. If, consistently with the rule
that the three classes shall be as nearly equal in number of directors as
possible, any newly created directorships may be allocated to more than one
class, the Board of Directors shall allocate them to the classes the terms of
office of which are due to expire at the latest date following such allocation.
Notwithstanding any of the foregoing, each director shall serve for a term
continuing until the annual meeting of stockholders at which the term of the
class to which he was elected expires and until his successor is elected and
qualified or until his earlier death, resignation or removal.
Any vacancies in the Board of Directors for any reason, including any newly
created directorships resulting from any increase in the number of directors,
may be filled by the Board of Directors, acting by a majority of the directors
then in office, although less than a quorum; and any directors so chosen shall
hold office until the next election of the class for which such directors shall
have been chosen, and until their successors shall be elected and qualified.
The provisions of this Article NINE shall be subject to the provisions of a
certificate filed under Section 151(g) of the General Corporation Law of the
State of Delaware pursuant to Article FIVE hereof.
TEN: Except as may be set forth in a certificate filed under Section 151(g)
of the General Corporation Law of the State of Delaware pursuant to Article FIVE
hereof, a director may be removed from office only for cause, and only by the
affirmative vote of the holders of a majority of <#>shares</#> {THE TOTAL VOTING
POWER OF ALL OUTSTANDING SHARES OF STOCK OF THE COMPANY} entitled to vote at an
election of directors and who would be entitled to vote for the election of a
director to fill the vacancy created by such removal.
ELEVEN: Elections of directors shall be by written ballot unless the by-laws
of the Company shall otherwise provide.
TWELVE: No action shall be taken by the stockholders except at an annual or
special meeting of stockholders.
THIRTEEN: Special meetings of the stockholders of the Company for any
purpose or purposes may be called at any time only by the Board of Directors,
the Chairman of the Board of Directors, the President, a committee of the Board
of Directors which has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of Directors or
in the by-laws of the Company, include the power to call such meeting, or by
stockholders having not less than seventy-five percent (75%) of the total voting
power of all outstanding shares of stock of the Company, and such special
meetings may not be called by any other person or persons; provided, however,
that if and to the extent that any special meeting of stockholders may be called
by any other person or persons specified in any provisions of the Restated
Certificate of Incorporation or any amendment thereto, or any certificate
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<PAGE>
filed under Section 151(g) of the General Corporation Law of the State of
Delaware pursuant to Article FIVE hereof, then such special meeting may also be
called by such person or persons in the manner, at the times and for the
purposes so specified.
FOURTEEN: Except as may be set forth in a certificate filed under Section
151(g) of the General Corporation Law of the State of Delaware pursuant to
Article FIVE hereof requiring a specified percentage of the voting power of any
series of Preferred Stock created pursuant thereto, the approval or
authorization of any "Business Combination" (as defined in Article FIFTEEN
hereof) of the Company with any "Related Person" (as defined in Article FIFTEEN
hereof) (i) shall require the affirmative vote of the holders of not less than
eighty percent (80%) of the total voting power of all outstanding shares of
stock of the Company having the right to vote in respect of such Business
Combination, and (ii) also shall require the affirmative vote of the holders of
not less than a majority of the voting power of all outstanding shares of stock
so entitled to vote held by stockholders other than such Related Person and its
Affiliates and Associates (as defined in Article FIFTEEN hereof); provided,
however, that the voting requirements provided by clauses (i) and (ii) above
shall not be applicable if:
(A) The Business Combination was approved by the Board of Directors of
the Company prior to the time the Related Person in question first became a
Related Person; or
(B) The Business Combination was approved by the Board of Directors of
the Company after the time the Related Person in question first became a
Related Person, but only if such Related Person obtained the unanimous
approval of the Board of Directors of the Company to his becoming a Related
Person, which approval was obtained prior to his becoming a Related Person;
or
(C) The Business Combination is solely between the Company and another
corporation, fifty percent (50%) or more of the voting stock of which is
owned by the Company and none of which is owned by a Related Person,
provided that each stockholder of the Company receives the same type of
consideration in such transaction as every other stockholder of the same
class in proportion to his stockholdings and each holder of Common Stock of
the Company receives or retains Common Stock in the surviving corporation or
in any other corporation which is a party to such Business Combination; or
(D) All of the following conditions are satisfied:
(1) The cash or fair market value of the property, securities or
"Other Consideration To Be Received" (as defined in Article FIFTEEN
hereof) per share by holders of Common Stock of the Company in the
Business Combination is not less than the higher of (i) the highest per
share price (including brokerage commissions, soliciting dealers' fees,
dealer-management compensation, and other expenses, including, but not
limited to, costs of newspaper advertisements, printing expenses and
attorneys' fees) paid by such Related Person in acquiring any of its
holdings of Common Stock of the Company or (ii) an amount which bears the
same or a greater percentage relationship to the market price of the
Common Stock of the Company immediately prior to the announcement of such
Business Combination as the highest per share price determined in (i)
above bears to the market price of the Common Stock of the Company
immediately prior to the commencement of acquisition of the Common Stock
of the Company by such Related Person, but in no event in excess of two
times the highest per share price determined in (i) above;
(2) After becoming a Related Person and prior to the consummation of
such Business Combination, (i) such Related Person shall not have
acquired any newly issued shares of capital stock, directly or
indirectly, from the Company (except upon conversion of convertible
securities acquired by it prior to becoming a Related Person or upon
compliance with the provisions of this Article FOURTEEN or as a result of
a pro rata stock dividend or stock split or other recapitalization) and
(ii) such Related Person shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder) of any loans,
advances, guarantees, pledges or other
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<PAGE>
financial assistance or tax credits provided by the Company, or made any
major changes in the business or equity capital structure of the Company;
and
(3) A proxy statement meeting the requirements of the Securities
Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, whether or not the Company is then subject to
such requirements, shall be mailed to the stockholders of the Company for
the purpose of soliciting stockholder approval of such Business
Combination and shall contain, prominently displayed (i) any
recommendations as to the advisability (or inadvisability) of the
Business Combination which the Continuing Directors, or any Outside
Directors, may choose to state, and (ii) the opinion of a reputable
national investment banking firm as to the fairness (or not) of the terms
of such Business Combination, from the point of view of the stockholders
of the Company who are not Related Persons or their Affiliates or
Associates (such investment banking firm to be engaged solely on behalf
of the stockholders who are not Related Persons or their Affiliates or
Associates, to be paid a reasonable fee for its services by the Company
upon receipt of such opinion, to be an investment banking firm which has
not previously been associated with any such Related Person and, if there
are then any such directors, to be elected by a majority of the
Continuing Directors and Outside Directors (as defined in Article FIFTEEN
hereof).
FIFTEEN: As used in this Restated Certificate of Incorporation, the terms
hereafter defined shall have the following meanings:
(A) The terms "Affiliate" and "Affiliated with" shall mean, with respect
to a specific Person, a Person that, directly or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the Person specified.
(B) The term "Associate" shall mean, when used to indicate a
relationship with any Person, (1) any corporation, partnership, association
or other organization (other than the Company or a majority-owned subsidiary
of the Company) of which such Person is an officer, partner or, directly or
indirectly, Beneficial Owner of ten percent (10%) or more of any class of
equity securities or other beneficial or voting interest, (2) any trust or
other estate in which such Person has a substantial beneficial interest or
as to which such Person serves as trustee or in a similar fiduciary
capacity, (3) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person, or (4) any investment company
registered under the Investment Company Act of 1940 for which such Person or
any Affiliate of such Person serves as investment adviser.
(C) A Person shall be considered the "Beneficial Owner" of any shares or
other beneficial or voting interest (whether or not owned of record):
(1) With respect to which such Person or any Affiliate or Associate
of such Person directly or indirectly has or shares (i) voting power,
including the power to vote or to direct the voting of such shares or
interests and/or (ii) investment power, including the power to dispose of
or to direct the disposition of such shares or interests;
(2) Which such Person or Affiliate or Associate of such Person has
(i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, and/or (ii) the right to vote
pursuant to any agreement, arrangement or understanding (whether such
right is exercisable immediately or only after the passage of time); or
(3) Which are Beneficially Owned within the meaning of (1) or (2) of
this definition by any other Person with which such first-mentioned
Person or any of its Affiliates or Associates has any agreement,
arrangement or understanding, written or oral, with respect to acquiring,
holding, voting or disposing of any shares of stock of the Company or any
subsidiary of the Company or acquiring, holding or disposing of all or
any Substantial Part of the assets or business of the Company or a
subsidiary of the Company.
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<PAGE>
For the purpose only of determining whether a Person is the Beneficial
Owner of a percentage of outstanding shares of the Company specified in this
Restated Certificate of Incorporation, such shares shall be deemed to
include any shares which may be issuable pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants, options or otherwise and which are deemed to be
Beneficially Owned by such Person pursuant to the foregoing provisions of
this definition.
(D) The term "Business Combination" shall mean (1) any merger or
consolidation of the Company or a subsidiary of the Company with or into a
Related Person, (2) any sale, lease, exchange, transfer or other
disposition, including, without limitation, a mortgage or any other security
device, in a single transaction or series of related transactions, of all or
any Substantial Part of the assets of the Company (including, without
limitation, any voting securities of a subsidiary) or of a subsidiary of the
Company to a Related Person, (3) any merger or consolidation of a Related
Person with or into the Company or a subsidiary of the Company, (4) any
sale, lease, exchange, transfer or other disposition, including without
limitation, a mortgage or other security device, in a single transaction or
series of related transactions, of all or any Substantial Part of the assets
of a Related Person to the Company or a subsidiary of the Company, (5) the
issuance of any securities of the Company or a subsidiary of the Company to
a Related Person, (6) the acquisition by the Company or a subsidiary of the
Company of any securities of a Related Person, (7) any reclassification of
Common Stock of the Company, or any recapitalization involving Common Stock
of the Company, consummated within five (5) years after a Related Person
becomes a Related Person, (8) any liquidation or dissolution of the Company
proposed, directly or indirectly, by or on behalf of a Related Person, (9)
any merger or consolidation of the Company proposed, directly or indirectly,
by or on behalf of Related Person, unless the surviving or consolidated
corporation, as the case may be, has provisions in its certificate of
incorporation substantially identical to Articles FOURTEEN, FIFTEEN and
SIXTEEN hereof, or (10) any agreement, contract or other arrangement
providing for any of the transactions described in this definition of
Business Combination. A Business Combination with a Person shall be deemed
to be a Business Combination with a Related Person if such Person is a
Related Person at any of the following times: (i) the date any definitive
agreement relating to a Business Combination is entered into or amended;
(ii) the record date for the determination of stockholders entitled to
notice of and to vote on a Business Combination; and (iii) immediately prior
to the consummation of a Business Combination.
(E) The term "Continuing Director" shall mean a director who was a
member of the Board of Directors of the Company immediately prior to the
time that any Related Person involved in the proposed Business Combination
first became a Related Person.
(F) The term "Other Consideration To Be Received" shall include, without
limitation, shares of stock of the Company retained by any of its
stockholders other than a Related Person or its Affiliates or Associates in
the event of a Business Combination with such Related Person in which the
Company is the surviving entity.
(G) The term "Outside Director" shall mean a director who is not (1) an
officer or employee of the Company or any relative of an officer or
employee, (2) a Related Person or an officer, director, employee, Associate
or Affiliate of a Related Person, or a relative of any of the foregoing, or
(3) a Person having a direct or indirect material business relationship with
the Company.
(H) The term "Person" shall mean any person, partnership, corporation,
group or other entity (other than the Company, any subsidiary of the
Company, or a trustee holding stock for the benefit of any of the employees
of the Company or its subsidiaries, pursuant to one or more employee benefit
plans or arrangements, but only in such capacity). When two or more persons
act as a partnership, limited partnership, syndicate, joint venture,
association or other group for the purpose of acquiring, holding or
disposing of shares of stock, such partnership, syndicate, joint venture,
association or group shall be deemed a "Person."
B-41
<PAGE>
(I) The term "Related Person" shall mean any Person which, together with
any Affiliate or Associate, is the Beneficial Owner of ten percent (10%) or
more of the outstanding Common Stock of the Company or of the outstanding
voting stock of the Company or any Person which, together with any Affiliate
or Associate, was at any time within the five (5) years preceding the date
for such determination the Beneficial Owner of ten percent (10%) or more of
the then outstanding Common Stock of the Company or of the outstanding
voting stock of the Company.
(J) The term "Substantial Part" shall mean more than ten percent (10%)
of the total assets of the individual, corporation, partnership or other
person or entity in question, as of the end of its most recent fiscal year
ending prior to the time the determination is being made.
SIXTEEN: The Company reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereinafter prescribed by statute, and all rights conferred by
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in Articles FOURTEEN, FIFTEEN and this
SIXTEEN may not be amended, altered, changed or repealed in any respect if there
is then a Related Person unless such amendment, alteration, change or repeal is
approved (i) by the affirmative vote of the holders of not less than eighty
percent (80%) of the total voting power of the Company and (ii) also by the
affirmative vote of the holders of not less than a majority of the total voting
power of the Company other than a Related Person and any Affiliates and
Associates of such a Related Person.
SEVENTEEN: No director shall have any personal liability to the Company or
its stockholders for any monetary damages for breach of fiduciary duty as a
director, except that this Article shall not eliminate or limit the liability of
each director (i) for any breach of such director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of a dividend or unlawful stock purchase or redemption under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which such director derived an improper personal benefit. Any repeal or
modification of the preceding sentence by the stockholders of the Company shall
not adversely affect any right or protection of a director of the Company
existing at the time of such repeal or modification.
IN WITNESS WHEREOF, HOMESTAKE MINING COMPANY has caused this Restated
Certificate of Incorporation to be signed by <#>Harry M. Conger</#>, {JACK E.
THOMPSON, ITS CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER}, and attested by
<#>Howard C. Harvey</#> {WAYNE KIRK}, its Secretary, this <#>8th day of May,
1984</#> { DAY OF , 1998}.
<TABLE>
<S> <C> <C>
HOMESTAKE MINING COMPANY
By
-----------------------------------------
<#>Harry M. Conger</#> {JACK E. THOMPSON}
<#>Chairman of the Board and President</#>
{CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER}
</TABLE>
<TABLE>
<S> <C> <C>
By ATTEST:
-----------------------------------------
<#>Howard C. Harvey</#> {WAYNE KIRK}
Secretary
By
</TABLE>
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<PAGE>
SCHEDULE 6
HOMESTAKE CANADA RIGHTS AGREEMENT
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<PAGE>
RIGHTS AGREEMENT dated as of [ ], 1998 (the "Rights
Agreement"), among HOMESTAKE CANADA INC., an Ontario
corporation (the "Company"), HOMESTAKE MINING COMPANY, a
Delaware corporation ("HMC"), and MONTREAL TRUST COMPANY OF
CANADA, as Rights Agent (the "Rights Agent").
WHEREAS, the Board of Directors of the Company has authorized the issuance
of one Right (as such number may hereinafter be adjusted pursuant to the
provisions of Section 12(a)) for each Exchangeable Share of the Company (the
"Exchangeable Shares") issued, or disposed of out of treasury shares, between
the Effective Date (including the Exchangeable Shares issued on the Effective
Date) and the Distribution Date (as these terms are hereinafter defined) and, in
certain circumstances, after the Distribution Date, each Right initially
representing the right to purchase one Exchangeable Share upon the terms and
subject to the conditions hereinafter set forth (the "Rights"); and
WHEREAS, as provided in the Arrangement Agreement dated as of [ ], 1998 (the
"Arrangement Agreement"), among Prime Resources Group Inc., a British Columbia
corporation ("Prime"), Homestake Canada Holdings Company, a Nova Scotia
unlimited liability company ("Holdco"), HMC and the Company, the Rights are
intended to provide rights to acquire additional Exchangeable Shares (or in
certain circumstances other securities) on terms substantially the same as the
HMC Rights (as hereinafter defined) confer the right to acquire shares of HMC
Common Stock (as hereinafter defined) or preferred stock of HMC that is
essentially the economic equivalent of HMC Common Stock (or in certain
circumstances other securities);
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the Company, HMC and the Rights Agent agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Rights Agreement, the
following terms have the meanings indicated:
"ACQUIRING PERSON" shall have the meaning ascribed to that term in the
HMC Rights Agreement.
"AFFILIATE" and "ASSOCIATE", when used with reference to any Person,
shall have the respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as in effect on
the date of this Rights Agreement.
"ARRANGEMENT AGREEMENT" shall have the meaning set forth in the second
introductory paragraph of this Rights Agreement.
A Person shall be deemed the "BENEFICIAL OWNER" of, and shall be deemed
to "BENEFICIALLY OWN", and shall be deemed to have "BENEFICIAL OWNERSHIP"
of, any securities:
(i) which such Person or any of such Person's Affiliates or Associates is
deemed to "beneficially own" within the meaning of Rule 13d-3 of the General
Rules and Regulations under the Exchange Act, as in effect on the date of this
Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding (written or oral), rights (other than the Rights or the HMC
Rights), warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person
shall not be deemed under this clause (A) the Beneficial Owner of, or to
beneficially own, or to have Beneficial Ownership of, any securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange thereunder or cease to be subject to
withdrawal by the tendering security holder, or (B) the right to vote pursuant
to any agreement, arrangement or understanding (written or oral); PROVIDED,
HOWEVER, that a Person shall not be deemed under this clause (B) the Beneficial
Owner of, or to beneficially own, or to
B-44
<PAGE>
have Beneficial Ownership of, any security if (1) the agreement, arrangement or
understanding (written or oral) to vote such security arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made generally to all holders of Exchangeable Shares
pursuant to, and in accordance with, the applicable rules and regulations under
the Exchange Act and (2) the beneficial ownership of such security is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (written or oral) for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy as
described in clause (ii)(B) of this definition) or disposing of any securities
of the Company or of HMC.
Notwithstanding the foregoing, nothing contained in this definition
shall cause a Person ordinarily engaged in business as an underwriter of
securities to be the "Beneficial Owner" of, or to "beneficially own" or to
have "Beneficial Ownership" of, any securities acquired in a bona fide firm
commitment underwriting pursuant to an underwriting agreement with the
Company or with HMC. Any Person who owns Exchangeable Shares shall be deemed
to beneficially own the maximum number of Common Shares issuable to such
holder upon the exchange or retraction of all such Exchangeable Shares at
the measurement date.
"BOOK VALUE", when used with reference to Common Shares issued by any
Person, shall mean the amount of equity of such Person applicable to each
Common Share, determined (i) in accordance with generally accepted
accounting principles in effect in the jurisdiction in which such Person is
incorporated and on the date as of which such Book Value is to be
determined, (ii) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which such Book Value is to be
determined, except that no value shall be included in such assets for
goodwill arising from consummation of a business combination, and (iii)
after giving effect to (A) the exercise of all rights, options and warrants
to purchase such Common Shares (other than the Rights or the HMC Rights),
and the conversion of all securities convertible into such Common Shares, at
an exercise or conversion price, per Common Share, which is less than such
Book Value before giving effect to such exercise or conversion (whether or
not exercisability or convertibility is conditioned upon occurrence of a
future event), (B) all dividends and other distributions on the capital
stock of such Person declared prior to the date as of which such Book Value
is to be determined and to be paid or made after such date, and (C) any
other agreement, arrangement or understanding (written or oral), or
transaction or other action contemplated prior to the date as of which such
Book Value is to be determined that would have the effect of thereafter
reducing such Book Value.
"BUSINESS COMBINATION" shall have the meaning ascribed to that term in
the HMC Rights Agreement.
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, are authorized or obligated by law or
executive order to close.
"CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m., New York
City time, on such date; PROVIDED, HOWEVER, that, if such date is not a
Business Day, "Close of Business" shall mean 5:00 p.m., New York City time,
on the next succeeding Business Day.
"COMMON SHARES", when used with reference to the Company prior to a
Business Combination, shall mean the Exchangeable Shares of the Company or
any other shares of capital stock of the Company or of HMC into which the
Exchangeable Shares shall be reclassified or changed or exchanged. "Common
Shares", when used with reference to any Person (other than the Company
prior to a Business Combination), shall mean shares of capital stock of such
Person (if such Person is a
B-45
<PAGE>
corporation) of any class or series, or units of equity interests in such
Person (if such Person is not a corporation) of any class or series, the
terms of which do not limit (as a maximum amount and not merely in
proportional terms) the amount of dividends or income payable or
distributable on such class or series or the amount of assets distributable
on such class or series upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person and do not provide that such class
or series is subject to redemption at the option of such Person, or any
shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; PROVIDED, HOWEVER, that, if at
any time there shall be more than one such class or series of capital stock
or equity interests of such Person, "Common Shares" of such Person shall
include all such classes and series substantially in the proportion of the
total number of shares or other units of each such class or series
outstanding at such time unless any such class or series is identical to
another such class except for voting power, in which case "Common Shares"
shall include such higher voting class in place of such lower voting class.
"COMPANY" shall have the meaning set forth in the heading of this Rights
Agreement; PROVIDED, HOWEVER, that if there is a Business Combination,
"Company" shall have the meaning set forth in Section 11(c)(III).
The term "CONTROL" with respect to any Person shall mean the power to
direct the management and policies of such Person, directly or indirectly,
by or through stock ownership, agency or otherwise, or pursuant to or in
connection with an agreement, arrangement or understanding (written or oral)
with one or more other Persons by or through stock ownership, agency or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
"DISTRIBUTION DATE" shall have the meaning ascribed to that term in the
HMC Rights Agreement.
"EFFECTIVE DATE" shall have the meaning ascribed to that term in the
Arrangement Agreement.
"EXCHANGEABLE SHARES" shall have the meaning set forth in the
introductory paragraph of this Rights Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 of the
United States, as in effect on the date in question, unless otherwise
specifically provided.
"EXCHANGE CONSIDERATION" shall have the meaning set forth in Section
11(b)(I).
"EXPIRATION DATE" shall have the meaning set forth in Section 7(a).
"HMC" shall have the meaning set forth in the heading of this Rights
Agreement.
"HMC COMMON SHARES" shall mean the "Common Shares" as defined in the HMC
Rights Agreement.
"HMC COMMON STOCK" shall mean the shares of Common Stock of HMC, par
value US$1.00 per share.
"HMC RIGHTS" shall mean the "Rights" as defined in the HMC Rights
Agreement.
"HMC RIGHTS AGREEMENT" shall mean the Rights Agreement dated as of
October 16, 1987, between HMC and BankBoston N.A., a national banking
association, as Rights Agent, as amended from time to time.
"MAJOR PART", when used with reference to the assets of the Company and
its Subsidiaries as of any date, shall mean assets (i) having a fair market
value aggregating 50% or more of the total fair market value of all the
assets of the Company and its Subsidiaries (taken as a whole) as of the date
in question, (ii) accounting for 50% or more of the total value (net of
depreciation and amortization) of all the assets of the Company and its
Subsidiaries (taken as a whole) as would be shown on a consolidated or
combined balance sheet of the Company and its Subsidiaries as of the date in
question, prepared in accordance with generally accepted accounting
principles then in effect, or
B-46
<PAGE>
(iii) accounting for 50% or more of the total amount of earnings before
interest, taxes, depreciation and amortization or of the revenues of the
Company and its Subsidiaries (taken as a whole) as would be shown on, or
derived from, a consolidated or combined statement of income or operations
of the Company and its Subsidiaries for the period of 12 months ending on
the last day of the Company's monthly accounting period next preceding the
date in question, prepared in accordance with generally accepted accounting
principles then in effect under which the Company prepares its financial
statements.
"MARKET VALUE", when used with reference to Common Shares of an issuer
on any date, shall be deemed to be the average of the daily closing prices,
per share, of such Common Shares for the period which is the shorter of (1)
30 consecutive Trading Days immediately prior to the date in question or (2)
the number of consecutive Trading Days beginning on the Trading Day
immediately after the date of the first public announcement of the event
requiring a determination of the Market Value and ending on the Trading Day
immediately prior to the record date of such event; PROVIDED, HOWEVER, that,
in the event that the Market Value of such Common Shares is to be determined
in whole or in part during a period following the announcement by the issuer
of such Common Shares of any action of the type described in Section 12(a)
that would require an adjustment thereunder, then, and in each such case,
the Market Value of such Common Shares shall be appropriately adjusted to
reflect the effect of such action on the market price of such Common Shares.
The closing price for each Trading Day shall be the closing price quoted on
the principal United States securities exchange registered under the
Exchange Act (or any recognized foreign stock exchange) on which such
securities are listed, or, if such securities are not listed on any such
exchange, the closing price quoted on The Nasdaq Stock Market (or any
recognized foreign over-the-counter market) or, if such securities are not
so quoted, the average of the closing bid and asked quotations with respect
to a share of such securities on any National Association of Securities
Dealers, Inc. quotations system or such other system then in use, or if no
such quotations are available, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in such
securities selected by the Board of Directors of the Company. If on any such
Trading Day no market maker is making a market in such securities, the
closing price of such securities on such Trading Day shall be deemed to be
the fair value of such securities as determined in good faith by the Board
of Directors of the Company acting by a vote of those directors whose
approval would be required to redeem the Rights under Section 24 (whose
determination shall be described in a statement filed with the Rights Agent
and shall be binding on the Rights Agent, the holders of Rights and all
other Persons).
"PERSON" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"PRINCIPAL PARTY" shall mean the Surviving Person in a Business
Combination; PROVIDED, HOWEVER, that, if such Surviving Person is a direct
or indirect Subsidiary of any other Person, "Principal Party" shall mean the
Person which is the ultimate parent of such Surviving Person and which is
not itself a Subsidiary of another Person. In the event ultimate control of
such Surviving Person is shared by two or more Persons, "Principal Party"
shall mean that Person that is immediately controlled by such two or more
Persons.
"PURCHASE PRICE" with respect to each Right shall mean US$75, as such
amount may from time to time be adjusted as provided herein, and shall be
payable in lawful money of the United States of America. All references
herein to the Purchase Price shall mean the Purchase Price as in effect at
the time in question.
"REDEMPTION DATE" shall have the meaning set forth in Section 24(a).
"REDEMPTION PRICE" with respect to each Right shall mean US$.01, as such
amount may from time to time be adjusted in accordance with Section 12. All
references herein to the Redemption Price shall mean the Redemption Price as
in effect at the time in question.
B-47
<PAGE>
"REGISTERED COMMON SHARES" shall mean Common Shares which are, as of the
date of consummation of a Business Combination, and have continuously been
for the 12 months immediately preceding such date, registered under Section
12 of the Exchange Act.
"RIGHT CERTIFICATE" shall mean a certificate evidencing a Right in
substantially the form attached as Exhibit A.
"RIGHTS" shall mean the rights to purchase Exchangeable Shares (or other
securities) as provided in this Rights Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933 of the United
States, as in effect on the date in question, unless otherwise specifically
provided.
"SUBSIDIARY" shall mean a Person, at least a majority of the total
outstanding voting power (being the power under ordinary circumstances (and
not merely upon the happening of a contingency) to vote in the election of
directors of such Person (if such Person is a corporation) or to participate
in the management and control of such Person (if such Person is not a
corporation)) of which is owned, directly or indirectly, by another Person
or by one or more other Subsidiaries of such other Person or by such other
Person and one or more other Subsidiaries of such other Person.
"SURVIVING PERSON" shall have the meaning ascribed to that term in the
HMC Rights Agreement.
"TRADING DAY" shall mean a day on which the principal United States
securities exchange registered under the Exchange Act (or principal
recognized foreign stock exchange, as the case may be) on which any
securities or Rights, as the case may be, are listed or admitted to trading
is open for the transaction of business or, if the securities or Rights in
question are not listed or admitted to trading on any United States
securities exchange (or recognized foreign stock exchange, as the case may
be), a Business Day.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint one or more co-Rights Agents as it may
deem necessary or desirable upon notice to the Rights Agent (the term "Rights
Agent" being used herein to refer, collectively, to the Rights Agent together
with any such co-Rights Agents). In the event the Company appoints one or more
co-Rights Agents, the respective duties of the Rights Agent and any co-Rights
Agents shall be as the Company shall determine.
SECTION 3. ISSUE OF RIGHTS AND RIGHT CERTIFICATES. (a) One Right shall be
associated with each Exchangeable Share outstanding on the Effective Date, each
additional Exchangeable Share that shall become outstanding between the
Effective Date and the earliest of the Distribution Date, the Redemption Date or
the Expiration Date and each additional Exchangeable Share with which Rights are
issued after the Distribution Date but prior to the earlier of the Redemption
Date or the Expiration Date as provided in Section 23; PROVIDED, HOWEVER, that,
if the number of outstanding Rights are combined into a smaller number of
outstanding Rights pursuant to Section 12(a), the appropriate fractional Right
determined pursuant to such Section shall thereafter be associated with each
such Exchangeable Share.
(b) Until the Distribution Date (x) the Rights will be evidenced by the
certificates for Exchangeable Shares registered in the names of the holders
thereof and not by separate Right Certificates and (y) the Rights, including the
right to receive Right Certificates, will be transferable only in connection
with the transfer of Exchangeable Shares. As soon as practicable after the
Distribution Date, the Rights Agent will send, by first-class, postage-prepaid
mail, to each record holder of Exchangeable Shares as of the Distribution Date,
at the address of such holder shown on the records of the Company, a Right
Certificate evidencing one whole Right for each Exchangeable Share (or for the
number of Exchangeable Shares with which one whole Right is then associated if
the number of Rights per Exchangeable Share held by such record holder has been
adjusted in accordance with the proviso in Section 3(a)). If the number of
Rights
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<PAGE>
associated with each Exchangeable Share has been adjusted in accordance with the
proviso in Section 3(a), at the time of distribution of the Right Certificates
the Company may make any necessary and appropriate rounding adjustments so that
Right Certificates representing only whole numbers of Rights are distributed and
cash is paid in lieu of any fractional Right in accordance with Section 15(a).
As of and after the Distribution Date, the Rights will be evidenced solely by
such Right Certificates.
(c) With respect to any certificate for Exchangeable Shares, until the
earliest of the Distribution Date, the Redemption Date or the Expiration Date,
the Rights associated with the Exchangeable Shares represented by any such
certificate shall be evidenced by such certificate alone, the registered holders
of the Exchangeable Shares shall also be the registered holders of the
associated Rights and the surrender for transfer of any such certificate shall
also constitute the transfer of the Rights associated with the Exchangeable
Shares represented thereby.
(d) Certificates issued for Exchangeable Shares (including, without
limitation, upon transfer or exchange of outstanding Exchangeable Shares) prior
to the earliest of the Distribution Date, the Redemption Date or the Expiration
Date, shall have printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement dated as of [ ], 1998 (as amended from
time to time, the "Rights Agreement"), among Homestake Canada Inc., Homestake
Mining Company and Montreal Trust Company of Canada, as Rights Agent, the terms
of which are hereby incorporated herein by reference and a copy of which is on
file at the principal executive offices of Homestake Canada Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. Homestake Canada Inc. will mail to the holder of this certificate a
copy of the Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, Rights issued to or held by Acquiring
Persons or their Affiliates or Associates (as such terms are defined in the
Rights Agreement) or by any subsequent holder of such Rights may become null and
void.
Notwithstanding this Section 3(d), the omission of a legend shall not affect
the enforceability of any part of this Rights Agreement or the rights of any
holder of Rights.
SECTION 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
form of election to purchase and form of assignment to be printed on the reverse
side thereof) shall be in substantially the form set forth as Exhibit A and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Sections 7, 11 and 23, the Right Certificates, whenever issued,
shall be dated as of the Distribution Date, and on their face shall entitle the
holders thereof to purchase such number of Exchangeable Shares as shall be set
forth therein for the Purchase Price set forth therein, subject to adjustment
from time to time as herein provided.
SECTION 5. EXECUTION, COUNTERSIGNATURE AND REGISTRATION. (a) The Right
Certificates shall be executed on behalf of the Company by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Treasurer or any Vice President (whether preceded by any additional title)
of the Company, either manually or by facsimile signature, and have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary, an Assistant Secretary or a Vice President (whether preceded by any
additional title, provided that such Vice President shall not have also executed
the Right Certificates) of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid or obligatory for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such an officer of the Company before
countersignature by the Rights
B-49
<PAGE>
Agent and issuance and delivery by the Company, such Right Certificates may
nevertheless be countersigned by the Rights Agent and issued and delivered by
the Company with the same force and effect as though the person who signed such
Right Certificates had not ceased to be such an officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any person who, at
the actual date of execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
execution of this Rights Agreement any such person was not such an officer of
the Company.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced by each of the Right Certificates, the certificate number of
each of the Right Certificates and the date of each of the Right Certificates.
SECTION 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES;
UNCERTIFICATED RIGHTS. (a) Subject to the provisions of Sections 7(e) and 15,
at any time after the Distribution Date, and at or prior to the Close of
Business on the earlier of the Redemption Date or the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split-up, combined or
exchanged for another Right Certificate or Right Certificates representing, in
the aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split-up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split-up, combined or
exchanged at the designated office of the Rights Agent; PROVIDED, HOWEVER, that
neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any Right Certificate surrendered for
transfer until the registered holder shall have completed and signed the
certification contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company or the Rights Agent shall reasonably request.
Thereupon the Rights Agent shall, subject to Sections 7(e) and 15, countersign
and deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment by the holders of Rights of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer,
split-up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a valid
Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancelation of
the Right Certificate if mutilated, the Company will make a new Right
Certificate of like tenor and deliver such new Right Certificate to the Rights
Agent for delivery to the registered owner in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision hereof, the Company and the Rights
Agent may amend this Rights Agreement to provide for uncertificated Rights in
addition to or in place of Rights evidenced by Right Certificates.
SECTION 7. EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS. (a) Subject to
Section 7(e) and except as otherwise provided herein (including Section 11),
each Right shall entitle the registered holder thereof, upon exercise thereof as
provided herein, to purchase for the Purchase Price, at any time after the
Distribution Date and at or prior to the earlier of (i) the Close of Business on
October 15, 2007 (the Close of Business on such date being the "Expiration
Date"), (ii) the exchange of such Right pursuant to Section 11(b)(I) or (iii)
the Redemption Date, one Exchangeable Share, subject to adjustment from time to
time as provided in Sections 11 and 12.
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(b) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date, upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each Exchangeable Share as to which the Rights
are exercised, at or prior to the earlier of (i) the Expiration Date, (ii) the
exchange of such Rights pursuant to Section 11(b)(I) or (iii) the Redemption
Date.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the Exchangeable Shares to be purchased together with an
amount equal to any applicable transfer tax, in lawful money of the United
States of America, in cash or by certified check or money order payable to the
order of the Company, the Rights Agent shall thereupon (i) promptly requisition
from any transfer agent of the Exchangeable Shares (or make available, if the
Rights Agent is the transfer agent) certificates for the number of Exchangeable
Shares to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, (ii) when appropriate, promptly
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 15, (iii) promptly after receipt
of such certificates or depositary receipts, cause the same to be delivered to
or upon the order of the registered holder of such Right Certificate, registered
in such name or names as may be designated by such holder and (iv) when
appropriate, after receipt promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
fewer than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 15.
(e) Notwithstanding anything in this Rights Agreement to the contrary, any
Rights that are at any time beneficially owned by an Acquiring Person or an
Affiliate or Associate of an Acquiring Person shall become null and void and
nontransferable, and any holder of any such Right (including any purported
transferee or subsequent holder) shall not have any right to exercise or
transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of any Right Certificates upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate contained
in the form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
(g) Upon the request of HMC, the Company may temporarily suspend, for a
period of time not to exceed 90 calendar days after the Distribution Date, the
exercisability of the Rights in order for the Company and HMC to prepare and
file a joint registration statement under the blue sky or securities laws of the
United States or Canada, any state or provincial authority or such other
jurisdiction as may be necessary or appropriate, on an appropriate form, with
respect to the Exchangeable Shares purchasable upon exercise of the Rights and
permit such registration statement to become effective; PROVIDED, HOWEVER, that
no such suspension shall remain effective after, and the Rights shall without
any further action by the Company or any other Person become exercisable
immediately upon, the effectiveness of such registration statement. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended and shall issue a
further public announcement at such time as the suspension is no longer in
effect. Notwithstanding any provision herein to the contrary, the Rights shall
not be exercisable in any jurisdiction if the requisite qualification under the
blue sky or securities laws of the United States or Canada, any state or
provincial authority or any such other
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appropriate jurisdiction shall not have been obtained or the exercise of the
Rights shall not be permitted under applicable law.
SECTION 8. CANCELATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered or presented for the purpose of exercise, transfer,
split-up, combination or exchange shall, and any Right Certificate representing
Rights that have become null and void and nontransferable pursuant to Section
7(e) surrendered or presented for any purpose shall, if surrendered or presented
to the Company or to any of its agents, be delivered to the Rights Agent for
cancelation or in canceled form, or, if surrendered or presented to the Rights
Agent, shall be canceled by it, and no Right Certificates shall be issued in
lieu thereof except as expressly permitted by this Rights Agreement. The Company
shall deliver to the Rights Agent for cancelation and retirement, and the Rights
Agent shall so cancel and retire, any Right Certificate purchased or acquired by
the Company. The Rights Agent shall deliver all canceled Right Certificates to
the Company, or shall, at the written request of the Company, destroy such
canceled Right Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF EXCHANGEABLE SHARES. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Exchangeable Shares or any
authorized and issued Exchangeable Shares held in its treasury, free from
preemptive rights or any right of first refusal, a number of Exchangeable Shares
sufficient to permit the exercise in full of all outstanding Rights.
(b) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Exchangeable Shares delivered upon exercise
or exchange of Rights shall, at the time of delivery of the certificates for
such Exchangeable Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(c) So long as the Exchangeable Shares issuable upon the exercise or
exchange of Rights are to be listed on any securities exchange, the Company
covenants and agrees to use its best efforts to cause, from and after such time
as the Rights become exercisable or exchangeable, all Exchangeable Shares
reserved for such issuance to be listed on such securities exchange upon
official notice of issuance upon such exercise or exchange.
(d) The Company further covenants and agrees that it will pay when due and
payable any and all United States and Canadian federal, state and provincial
transfer taxes and charges which may be payable in respect of the issuance or
delivery of Right Certificates or of any Exchangeable Shares upon the exercise
or exchange of the Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or in respect of the issuance or
delivery of certificates for the Exchangeable Shares in a name other than that
of, the registered holder of the Right Certificate evidencing Rights surrendered
for exercise or exchange or to issue or deliver any certificates for
Exchangeable Shares upon the exercise or exchange of any Rights until any such
tax shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
SECTION 10. EXCHANGEABLE SHARES RECORD DATE. Each Person in whose name any
certificate for Exchangeable Shares is issued upon the exercise or exchange of
Rights shall for all purposes be deemed to have become the holder of record of
the Exchangeable Shares represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of any Purchase Price (and any applicable transfer
taxes) was made; PROVIDED, HOWEVER, that, if the date of such surrender and
payment is a date upon which the transfer books of the Company for the
Exchangeable Shares are closed, such Person shall be deemed to have become the
record holder of such Exchangeable Shares on, and such certificate shall be
dated, the next succeeding Business Day on which the transfer books of the
Company for the Exchangeable Shares are open.
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SECTION 11. ADJUSTMENTS IN RIGHTS AFTER THERE IS AN ACQUIRING PERSON;
EXCHANGE OF RIGHTS FOR SHARES; BUSINESS COMBINATIONS. (a) Upon any adjustment
in the HMC Rights pursuant to Section 11(a) of the HMC Rights Agreement, each
holder of a Right, except as provided in Section 7(e) is made, shall thereafter
have a right to receive, upon exercise thereof for the Purchase Price in
accordance with the terms of this Rights Agreement, such number of Exchangeable
Shares as shall equal the result obtained by multiplying the Purchase Price by a
fraction, the numerator of which is the number of Exchangeable Shares for which
a Right is then exercisable and the denominator of which is 50% of the Market
Value of the HMC Common Shares on the date on which such Person became an
Acquiring Person. As soon as practicable after any adjustment in the HMC Rights
pursuant to Section 11(a) of the HMC Rights Agreement (provided the Company is
not required to make the exchange contemplated by Section 11(b)(I) for all
outstanding Rights), the Company covenants and agrees to use its best efforts
to:
(I) work with HMC to prepare and file a joint registration statement
under the Securities Act, on an appropriate form, with respect to the
Exchangeable Shares purchasable upon exercise of the Rights and the HMC
Common Stock into which such Exchangeable Shares may be exchanged;
(II) cause such registration statement to become effective as soon as
practicable after such filing;
(III) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date; and
(IV) qualify or register the Exchangeable Shares purchasable upon
exercise of the Rights under the blue sky or securities laws of the United
States or Canada, any state or provincial authority or such other
jurisdictions as may be necessary or appropriate.
(b)(I) Simultaneously with the action by the Board of Directors of HMC to
exercise its option to exchange the HMC Rights pursuant to Section 11(b)(I) of
the HMC Rights Agreement, the then outstanding and exercisable Rights (which
shall not include Rights that shall have become null and void and
nontransferable pursuant to the provisions of Section 7(e)) shall be
automatically and mandatorily exchanged in the same proportion and under the
same terms and conditions as the HMC Rights were exchanged pursuant to Section
11(b)(I) of the HMC Rights Agreement (the consideration issuable per Right
pursuant to this Section 11(b)(I) being the "Exchange Consideration"). If all
the Rights are exchanged for Exchange Consideration pursuant to this Section
11(b)(I) prior to the physical distribution of the Rights Certificates, the
Company may distribute the Exchange Consideration in lieu of distributing Right
Certificates, in which case for purposes of this Rights Agreement holders of
Rights shall be deemed to have simultaneously received and surrendered for
exchange Right Certificates on the date of such distribution.
(II) The exchange of any Rights pursuant to Section 11(b)(I) shall be
irrevocable and, immediately upon such exchange and without any notice, the
right to exercise any such Right pursuant to Section 11(a) shall terminate and
the only right thereafter of a holder of such Right shall be to receive the
Exchange Consideration in exchange for each such Right held by such holder or,
if the Exchange Consideration shall not have been paid or issued, to exercise
any such Right pursuant to Section 11(c)(I). The Company shall promptly give
public notice of any such exchange; PROVIDED, HOWEVER, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
The Company promptly shall mail a notice of any such exchange to all holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Rights for the
Exchange Consideration will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e)) held by each holder of Rights.
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<PAGE>
(c)(I) In the event that, following a Distribution Date, a Business
Combination is consummated, each holder of a Right, except as provided in
Section 7(e), shall thereafter have the right to receive, upon the exercise
thereof for the Purchase Price in accordance with the terms of this Rights
Agreement, the securities specified below (or, at such holder's option, the
securities specified in Section 11(a)):
(A) If the Principal Party in such Business Combination has Registered
Common Shares outstanding, each Right shall thereafter represent the right
to receive, upon the exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, such number of Registered Common
Shares of such Principal Party, free and clear of all liens, encumbrances or
other adverse claims, as shall have an aggregate Market Value as of the time
of exercise thereof equal to the result obtained by multiplying the Purchase
Price by two;
(B) If the Principal Party involved in such Business Combination does
not have Registered Common Shares outstanding, each Right shall thereafter
represent the right to receive, upon the exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, at the election
of the holder of such Right at the time of the exercise thereof, any of:
(1) such number of Common Shares of the Surviving Person in such
Business Combination as shall have an aggregate Book Value immediately
after giving effect to such Business Combination equal to the result
obtained by multiplying the Purchase Price by two;
(2) such number of Common Shares of the Principal Party in such
Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book
Value immediately after giving effect to such Business Combination equal
to the result obtained by multiplying the Purchase Price by two; or
(3) if the Principal Party in such Business Combination is an
Affiliate of one or more Persons that has Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of such
Affiliates of the Principal Party has Registered Common Shares with the
greatest aggregate Market Value on the date of consummation of such
Business Combination as shall have an aggregate Market Value on the date
of such Business Combination equal to the result obtained by multiplying
the Purchase Price by two.
(II) HMC shall not consummate any Business Combination unless each issuer of
Common Shares for which Rights may be exercised, as set forth in this Section
11(c), shall have sufficient authorized Common Shares that have not been issued
or reserved for issuance (and which shall, when issued upon exercise thereof in
accordance with this Rights Agreement, be validly issued, fully paid and
nonassessable and free of preemptive rights, rights of first refusal or any
other restrictions or limitations on the transfer or ownership thereof) to
permit the exercise in full of the Rights in accordance with this Section 11(c)
and unless prior thereto:
(i) a registration statement under the Securities Act on an appropriate
form, with respect to the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights, shall be effective under the
Securities Act;
(ii) a prospectus has been qualified or an exemption from any prospectus
qualification requirement shall be available with respect to the Rights and
the Common Shares of such issuer purchasable upon exercise of the Rights
with all relevant Canadian securities law authorities; and
(iii) HMC, the Company and each such issuer shall have:
(A) executed and delivered to the Rights Agent a supplemental
agreement providing for the assumption by such issuer of the obligations
set forth in this Section 11(c) (including the obligation of such issuer
to issue Common Shares upon the exercise of Rights in accordance with the
terms set forth in Sections 11(c)(I) and 11(c)(III)) and further
providing that such issuer, at its own expense, will use its best efforts
to:
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<PAGE>
(1) cause a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Common Shares of
such issuer purchasable upon exercise of the Rights, to remain
effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Expiration Date;
(2) qualify or register the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights under the blue sky or
securities laws of each relevant Canadian province and such other
jurisdictions as may be necessary or appropriate; and
(3) list the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights on each securities exchange
on which the Exchangeable Shares were listed prior to the
consummation of the Business Combination or, if the Exchangeable
Shares were not listed on a securities exchange prior to the
consummation of the Business Combination, on a United States
securities exchange (or recognized foreign stock exchange, as the
case may be);
(B) furnished to the Rights Agent a written opinion of independent
counsel stating that such supplemental agreement is a valid, binding and
enforceable agreement of such issuer; and
(C) filed with the Rights Agent a certificate of a nationally
recognized firm of independent accountants setting forth the number of
Common Shares of such issuer which may be purchased upon the exercise of
each Right after the consummation of such Business Combination.
(III) After consummation of any Business Combination and subject to the
provisions of Section 11(c)(II), (i) each issuer of Common Shares for which
Rights may be exercised as set forth in this Section 11(c) shall be liable
for, and shall assume, by virtue of such Business Combination, all the
obligations and duties of the Company pursuant to this Rights Agreement,
(ii) the term "Company" shall thereafter be deemed to refer to such issuer,
(iii) each such issuer shall take such steps in connection with such
consummation as may be necessary to assure that the provisions hereof
(including the provisions of Sections 11(a) and 11(c)) shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights, and (iv) the number
of Common Shares of each such issuer thereafter receivable upon exercise of
any Right shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions of Sections
11 and 12 and the provisions of Sections 7, 9 and 10 with respect to the
Exchangeable Shares shall apply, as nearly as reasonably may be, on like
terms to any such Common Shares.
SECTION 12. CERTAIN ADJUSTMENTS. (a) To preserve the actual or potential
economic value of the Rights, if at any time after the date of this Rights
Agreement there shall be any change in the Exchangeable Shares, whether by
reason of stock dividends, stock splits, reclassifications, recapitalizations,
mergers, consolidations, combinations or exchanges of securities, split-ups,
split-offs, spin-offs, liquidations, other similar changes in capitalization,
any distribution or issuance of cash, assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Exchangeable Shares
(other than distribution of the Rights or regular quarterly cash dividends) or
otherwise, then, in each such event the Board of Directors of the Company shall
make such appropriate adjustments in the number of Exchangeable Shares (or the
number and kind of other securities) issuable upon exercise of each Right, the
Purchase Price and Redemption Price in effect at such time and the number of
Rights outstanding at such time (including the number of Rights or fractional
Rights associated with each Exchangeable Share) such that following such
adjustment such event shall not have had the effect of reducing or limiting the
benefits the holders of the Rights would have had absent such event.
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<PAGE>
(b) If, as a result of an adjustment made pursuant to Section 12(a), the
holder of any Right thereafter exercised shall become entitled to receive any
securities other than Exchangeable Shares, thereafter the number of such
securities so receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11 and 12 and the provisions of
Sections 7, 9 and 10 with respect to the Exchangeable Shares shall apply, as
nearly as reasonably may be, on like terms to any such other securities.
(c) All Rights originally issued by the Company subsequent to any adjustment
made to the amount of Exchangeable Shares or other securities relating to a
Right shall evidence the right to purchase, for the Purchase Price, the adjusted
number and kind of securities purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein.
(d) Irrespective of any adjustment or change in the Purchase Price or the
number of Exchangeable Shares or number or kind of other securities issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the terms that expressed in the
initial Right Certificates issued were hereunder.
(e) In any case in which action taken pursuant to Section 12(a) requires
that an adjustment be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event the issuing to
the holder of any Right exercised after such record date the Exchangeable Shares
and/or other securities, if any, issuable upon such exercise over and above the
Exchangeable Shares and/or other securities, if any, issuable before giving
effect to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional securities upon the occurrence of the event
requiring such adjustment.
SECTION 13. CERTIFICATE OF ADJUSTMENT. Whenever an adjustment is made as
provided in Section 11 or 12, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Exchangeable Shares a copy of such certificate and
(c) mail a brief summary thereof to each holder of a Right Certificate (or,
prior to the Distribution Date, of the Exchangeable Shares) in accordance with
Section 25. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained.
SECTION 14. ADDITIONAL COVENANTS. (a) Notwithstanding any other provision
of this Rights Agreement, no adjustment to the number of Exchangeable Shares (or
fractions of a share) or other securities for which a Right is exercisable or
the number of Rights outstanding or associated with each Common Share or any
similar or other adjustment shall be made or be effective if such adjustment
would have the effect of reducing or limiting the benefits the holders of the
Rights would have had absent such adjustment, including, without limitation, the
benefits under Sections 11 and 12, unless the terms of this Rights Agreement are
amended so as to preserve such benefits.
(b) Each of HMC and the Company covenants and agrees that, after the
Distribution Date, except as permitted by Section 26, it will not take (or
permit any Subsidiary of HMC to take) any action if at the time such action is
taken it is intended or reasonably foreseeable that such action will reduce or
otherwise limit the benefits the holders of the Rights would have had absent
such action, including, without limitation, the benefits under Sections 11 and
12. Any action taken by the Company during any period after any Person becomes
an Acquiring Person but prior to the Distribution Date shall be null and void
unless such action could be taken under this Section 14(b) from and after the
Distribution Date. HMC shall not consummate any Business Combination if any
issuer of Common Shares for which Rights may be exercised after such Business
Combination in accordance with Section 11(c) shall have taken or contemplated
taking any action that reduces or otherwise limits the benefits the holders of
the Rights would have had absent such action, including, without limitation, the
benefits under Sections 11 and 12.
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SECTION 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company may,
but shall not be required to, issue fractions of Rights or distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, the Company may pay to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
Right. For purposes of this Section 15(a), the current market value of a whole
Right shall be the closing price of the Rights (as determined pursuant to the
second and third sentences of the definition of Market Value contained in
Section 1) for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue fractions of
Exchangeable Shares upon exercise of the Rights or distribute certificates which
evidence fractional Exchangeable Shares. In lieu of fractional Exchangeable
Shares, the Company may elect to (i) utilize a depository arrangement as
provided by the terms of the Exchangeable Shares or (ii) in the case of a
fraction of an Exchangeable Share, pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one
Exchangeable Share, if any are outstanding and publicly traded (or the current
market value of one Common Share if the Exchangeable Shares are not outstanding
and publicly traded). For purposes of this Section 15(b), the current market
value of an Exchangeable Share shall be the closing price of a HMC Common Share
(as determined pursuant to the second and third sentences of the definition of
Market Value contained in Section 1) for the Trading Day immediately prior to
the date of such exercise. If, as a result of an adjustment made pursuant to
Section 12(a), the holder of any Right thereafter exercised shall become
entitled to receive any securities other than Exchangeable Shares, the
provisions of this Section 15(b) shall apply, as nearly as reasonably may be, on
like terms to such other securities.
(c) The Company may, but shall not be required to, issue fractions of
Exchangeable Shares upon exchange of Rights pursuant to Section 11(b), or to
distribute certificates that evidence fractional Exchangeable Shares. In lieu of
such fractional Exchangeable Shares, the Company may pay to the registered
holders of the Right Certificates with regard to that such fractional
Exchangeable Shares would otherwise be issuable an amount in cash equal to the
same fraction of the current Market Value of one HMC Common Share as of the date
on which a Person became an Acquiring Person.
(d) Any holder of Rights by the acceptance of the Rights expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right except as provided in this Section 15.
SECTION 16. RIGHTS OF ACTION. (a) All rights of action in respect of this
Rights Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Exchangeable Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Exchangeable Shares), without the consent
of the Rights Agent or of the holder of any other Right Certificate (or, prior
to the Distribution Date, of the Exchangeable Shares) may, in his own behalf and
for his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Rights Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Rights Agreement and shall be entitled to
specific performance of the obligations of any Person under, and injunctive
relief against actual or threatened violations of the obligations of any Person
subject to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the provisions
of this Rights Agreement shall be entitled to recover the reasonable costs and
expenses, including attorneys' fees, incurred in such action.
SECTION 17. TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT CERTIFICATES. (a)
Prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Exchangeable Shares and
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the Right associated with each Common Share shall be automatically transferred
upon the transfer of each Exchangeable Share.
(b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e), only on the registry books of the Rights
Agent if surren-dered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in whose
name a Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated certificate for Exchangeable
Shares made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
SECTION 18. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Right Certificate shall be entitled to vote or receive dividends
or be deemed, for any purpose, the holder of the Exchangeable Shares or of any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or HMC,
including, without limitation, any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders, or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
SECTION 19. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and from time to time, on demand of the Rights Agent, its reasonable
counsel fees and expenses and other disbursements incurred in the administration
and execution of this Rights Agreement and the exercise and performance of its
duties hereunder, including any taxes or governmental charges imposed as a
result of the action taken by it hereunder (other than any taxes on the fees
payable to it).
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Rights Agreement in reliance upon any Right Certificate
or certificate for the Exchangeable Shares or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, opinion, instruction, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons.
SECTION 20. MERGER OR CONSOLIDATION OR CHANGE OF RIGHTS AGENT. (a) Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or amalgamated or with which it may be consolidated, or any corporation
resulting from any merger, amalgamation or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the stock transfer or corporate trust business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Rights Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto; PROVIDED, HOWEVER, that
such corporation would be eligible for appointment as a successor Rights Agent
under the provisions of Section 22. In case, at the time such successor Rights
Agent shall succeed to the agency created by this Rights Agreement, any of the
Right Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Right Certificates so countersigned; and, in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor
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Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Right Certificates shall have the full force provided in the Right
Certificates and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
SECTION 21. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties
and obligations imposed by this Rights Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates
(or, prior to the Distribution Date, of the Exchangeable Shares), by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel satisfactory to it (who
may be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken, suffered or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties under this Rights Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person) be proved
or established by the Company prior to taking, refraining from taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, a Vice President (whether
preceded by any additional title), the Treasurer or the Secretary of the Company
and delivered to the Rights Agent or by the directors of the Company whose vote
would be sufficient to redeem the Rights under Section 24. Such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Rights Agreement in reliance
upon such certificate. In the event any such certificate signed by such
directors is inconsistent with any other such certificate, the certificate
signed by such directors shall control.
(c) The Rights Agent shall be liable hereunder only for its own negligence,
bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of the
validity of this Rights Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Rights Agreement or in any Right Certificate; nor
shall it be responsible for any adjustment required under the provisions of
Section 11 or 12 or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Exchangeable Shares to be issued pursuant to
this Rights Agreement or any Right Certificate or as to whether any Exchangeable
Shares will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
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<PAGE>
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President, a
Vice President (whether preceded by any additional title), the Secretary or the
Treasurer of the Company or from the directors of the Company whose vote would
be sufficient to redeem the Rights under Section 24, and to apply to such
officers or directors for advice and instructions in connection with its duties
and it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officers or directors or
for any delay in acting while waiting for those instructions. Any application by
the Rights Agent for written instructions from the Company may, at the option of
the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Agreement and the date on and/or after
which such action shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or omission of, the Rights
Agent in accordance with a proposal included in such application on or after the
date specified in such application (which date shall not be less than three
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to any
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any stockholder, director, officer, employee or
affiliate of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Rights Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct provided reasonable care was exercised in the selection
and continued employment thereof.
(j) The Company agrees to indemnify and to hold the Rights Agent harmless
against any loss, liability, damage or expense (including reasonable fees and
expenses of legal counsel) which the Rights Agent may incur in connection with
this Rights Agreement; PROVIDED, HOWEVER, that the Rights Agent shall not be
indemnified or held harmless with respect to any such loss, liability, damage or
expense incurred by the Rights Agent as a result of, or arising out of, its own
negligence, bad faith or wilful misconduct. If any action, proceeding
(including, but not limited to, any governmental investigation), claim or
dispute (collectively, a "Proceeding") in respect of which indemnity may be
sought is brought or asserted against the Rights Agent, the Rights Agent shall
promptly (and in no event more than ten (10) days after receipt of written
notice of such Proceeding) notify the Company of such Proceeding. The failure of
the Rights Agent to so notify the Company shall not impair the Rights Agent's
ability to seek indemnification from the Company (but only for costs, expenses
and liabilities incurred after such notice) unless such failure adversely
affects the Company's ability to adequately oppose or defend such Proceeding.
Upon receipt of such notice from the Rights Agent, the Company shall be entitled
to participate in such Proceeding and, to the extent that it shall so desire and
provided no conflict of interest exists as specified in (b) below or there are
no other defenses available to the Rights Agent as specified in (d) below, to
assume the defense thereof with counsel reasonably satisfactory to the Rights
Agent (in which case all attorney's fees and expenses shall be borne by the
Company and the Company shall in good faith defend the Rights Agent).
B-60
<PAGE>
The Rights Agent shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be borne by the Rights Agent unless (a) the Company agrees
in writing to pay such fees and expenses, (b) the Rights Agent shall have
reasonably and in good faith concluded that there is a conflict of interest
between the Company and the Rights Agent in the conduct of the defense of such
action, (c) the Company fails, within ten (10) days prior to the date the first
response or appearance is required to be made in such Proceeding, to assume the
defense of such Proceeding with counsel reasonably satisfactory to the Rights
Agent or (d) there are legal defenses available to the Rights Agent that are
different from or are in addition to those available to the Company. No
compromise or settlement of such Proceeding may be effected by either party
without the other party's consent unless (i) there is no finding or admission of
any violation of law and no effect on any other claims that may be made against
such other party and (ii) the sole relief provided is monetary damages that are
paid in full by the party seeking the settlement. Neither party shall have any
liability with respect to any compromise or settlement effected without its
consent, which consent shall not be unreasonably withheld. The Company shall
have no obligation to indemnify and hold harmless the Rights Agent from any
loss, expense or liability incurred by the Rights Agent as a result of a default
judgment entered against the Rights Agent unless such judgment was entered after
the Company agreed, in writing, to assume the defense of such Proceeding. The
provisions of this Section 21(j) shall survive expiration of the Rights and the
termination of this Agreement.
(k) The Rights Agent shall be under no obligation to institute any action,
suit or legal proceeding or to take any other action likely to involve expense
unless the Company or one or more registered holders of Right Certificates shall
furnish the Rights Agent with security and indemnity to its satisfaction for any
costs and expenses which may be incurred.
(l) The Rights Agent shall not be liable for failure to perform any duties
except as specifically set forth herein and no implied covenants or obligations
shall be read into this Agreement against the Rights Agent, whose duties and
obligations are ministerial and shall be determined solely by the express
provisions hereof.
SECTION 22. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Rights
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Exchangeable Shares by registered or certified mail. The
Company may remove the Rights Agent or any successor Rights Agent upon 30 days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Exchangeable Shares by registered
or certified mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (or, prior to
the Distribution Date, of the Exchangeable Shares) (who shall, with such notice,
submit his Right Certificate or, prior to the Distribution Date, the certificate
representing his Common Shares, for inspection by the Company), then the Rights
Agent or the registered holder of any Right Certificate (or, prior to the
Distribution Date, of the Exchangeable Shares) may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation incorporated under the laws of Canada or a province thereof
authorized to carry on the business of a trust company in the Province of
Ontario. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Exchangeable
Shares, and mail a notice thereof in writing to the registered
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holders of the Right Certificates (or, prior to the Distribution Date, of the
Exchangeable Shares). Failure to give any notice provided for in this Section
22, however, or any defect therein shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
SECTION 23. ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT
CERTIFICATES. Notwithstanding any of the provisions of this Rights Agreement or
of the Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change made in accordance with the
provisions of this Rights Agreement. In addition, in connection with the
issuance or sale of Exchangeable Shares following the Distribution Date and
prior to the earlier of the Redemption Date, the exchange of Rights pursuant to
Section 11(b)(I) and the Expiration Date, the Company (a) shall, with respect to
Exchangeable Shares so issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement, or upon the exer-cise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b) may,
in any other case, if deemed necessary or appropriate by the Board of Directors
of the Company, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
such Right Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a significant risk
of material adverse tax conse-quences to the Company or the Person to whom such
Right Certificate would be issued, (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof and (iii) no such Right Certificate
shall be issued to an Acquiring Person or an Affiliate or Associate of an
Acquiring Person.
SECTION 24. REDEMPTION AND TERMINATION. (a) The Board of Directors of the
Company shall, simultaneously with any order by the Board of Directors of HMC
pursuant to Section 24 of the HMC Rights Agreement, order the redemption of all,
but not fewer than all, the then outstanding Rights at the Redemption Price (the
date of such redemption being the "Redemption Date"), and the Company, at its
option, may pay the Redemption Price either in cash or Exchangeable Shares or
other securities of the Company deemed by the Board of Directors of the Company,
in the exercise of its sole discretion, to be at least equivalent in value to
the Redemption Price.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. Within 10 Business Days after the action of the Board of Directors of the
Company ordering the redemption of the Rights, the Company shall give notice of
such redemption to the holders of the then outstanding Rights by mailing such
notice to all such holders at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Exchangeable Shares. Each such
notice of redemption will state the method by which payment of the Redemption
Price will be made. The notice, if mailed in the manner herein provided, shall
be conclusively presumed to have been duly given, whether or not the holder of
Rights receives such notice. In any case, failure to give such notice by mail,
or any defect in the notice, to any particular holder of Rights shall not affect
the sufficiency of the notice to other holders of Rights.
SECTION 25. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of a Right Certificate (or,
prior to the Distribution Date, of the Common Shares) to or on the Company shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
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<PAGE>
Homestake Mining Company
650 California Street
San Francisco, CA 94108-2788
Attn: General Counsel
with a copy to:
Homestake Canada Inc.
[Address]
Subject to the provisions of Section 22, any notice or demand authorized by
this Rights Agreement to be given or made by the Company or by the holder of a
Right Certificate (or, prior to the Distribution Date, of the Common Shares) to
or on the Rights Agent shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
[RIGHTS AGENT INFO]
Notices or demands authorized by this Rights Agreement to be given or made
by the Company or the Rights Agent to any holder of a Right Certificate (or,
prior to the Distribution Date, of the Exchangeable Shares) shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Exchangeable Shares.
SECTION 26. SUPPLEMENTS AND AMENDMENTS. At any time prior to the
Distribution Date and subject to clause (a) of the last sentence of this Section
26, the Company may, and the Rights Agent shall if the Company so directs,
supplement or amend any provision of this Rights Agreement (including, without
limitation, the date on which the Distribution Date shall occur, the definition
of "Acquiring Person" and the time during which the Rights may be redeemed
pursuant to Section 24) without the approval of any holder of the Rights. From
and after the Distribution Date and subject to applicable law, the Company may,
and the Rights Agent shall if the Company so directs, amend this Rights
Agreement without the approval of any holders of Right Certificates (i) to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision of this Rights
Agreement or (ii) to make any other provisions in regard to matters or questions
arising hereunder which the Company may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Any supplement or amendment adopted during any period after any Person
has become an Acquiring Person but prior to the Distribution Date shall be null
and void unless such supplement or amendment could have been adopted under the
prior sentence from and after the Distribution Date. Any supplement or amendment
to this Rights Agreement duly approved by the Company that does not amend
Sections 19, 20, 21 or 22 in a manner adverse to the Rights Agent shall become
effective immediately upon execution by the Company, whether or not also
executed by the Rights Agent. The Rights Agent shall receive prompt written
notice from the Company of any amendment hereunder. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this
Section, the Rights Agent shall execute such supplement or amendment.
Notwithstanding any other provision hereof, (a) the Rights Agent's consent must
be obtained regarding any amendment or supplement pursuant to this Section 26
which alters the Rights Agent's rights or duties, (b) if any provision of the
HMC Rights Agreement is supplemented or amended, the Company shall supplement or
amend this Rights Agreement as soon as practicable in substantially the same
manner (unless such supplement or amendment shall be in violation of the laws of
the Province of Ontario or the federal laws of Canada applicable therein) and
(c) except pursuant to clause
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<PAGE>
(b) above, no provision of this Rights Agreement shall be supplemented or
amended (except to cure any ambiguity or to correct or supplement any provision
contained herein which may be inconsistent with any provision of the HMC Rights
Agreement or the laws of the Province of Ontario and the federal laws of Canada
applicable therein).
SECTION 27. SUCCESSORS. All the covenants and provisions of this Rights
Agreement by or for the benefit of the Company, HMC or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 28. BENEFITS OF RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE
BOARD OF DIRECTORS, ETC. (a) Nothing in this Rights Agreement shall be construed
to give to any Person other than the Company, HMC, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, of the Exchangeable Shares) any legal or equitable right, remedy or claim
under this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, HMC, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, of the
Exchangeable Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement, the
Board of Directors of the Company shall have the exclusive power and authority
to administer this Rights Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Rights
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Rights Agreement and (ii) make all determinations deemed
necessary or advisable for the administration of this Rights Agreement
(including, without limitation, a determination to redeem or not redeem the
Rights or to amend or not amend this Rights Agreement and whether or not there
is an Acquiring Person).
SECTION 29. SEVERABILITY. If any term, provision, covenant or restriction
of this Rights Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Rights Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 30. GOVERNING LAW. THIS RIGHTS AGREEMENT AND EACH RIGHT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAW
OF THE PROVINCE OF ONTARIO AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF SUCH STATE APPLICABLE TO CONTRACTS TO BE
MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE, PROVIDED, HOWEVER, THAT THE
RIGHTS AND OBLIGATIONS OF THE RIGHTS AGENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 31. COUNTERPARTS; EFFECTIVENESS. This Rights Agreement may be
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. This Rights Agreement shall
be effective as of the Close of Business on the date hereof.
SECTION 32. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Rights Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions of
this Rights Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement
to be duly executed as of the day and year first above written.
<TABLE>
<C> <S> <C>
HOMESTAKE CANADA INC.,
by
------------------------
Name:
Title:
HOMESTAKE MINING COMPANY,
by
------------------------
Name:
Title:
MONTREAL TRUST COMPANY,
as Rights Agent,
by
------------------------
Name:
Title:
</TABLE>
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<PAGE>
SCHEDULE 7
HOMESTAKE RIGHTS AGREEMENT
(AS PROPOSED TO BE AMENDED)
B-66
<PAGE>
AMENDMENT NO. 2, dated as of September , 1998, to the Rights Agreement
dated as of October 16, 1987, and amended as of October 15, 1997 (as
amended, the "Rights Agreement"), between HOMESTAKE MINING COMPANY, a
Delaware corporation (the "Company"), and BANKBOSTON N.A., a national
banking association, as successor to BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking corporation, as Rights Agent (the
"Rights Agent").
WHEREAS the Board of Directors of Homestake Canada Inc., an Ontario
corporation ("HCI"), has authorized the issuance of one right (as such number
may be adjusted from time to time) for each Exchangeable Share of HCI (the "HCI
Exchangeable Shares"), each right initially representing the right to purchase
one HCI Exchangeable Share (the "HCI Rights");
WHEREAS, as provided in the Arrangement Agreement dated as of September ,
1998, among Prime Resources Group Inc., Homestake Canada Holdings Company, the
Company and HCI (the "Arrangement Agreement"), the HCI Rights are intended to
provide rights to acquire additional HCI Exchangeable Shares (or in certain
circumstances other securities) on terms substantially the same as the rights
issued under the Rights Agreement confer the right to acquire shares of common
stock of the Company or preferred stock of the Company that is essentially the
economic equivalent of common stock of the Company (or in certain circumstances
other securities); and
WHEREAS pursuant to Section 26 of the Rights Agreement the Board of
Directors of the Company has determined that an amendment to the Rights
Agreement as set forth herein is necessary and desirable to reflect the
foregoing and the Company and the Rights Agent desire to evidence such amendment
in writing.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the Company and the Rights Agent agree as follows:
ARTICLE I
AMENDMENTS TO THE RIGHTS AGREEMENT
SECTION 1.01. The definitions of "Acquiring Person", "Beneficial Owner" and
"Book Value" in Section 1 of the Rights Agreement are hereby amended, effective
as of the date of this Amendment, by deleting the text of such definitions in
their entireties and by replacing each of them with the following:
"ACQUIRING PERSON" shall mean any Person who or which, alone or together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of Common Shares representing more than 15% of the aggregate number of Common
Shares and HCI Exchangeable Shares then outstanding but shall not include (a)
the Company, any Subsidiary of the Company, any employee benefit or compensation
plan of the Company or of any of its Subsidiaries, or any Person holding Common
Shares or HCI Exchangeable Shares for or pursuant to the terms of any such
employee benefit or compensation plan, (b) the holder of the Homestake Special
Voting Stock or (c) any such Person who has become and is such a Beneficial
Owner solely because (i) of a change in the aggregate number of Common Shares or
HCI Exchangeable Shares outstanding since the last date on which such Person
acquired Beneficial Ownership of any Common Shares or HCI Exchangeable Shares or
(ii) it acquired such Beneficial Ownership in the good faith belief that such
acquisition would not (x) cause such Beneficial Ownership to exceed 15% of the
aggregate number of Common Shares and HCI Exchangeable Shares then outstanding
and such Person relied in good faith in computing the percentage of its
Beneficial Ownership on publicly filed reports or documents of the Company or
HCI that are inaccurate or out-of-date or (y) otherwise cause a Distribution
Date or the adjustment provided for in Section 11(a) to occur. Notwithstanding
clause (c)(ii) of the prior sentence, if any Person that is not an Acquiring
Person due to such clause (c)(ii) does not reduce its percentage of Beneficial
Ownership of Common Shares and HCI Exchangeable Shares to 15% or less by
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the Close of Business on the fifth Business Day after notice from the Company
(the date of notice being the first day) that such Person's Beneficial Ownership
of Common Shares or HCI Exchangeable Shares or any combination thereof so
exceeds 15%, such Person shall, at the end of such five Business Day period,
become an Acquiring Person (and such clause (c)(ii) shall no longer apply to
such Person). For purposes of this definition, the determination whether any
Person acted in "good faith" shall be conclusively determined by the Board of
Directors of the Company, acting by a vote of those directors of the Company
whose approval would be required to redeem the Rights under Section 24.
A Person shall be deemed the "BENEFICIAL OWNER" of, and shall be deemed to
"BENEFICIALLY OWN", and shall be deemed to have "BENEFICIAL OWNERSHIP" of, any
securities:
(i) which such Person or any of such Person's Affiliates or Associates
is deemed to "beneficially own" within the meaning of Rule 13d-3 of the
General Rules and Regulations under the Exchange Act, as in effect on the
date of this Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or Associates
has: (A) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement or
understanding (written or oral), or upon the exchange or retraction of HCI
Exchangeable Shares, or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights or the HCI Rights), warrants or
options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed
under this clause (A) the Beneficial Owner of, or to beneficially own, or to
have Beneficial Ownership of, any securities tendered pursuant to a tender
or exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange thereunder or cease to be subject to
withdrawal by the tendering security holder; or (B) the right to vote
pursuant to any agreement, arrangement or understanding (written or oral);
PROVIDED, HOWEVER, that a Person shall not be deemed under this clause (B)
the Beneficial Owner of, or to beneficially own, or to have Beneficial
Ownership of, any security if (1) the agreement, arrangement or
understanding (written or oral) to vote such security arises solely from a
revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made generally to all holders of Common Stock
or HCI Exchangeable Shares pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange Act and (2) the
beneficial ownership of such security is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (written or oral)
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy or consent as described in clause (ii)(B) of this
definition) or disposing of any securities of the Company or of HCI.
Notwithstanding the foregoing, nothing contained in this definition shall cause
a Person ordinarily engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own" or to have "Beneficial
Ownership" of, any securities acquired in a bona fide firm commitment
underwriting pursuant to an underwriting agreement with the Company or with HCI.
"BOOK VALUE", when used with reference to Common Shares issued by any
Person, shall mean the amount of equity of such Person applicable to each Common
Share, determined (i) in accordance with generally accepted accounting
principles in effect in the jurisdiction in which such Person is incorporated
and on the date as of which such Book Value is to be determined, (ii) using all
the consolidated assets and all the consolidated liabilities of such Person on
the date as of which such Book Value is to be determined, except that no value
shall be included in such assets for goodwill arising from consummation of a
business combination, and (iii) after giving effect to (A) the exercise of all
rights, options and warrants to purchase such Common Shares (other than the
Rights or the HCI Rights), and the conversion of all securities convertible into
such Common Shares, at an exercise or conversion price, per Common Share, which
is less
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than such Book Value before giving effect to such exercise or conversion
(whether or not exercisability or convertibility is conditioned upon occurrence
of a future event), (B) all dividends and other distributions on the capital
stock of such Person declared prior to the date as of which such Book Value is
to be determined and to be paid or made after such date, and (C) any other
agreement, arrangement or understanding (written or oral), or transaction or
other action contemplated prior to the date as of which such Book Value is to be
determined that would have the effect of thereafter reducing such Book Value.
SECTION 1.02. Section 1 of the Rights Agreement is hereby amended,
effective as of the date of this Amendment, by adding the text of the following
definitions:
"ARRANGEMENT AGREEMENT" shall mean the arrangement agreement dated as of
September , 1998, among Prime Resources Group Inc., Homestake Canada Holdings
Company, the Company and HCI.
"HCI" shall mean Homestake Canada Inc., an Ontario corporation.
"HCI EXCHANGEABLE SHARES" shall mean the Exchangeable Shares of HCI having
the rights, privileges, restrictions and conditions substantially set forth in
Schedule 2 to the Arrangement Agreement.
"HCI RIGHTS" shall mean the rights to purchase HCI Exchangeable Shares (or
other securities) as provided in the HCI Rights Agreement.
"HCI RIGHTS AGREEMENT" shall mean the Rights Agreement dated as of
, 1998, between HCI and Montreal Trust Company of Canada, as Rights
Agent, as amended from time to time.
"HOMESTAKE SPECIAL VOTING STOCK" shall mean the Special Voting Stock of the
Company, par value $1.00, initially issued by the Company to and deposited with
Montreal Trust Company of Canada, as Trustee.
ARTICLE II
MISCELLANEOUS
SECTION 2.01. Except to the extent amended by or inconsistent with this
Amendment No. 2, the Company and the Rights Agent hereby ratify and reconfirm
the Rights Agreement in its entirety.
SECTION 2.02. This Amendment No. 2 may be executed in any number of
counterparts, each of which so executed shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 2.03. THIS AMENDMENT NO. 2 SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER THE LAW OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF SUCH STATE APPLICABLE TO CONTRACTS
TO BE MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE, PROVIDED, HOWEVER, THAT THE
RIGHTS AND OBLIGATIONS OF THE RIGHTS AGENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be duly executed as of the day and year first above written.
<TABLE>
<S> <C>
HOMESTAKE MINING COMPANY,
By: ---------------------------------------
Name: Wayne Kirk
Title: VICE PRESIDENT, CORPORATE SECRETARY
AND GENERAL COUNSEL
BANKBOSTON N.A., AS RIGHTS AGENT,
By: ---------------------------------------
Name:
Title: DIRECTOR
</TABLE>
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<PAGE>
]
AMENDMENT NO. 1, dated as of October 15, 1997, to the Rights Agreement
(the "Rights Agreement") dated as of October 16, 1987, between HOMESTAKE
MINING COMPANY, a Delaware corporation (the "Company"), and BANKBOSTON N.A.,
a national banking association, as successor to BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, a national banking corporation, as Rights
Agent (the "Rights Agent").
WHEREAS the rights issued under the Rights Agreement are currently scheduled
to expire on November 2, 1997, and the Board of Directors of the Company wishes
to extend the expiration date of such rights; and
WHEREAS pursuant to Section 27 of the Rights Agreement the Board of
Directors of the Company has determined that an amendment to the Rights
Agreement as set forth herein is necessary and desirable to reflect the
foregoing and the Company and the Rights Agent desire to evidence such amendment
in writing.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the Company and the Rights Agent agree as follows:
SECTION 1.01 AMENDMENT TO THE RIGHTS AGREEMENT. The Rights Agreement is
hereby amended, effective as the date of this Amendment, by deleting the text of
the Rights Agreement, beginning at Section 1 thereof, in its entirety and by
replacing it with the following:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Rights Agreement, the
following terms have the meanings indicated:
"ACQUIRING PERSON" shall mean any Person who or which, alone or together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of more than 15% of the Common Shares then outstanding but shall not include (a)
the Company, any Subsidiary of the Company, any employee benefit or compensation
plan of the Company or of any of its Subsidiaries, or any Person holding Common
Shares for or pursuant to the terms of any such employee benefit or compensation
plan or (b) any such Person who has become and is such a Beneficial Owner solely
because (i) of a change in the aggregate number of Common Shares outstanding
since the last date on which such Person acquired Beneficial Ownership of any
Common Shares or (ii) it acquired such Beneficial Ownership in the good faith
belief that such acquisition would not (x) cause such Beneficial Ownership to
exceed 15% of the Common Shares then outstanding and such Person relied in good
faith in computing the percentage of its Beneficial Ownership on publicly filed
reports or documents of the Company that are inaccurate or out-of-date or (y)
otherwise cause a Distribution Date or the adjustment provided for in Section
11(a) to occur. Notwithstanding clause (b)(ii) of the prior sentence, if any
Person that is not an Acquiring Person due to such clause (b)(ii) does not
reduce its percentage of Beneficial Ownership of Common Shares to 15% or less by
the Close of Business on the fifth Business Day after notice from the Company
(the date of notice being the first day) that such Person's Beneficial Ownership
of Common Shares so exceeds 15%, such Person shall, at the end of such five
Business Day period, become an Acquiring Person (and such clause (b)(ii) shall
no longer apply to such Person). For purposes of this definition, the
determination whether any Person acted in "good faith" shall be conclusively
determined by the Board of Directors of the Company, acting by a vote of those
directors of the Company whose approval would be required to redeem the Rights
under Section 24.
"AFFILIATE" and "ASSOCIATE", when used with reference to any Person, shall
have the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act, as in effect on the date of this
Rights Agreement.
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A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to
"beneficially own", and shall be deemed to have "Beneficial Ownership" of, any
securities:
(i) which such Person or any of such Person's Affiliates or Associates
is deemed to "beneficially own" within the meaning of Rule 13d-3 of the
General Rules and Regulations under the Exchange Act, as in effect on the
date of this Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement or
understanding (written or oral), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed under this
clause (A) the Beneficial Owner of, or to beneficially own, or to have
Beneficial Ownership of, any securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange thereunder or cease to be subject to withdrawal by the
tendering security holder, or (B) the right to vote pursuant to any
agreement, arrangement or understanding (written or oral); PROVIDED,
HOWEVER, that a Person shall not be deemed under this clause (B) the
Beneficial Owner of, or to beneficially own, or to have Beneficial Ownership
of, any security if (1) the agreement, arrangement or understanding (written
or oral) to vote such security arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made generally to all holders of Common Stock pursuant to, and
in accordance with, the applicable rules and regulations under the Exchange
Act and (2) the beneficial ownership of such security is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (written or oral)
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (ii)(B) of this definition) or
disposing of any securities of the Company.
Notwithstanding the foregoing, nothing contained in this definition shall
cause a Person ordinarily engaged in business as an underwriter of securities to
be the "Beneficial Owner" of, or to "beneficially own" or to have "Beneficial
Ownership" of, any securities acquired in a bona fide firm commitment
underwriting pursuant to an underwriting agreement with the Company.
"BOOK VALUE", when used with reference to Common Shares issued by any
Person, shall mean the amount of equity of such Person applicable to each Common
Share, determined (i) in accordance with generally accepted accounting
principles in effect on the date as of which such Book Value is to be
determined, (ii) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which such Book Value is to be
determined, except that no value shall be included in such assets for goodwill
arising from consummation of a business combination, and (iii) after giving
effect to (A) the exercise of all rights, options and warrants to purchase such
Common Shares (other than the Rights), and the conversion of all securities
convertible into such Common Shares, at an exercise or conversion price, per
Common Share, which is less than such Book Value before giving effect to such
exercise or conversion (whether or not exercisability or convertibility is
conditioned upon occurrence of a future event), (B) all dividends and other
distributions on the capital stock of such Person declared prior to the date as
of which such Book Value is to be determined and to be paid or made after such
date, and (C) any other agreement, arrangement or understanding (written or
oral), or transaction or other action contemplated prior to the date as of which
such Book Value is to be determined that would have the effect of thereafter
reducing such Book Value.
"BUSINESS COMBINATION" shall have the meaning set forth in Section 11(c)(I).
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"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, are authorized or obligated by law or executive
order to close.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of Designation of
Series A Participating Cumulative Preferred Stock setting forth the powers,
preferences, rights, qualifications, limitations and restrictions of such series
of Preferred Stock of the Company, a copy of which is attached as Exhibit A.
"CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m., New York City
time, on such date; PROVIDED, HOWEVER, that, if such date is not a Business Day,
"Close of Business" shall mean 5:00 p.m., New York City time, on the next
succeeding Business Day.
"COMMON SHARES", when used with reference to the Company prior to a Business
Combination, shall mean the shares of Common Stock of the Company or any other
shares of capital stock of the Company into which the Common Stock shall be
reclassified or changed. "Common Shares", when used with reference to any Person
(other than the Company prior to a Business Combination), shall mean shares of
capital stock of such Person (if such Person is a corporation) of any class or
series, or units of equity interests in such Person (if such Person is not a
corporation) of any class or series, the terms of which do not limit (as a
maximum amount and not merely in proportional terms) the amount of dividends or
income payable or distributable on such class or series or the amount of assets
distributable on such class or series upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person and do not provide that
such class or series is subject to redemption at the option of such Person, or
any shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; PROVIDED, HOWEVER, that, if at any
time there shall be more than one such class or series of capital stock or
equity interests of such Person, "Common Shares" of such Person shall include
all such classes and series substantially in the proportion of the total number
of shares or other units of each such class or series outstanding at such time
unless any such class or series is identical to another such class except for
voting power, in which case "Common Shares" shall include such higher voting
class in place of such lower voting class.
"COMMON STOCK" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.
"COMPANY" shall have the meaning set forth in the heading of this Rights
Agreement; PROVIDED, HOWEVER, that if there is a Business Combination, "Company"
shall have the meaning set forth in Section 11(c)(III).
The term "CONTROL" with respect to any Person shall mean the power to direct
the management and policies of such Person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other Persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to the
foregoing.
"DISTRIBUTION DATE" shall have the meaning set forth in Section 3(b).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as in effect
on the date in question, unless otherwise specifically provided.
"EXCHANGE CONSIDERATION" shall have the meaning set forth in Section
11(b)(I).
"EXPIRATION DATE" shall have the meaning set forth in Section 7(a).
"MAJOR PART", when used with reference to the assets of the Company and its
Subsidiaries as of any date, shall mean assets (i) having a fair market value
aggregating 50% or more of the total fair market value of all the assets of the
Company and its Subsidiaries (taken as a whole) as of the date in question, (ii)
accounting for 50% or more of the total value (net of depreciation and
amortization) of all the assets of the Company and its Subsidiaries (taken as a
whole) as would be shown on a consolidated or combined
B-73
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balance sheet of the Company and its Subsidiaries as of the date in question,
prepared in accordance with generally accepted accounting principles then in
effect, or (iii) accounting for 50% or more of the total amount of earnings
before interest, taxes, depreciation and amortization or of the revenues of the
Company and its Subsidiaries (taken as a whole) as would be shown on, or derived
from, a consolidated or combined statement of income or operations of the
Company and its Subsidiaries for the period of 12 months ending on the last day
of the Company's monthly accounting period next preceding the date in question,
prepared in accordance with generally accepted accounting principles then in
effect.
"MARKET VALUE", when used with reference to Common Shares on any date, shall
be deemed to be the average of the daily closing prices, per share, of such
Common Shares for the period which is the shorter of (1) 30 consecutive Trading
Days immediately prior to the date in question or (2) the number of consecutive
Trading Days beginning on the Trading Day immediately after the date of the
first public announcement of the event requiring a determination of the Market
Value and ending on the Trading Day immediately prior to the record date of such
event; PROVIDED, HOWEVER, that, in the event that the Market Value of such
Common Shares is to be determined in whole or in part during a period following
the announcement by the issuer of such Common Shares of any action of the type
described in Section 12(a) that would require an adjustment thereunder, then,
and in each such case, the Market Value of such Common Shares shall be
appropriately adjusted to reflect the effect of such action on the market price
of such Common Shares. The closing price for each Trading Day shall be the
closing price quoted on the principal United States securities exchange
registered under the Exchange Act (or any recognized foreign stock exchange) on
which such securities are listed, or, if such securities are not listed on any
such exchange, the closing price quoted on The Nasdaq Stock Market or, if such
securities are not so quoted, the average of the closing bid and asked
quotations with respect to a share of such securities on any National
Association of Securities Dealers, Inc. quotations system or such other system
then in use, or if no such quotations are available, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in such securities selected by the Board of Directors of the Company. If on any
such Trading Day no market maker is making a market in such securities, the
closing price of such securities on such Trading Day shall be deemed to be the
fair value of such securities as determined in good faith by the Board of
Directors of the Company acting by a vote of those directors whose approval
would be required to redeem the Rights under Section 24 (whose determination
shall be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent, the holders of Rights and all other Persons);
PROVIDED, HOWEVER, that for the purpose of determining the closing price of the
Preferred Shares for any Trading Day on which there is no such market maker for
the Preferred Shares the closing price on such Trading Day shall be deemed to be
the Formula Number (as defined in the Certificate of Designation) times the
closing price of the Common Shares of the Company on such Trading Day.
"PERSON" shall mean an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"PREFERRED SHARES" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement. Any reference in this Rights Agreement to
Preferred Shares shall be deemed to include any authorized fraction of a
Preferred Share, unless the context otherwise requires.
"PRINCIPAL PARTY" shall mean the Surviving Person in a Business Combination;
PROVIDED, HOWEVER, that, if such Surviving Person is a direct or indirect
Subsidiary of any other Person, "Principal Party" shall mean the Person which is
the ultimate parent of such Surviving Person and which is not itself a
Subsidiary of another Person. In the event ultimate control of such Surviving
Person is shared by two or more Persons, "Principal Party" shall mean that
Person that is immediately controlled by such two or more Persons.
"PURCHASE PRICE" with respect to each Right shall mean $75, as such amount
may from time to time be adjusted as provided herein, and shall be payable in
lawful money of the United States of America. All references herein to the
Purchase Price shall mean the Purchase Price as in effect at the time in
question.
"RECORD DATE" shall have the meaning set forth in the introductory paragraph
of this Rights Agreement.
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"REDEMPTION DATE" shall have the meaning set forth in Section 24(a).
"REDEMPTION PRICE" with respect to each Right shall mean $.01, as such
amount may from time to time be adjusted in accordance with Section 12. All
references herein to the Redemption Price shall mean the Redemption Price as in
effect at the time in question.
"REGISTERED COMMON SHARES" shall mean Common Shares which are, as of the
date of consummation of a Business Combination, and have continuously been for
the 12 months immediately preceding such date, registered under Section 12 of
the Exchange Act.
"RIGHT CERTIFICATE" shall mean a certificate evidencing a Right in
substantially the form attached as Exhibit B.
"RIGHTS" shall mean the rights to purchase Preferred Shares (or other
securities) as provided in this Rights Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as in effect on the
date in question, unless otherwise specifically provided.
"SUBSIDIARY" shall mean a Person, at least a majority of the total
outstanding voting power (being the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the election of directors
of such Person (if such Person is a corporation) or to participate in the
management and control of such Person (if such Person is not a corporation)) of
which is owned, directly or indirectly, by another Person or by one or more
other Subsidiaries of such other Person or by such other Person and one or more
other Subsidiaries of such other Person.
"SURVIVING PERSON" shall mean (1) the Person which is the continuing or
surviving Person in a consolidation or merger specified in Section 11(c)(I)(i)
or 11(c)(I)(ii) or (2) the Person to which the Major Part of the assets of the
Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred
or disposed of in a transaction specified in Section 11(c)(I)(iii); PROVIDED,
HOWEVER, that, if the Major Part of the assets of the Company and its
Subsidiaries is sold, leased, exchanged or otherwise transferred or disposed of
in one or more related transactions specified in Section 11(c)(I)(iii) to more
than one Person, the "Surviving Person" in such case shall mean the Person that
acquired assets of the Company and/or its Subsidiaries with the greatest fair
market value in such transaction or transactions.
"TRADING DAY" shall mean a day on which the principal national securities
exchange (or principal recognized foreign stock exchange, as the case may be) on
which any securities or Rights, as the case may be, are listed or admitted to
trading is open for the transaction of business or, if the securities or Rights
in question are not listed or admitted to trading on any national securities
exchange (or recognized foreign stock exchange, as the case may be), a Business
Day.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint one or more co-Rights Agents as it may
deem necessary or desirable upon notice to the Rights Agent (the term "Rights
Agent" being used herein to refer, collectively, to the Rights Agent together
with any such co-Rights Agents). In the event the Company appoints one or more
co-Rights Agents, the respective duties of the Rights Agent and any co-Rights
Agents shall be as the Company shall determine.
SECTION 3. ISSUE OF RIGHTS AND RIGHT CERTIFICATES. (a) One Right shall be
associated with each Common Share outstanding on the Record Date, each
additional Common Share that shall become outstanding between the Record Date
and the earliest of the Distribution Date, the Redemption Date or the Expiration
Date and each additional Common Share with which Rights are issued after the
Distribution Date but prior to the earlier of the Redemption Date or the
Expiration Date as provided in Section 23; provided, however, that, if the
number of outstanding Rights are combined into a smaller number of
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outstanding Rights pursuant to Section 12(a), the appropriate fractional Right
determined pursuant to such Section shall thereafter be associated with each
such Common Share.
(b) Until the earlier of (i) such time as the Company learns that a Person
has become an Acquiring Person or (ii) the Close of Business on such date, if
any, as may be designated by the Board of Directors of the Company following the
commencement of, or first public disclosure of an intent to commence, a tender
or exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit or compensation plan of the Company or of any of
its Subsidiaries, or any Person holding Common Shares for or pursuant to the
terms of any such employee benefit or compensation plan) for outstanding Common
Shares, if upon consummation of such tender or exchange offer such Person could
be the Beneficial Owner of more than 15% of the outstanding Common Shares (the
Close of Business on the earlier of such dates being the "Distribution Date"),
(x) the Rights will be evidenced by the certificates for Common Shares
registered in the names of the holders thereof and not by separate Right
Certificates and (y) the Rights, including the right to receive Right
Certificates, will be transferable only in connection with the transfer of
Common Shares. As soon as practicable after the Distribution Date, the Rights
Agent will send, by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the Distribution Date, at the address of such holder shown
on the records of the Company, a Right Certificate evidencing one whole Right
for each Common Share (or for the number of Common Shares with which one whole
Right is then associated if the number of Rights per Common Share held by such
record holder has been adjusted in accordance with the proviso in Section 3(a)).
If the number of Rights associated with each Common Share has been adjusted in
accordance with the proviso in Section 3(a), at the time of distribution of the
Right Certificates the Company may make any necessary and appropriate rounding
adjustments so that Right Certificates representing only whole numbers of Rights
are distributed and cash is paid in lieu of any fractional Right in accordance
with Section 15(a). As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(c) With respect to any certificate for Common Shares, until the earliest of
the Distribution Date, the Redemption Date or the Expiration Date, the Rights
associated with the Common Shares represented by any such certificate shall be
evidenced by such certificate alone, the registered holders of the Common Shares
shall also be the registered holders of the associated Rights and the surrender
for transfer of any such certificate shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(d) Certificates issued for Common Shares after the Record Date (including,
without limitation, upon transfer or exchange of outstanding Common Shares), but
prior to the earliest of the Distribution Date, the Redemption Date or the
Expiration Date, shall have printed on, written on or otherwise affixed to them
the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement dated as of October 16,
1987 (as amended, the "Rights Agreement"), between Homestake Mining Company
and BankBoston N.A., a national banking association, as successor to Bank of
America National Trust and Savings Association, as Rights Agent, the terms
of which are hereby incorporated herein by reference and a copy of which is
on file at the principal executive offices of Homestake Mining Company.
Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Homestake Mining Company will mail to the
holder of this certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor. Under certain circumstances,
Rights issued to or held by Acquiring Persons or their Affiliates or
Associates (as such terms are defined in the Rights Agreement) or by any
subsequent holder of such Rights may become null and void.
Notwithstanding this paragraph (d), the omission of a legend shall not
affect the enforceability of any part of this Rights Agreement or the rights of
any holder of Rights.
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SECTION 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
form of election to purchase and form of assignment to be printed on the reverse
side thereof) shall be in substantially the form set forth as Exhibit B and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Sections 7, 11 and 23, the Right Certificates, whenever issued,
shall be dated as of the Distribution Date, and on their face shall entitle the
holders thereof to purchase such number of Preferred Shares as shall be set
forth therein for the Purchase Price set forth therein, subject to adjustment
from time to time as herein provided.
SECTION 5. EXECUTION, COUNTERSIGNATURE AND REGISTRATION. (a) The Right
Certificates shall be executed on behalf of the Company by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Treasurer or any Vice President (whether preceded by any additional title)
of the Company, either manually or by facsimile signature, and have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary, an Assistant Secretary or a Vice President (whether preceded by any
additional title, provided that such Vice President shall not have also executed
the Right Certificates) of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid or obligatory for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such an officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates may nevertheless be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such an
officer of the Company; and any Right Certificate may be signed on behalf of the
Company by any person who, at the actual date of execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of execution of this Rights Agreement any such
person was not such an officer of the Company.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced by each of the Right Certificates, the certificate number of
each of the Right Certificates and the date of each of the Right Certificates.
SECTION 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES;
UNCERTIFICATED RIGHTS. (a) Subject to the provisions of Sections 7(e) and 15,
at any time after the Distribution Date, and at or prior to the Close of
Business on the earlier of the Redemption Date or the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split-up, combined or
exchanged for another Right Certificate or Right Certificates representing, in
the aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split-up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split- up, combined or
exchanged at the designated office of the Rights Agent; PROVIDED, HOWEVER, that
neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any Right Certificate surrendered for
transfer until the registered holder shall have completed and signed the
certification contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company or the Rights Agent shall reasonably request.
Thereupon the Rights Agent shall, subject to Sections 7(e) and 15, countersign
and deliver to the Person entitled thereto a Right
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Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment by the holders of Rights of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split-up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a valid
Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancelation of
the Right Certificate if mutilated, the Company will make a new Right
Certificate of like tenor and deliver such new Right Certificate to the Rights
Agent for delivery to the registered owner in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision hereof, the Company and the Rights
Agent may amend this Rights Agreement to provide for uncertificated Rights in
addition to or in place of Rights evidenced by Right Certificates.
SECTION 7. EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS. (a) Subject to
Section 7(e) and except as otherwise provided herein (including Section 11),
each Right shall entitle the registered holder thereof, upon exercise thereof as
provided herein, to purchase for the Purchase Price, at any time after the
Distribution Date and at or prior to the earlier of (i) the Close of Business on
October 15, 2007 (the Close of Business on such date being the "Expiration
Date"), or (ii) the Redemption Date, one one-hundredth (1/100th) of a Preferred
Share, subject to adjustment from time to time as provided in Sections 11 and
12.
(b) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date, upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each one one-hundredth (1/100th) of a
Preferred Share as to which the Rights are exercised, at or prior to the earlier
of (i) the Expiration Date or (ii) the Redemption Date.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the Preferred Shares to be purchased together with an
amount equal to any applicable transfer tax, in lawful money of the United
States of America, in cash or by certified check or money order payable to the
order of the Company, the Rights Agent shall thereupon (i) either (A) promptly
requisition from any transfer agent of the Preferred Shares (or make available,
if the Rights Agent is the transfer agent) certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests or (B) if the Company shall
have elected to deposit the Preferred Shares with a depositary agent under a
depositary arrangement, promptly requisition from the depositary agent
depositary receipts representing the number of one one-hundredths (1/100ths) of
a Preferred Share to be purchased (in which case certificates for the Preferred
Shares to be represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company will direct the depositary
agent to comply with all such requests, (ii) when appropriate, promptly
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 15, (iii) promptly after receipt
of such certificates or depositary receipts, cause the same to be delivered to
or upon the order of the registered holder of such Right Certificate, registered
in such name or names as may be designated by such holder and (iv) when
appropriate, after receipt promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
fewer than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 15.
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(e) Notwithstanding anything in this Rights Agreement to the contrary, any
Rights that are at any time beneficially owned by an Acquiring Person or an
Affiliate or Associate of an Acquiring Person shall become null and void and
nontransferable, and any holder of any such Right (including any purported
transferee or subsequent holder) shall not have any right to exercise or
transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of any Right Certificates upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate contained
in the form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
(g) The Company may temporarily suspend, for a period of time not to exceed
90 calendar days after the Distribution Date, the exercisability of the Rights
in order to prepare and file a registration statement under the Securities Act,
on an appropriate form, with respect to the Preferred Shares purchasable upon
exercise of the Rights and permit such registration statement to become
effective; PROVIDED, HOWEVER, that no such suspension shall remain effective
after, and the Rights shall without any further action by the Company or any
other Person become exercisable immediately upon, the effectiveness of such
registration statement. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the blue sky or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
SECTION 8. CANCELATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered or presented for the purpose of exercise, transfer,
split-up, combination or exchange shall, and any Right Certificate representing
Rights that have become null and void and nontransferable pursuant to Section
7(e) surrendered or presented for any purpose shall, if surrendered or presented
to the Company or to any of its agents, be delivered to the Rights Agent for
cancelation or in canceled form, or, if surrendered or presented to the Rights
Agent, shall be canceled by it, and no Right Certificates shall be issued in
lieu thereof except as expressly permitted by this Rights Agreement. The Company
shall deliver to the Rights Agent for cancelation and retirement, and the Rights
Agent shall so cancel and retire, any Right Certificate purchased or acquired by
the Company. The Rights Agent shall deliver all canceled Right Certificates to
the Company, or shall, at the written request of the Company, destroy such
canceled Right Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any authorized
and issued Preferred Shares held in its treasury, free from preemptive rights or
any right of first refusal, a number of Preferred Shares sufficient to permit
the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient Preferred Shares issued
but not outstanding or authorized but unissued to permit the exercise or
exchange of Rights in accordance with Section 11, the Company covenants and
agrees that it will take all such action as may be necessary to authorize
additional Preferred Shares for issuance upon the exercise or exchange of Rights
pursuant to Section 11; PROVIDED, HOWEVER, that if the Company is unable to
cause the authorization of additional Preferred Shares, then the Company shall,
or in lieu of seeking any such authorization, the Company may, to the extent
necessary and permitted by applicable law and any agreements or instruments in
effect prior to the Distribution Date to which it is a party, (A) upon surrender
of a Right, pay cash equal to the Purchase Price in lieu of issuing Preferred
Shares and requiring payment therefor, (B) upon due exercise of a Right and
payment of the
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Purchase Price for each Preferred Share as to which such Right is exercised,
issue equity securities having a value equal to the value of the Preferred
Shares which otherwise would have been issuable pursuant to Section 11, which
value shall be determined by a nationally recognized investment banking firm
selected by the Board of Directors of the Company or (C) upon due exercise of a
Right and payment of the Purchase Price for each Preferred Share as to which
such Right is exercised, distribute a combination of Preferred Shares, cash
and/or other equity and/or debt securities having an aggregate value equal to
the value of the Preferred Shares which otherwise would have been issuable
pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board of Directors of the
Company. To the extent that any legal or contractual restrictions (pursuant to
agreements or instruments in effect prior to the Distribution Date to which it
is party) prevent the Company from paying the full amount payable in accordance
with the foregoing sentence, the Company shall pay to holders of the Rights as
to which such payments are being made all amounts which are not then restricted
on a pro rata basis as such payments become permissible under such legal or
contractual restrictions until such payments have been paid in full.
(c) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares delivered upon exercise or
exchange of Rights shall, at the time of delivery of the certificates for such
Preferred Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(d) So long as the Preferred Shares issuable upon the exercise or exchange
of Rights are to be listed on any national securities exchange, the Company
covenants and agrees to use its best efforts to cause, from and after such time
as the Rights become exercisable or exchangeable, all Preferred Shares reserved
for such issuance to be listed on such securities exchange upon official notice
of issuance upon such exercise or exchange.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all Federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of Right Certificates or of any
Preferred Shares or Common Shares or other securities upon the exercise or
exchange of the Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or in respect of the issuance or
delivery of certificates for the Preferred Shares or Common Shares or other
securities, as the case may be, in a name other than that of, the registered
holder of the Right Certificate evidencing Rights surrendered for exercise or
exchange or to issue or deliver any certificates for Preferred Shares or Common
Shares or other securities, as the case may be, upon the exercise or exchange of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's satisfaction that no such tax is due.
SECTION 10. PREFERRED SHARES RECORD DATE. Each Person in whose name any
certificate for Preferred Shares or Common Shares or other securities is issued
upon the exercise or exchange of Rights shall for all purposes be deemed to have
become the holder of record of the Preferred Shares or Common Shares or other
securities, as the case may be, represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of any Purchase Price (and any applicable
transfer taxes) was made; PROVIDED, HOWEVER, that, if the date of such surrender
and payment is a date upon which the transfer books of the Company for the
Preferred Shares or Common Shares or other securities, as the case may be, are
closed, such Person shall be deemed to have become the record holder of such
Preferred Shares or Common Shares or other securities, as the case may be, on,
and such certificate shall be dated, the next succeeding Business Day on which
the transfer books of the Company for the Preferred Shares or Common Shares or
other securities, as the case may be, are open.
SECTION 11. ADJUSTMENTS IN RIGHTS AFTER THERE IS AN ACQUIRING PERSON;
EXCHANGE OF RIGHTS FOR SHARES; BUSINESS COMBINATIONS. (a) Upon a Person
becoming an Acquiring Person, proper provision shall
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be made so that each holder of a Right, except as provided in Section 7(e),
shall thereafter have a right to receive, upon exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, such number of one
one-hundredths (1/100ths) of a Preferred Share as shall equal the result
obtained by multiplying the Purchase Price by a fraction, the numerator of which
is the number of one one-hundredths (1/100ths) of a Preferred Share for which a
Right is then exercisable and the denominator of which is 50% of the Market
Value of the Common Shares on the date on which such Person became an Acquiring
Person. As soon as practicable after a Person becomes an Acquiring Person
(provided the Company shall not have elected to make the exchange permitted by
Section 11(b)(I) for all outstanding Rights), the Company covenants and agrees
to use its best efforts to:
(I) prepare and file a registration statement under the Securities Act,
on an appropriate form, with respect to the Preferred Shares purchasable
upon exercise of the Rights;
(II) cause such registration statement to become effective as soon as
practicable after such filing;
(III) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date; and
(IV) qualify or register the Preferred Shares purchasable upon exercise
of the Rights under the blue sky or securities laws of such jurisdictions as
may be necessary or appropriate.
(b)(I) The Board of Directors of the Company may, at its option, at any time
after a Person becomes an Acquiring Person, mandatorily exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
shall have become null and void and nontransferable pursuant to the provisions
of Section 7(e)) for consideration per Right consisting of either one-half of
the securities that would be issuable at such time upon the exercise of one
Right in accordance with Section 11(a) or, if applicable, Section 9(b)(B) or (C)
or, if applicable, the cash consideration specified in Section 9(b)(A) (the
consideration issuable per Right pursuant to this Section 11(b)(I) being the
"Exchange Consideration"). The Board of Directors of the Company may, at its
option, issue, in substitution for Preferred Shares, Common Shares in an amount
per Preferred Share equal to the Formula Number (as defined in the Certificate
of Designation) if there are sufficient Common Shares issued but not outstanding
or authorized but unissued. If the Board of Directors of the Company elects to
exchange all the Rights for Exchange Consideration pursuant to this Section
11(b)(I) prior to the physical distribution of the Rights Certificates, the
Corporation may distribute the Exchange Consideration in lieu of distributing
Right Certificates, in which case for purposes of this Rights Agreement holders
of Rights shall be deemed to have simultaneously received and surrendered for
exchange Right Certificates on the date of such distribution.
(II) Any action of the Board of Directors of the Company ordering the
exchange of any Rights pursuant to Section 11(b)(I) shall be irrevocable and,
immediately upon the taking of such action and without any further action and
without any notice, the right to exercise any such Right pursuant to Section
11(a) shall terminate and the only right thereafter of a holder of such Right
shall be to receive the Exchange Consideration in exchange for each such Right
held by such holder or, if the Exchange Consideration shall not have been paid
or issued, to exercise any such Right pursuant to Section 11(c)(I). The Company
shall promptly give public notice of any such exchange; PROVIDED, HOWEVER, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Rights for the Exchange Consideration will be effected and, in the event
of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of Rights (other
than Rights which shall have become null and void and nontransferable pursuant
to the provisions of Section 7(e)) held by each holder of Rights.
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(c)(I) In the event that, following a Distribution Date, directly or
indirectly, any transactions specified in the following clause (i), (ii) or
(iii) of this Section 11(c) (each such transaction being a "Business
Combination") shall be consummated:
(i) the Company shall consolidate with, or merge with and into, any
Acquiring Person or any Affiliate or Associate of an Acquiring Person;
(ii) any Acquiring Person or any Affiliate or Associate of an Acquiring
Person shall merge with and into the Company and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged
for capital stock or other securities of the Company or of any Acquiring
Person or Affiliate or Associate of an Acquiring Person or cash or any other
property; or
(iii) the Company shall sell, lease, exchange or otherwise transfer or
dispose of (or one or more of its Subsidiaries shall sell, lease, exchange
or otherwise transfer or dispose of), in one or more transactions, the Major
Part of the assets of the Company and its Subsidiaries (taken as a whole) to
any Acquiring Person or any Affiliate or Associate of an Acquiring Person,
then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have the right to
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, the securities specified below (or, at such
holder's option, the securities specified in Section 11(a)):
(A) If the Principal Party in such Business Combination has Registered
Common Shares outstanding, each Right shall thereafter represent the right
to receive, upon the exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, such number of Registered Common
Shares of such Principal Party, free and clear of all liens, encumbrances or
other adverse claims, as shall have an aggregate Market Value as of the time
of exercise thereof equal to the result obtained by multiplying the Purchase
Price by two;
(B) If the Principal Party involved in such Business Combination does
not have Registered Common Shares outstanding, each Right shall thereafter
represent the right to receive, upon the exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, at the election
of the holder of such Right at the time of the exercise thereof, any of:
(1) such number of Common Shares of the Surviving Person in such
Business Combination as shall have an aggregate Book Value immediately
after giving effect to such Business Combination equal to the result
obtained by multiplying the Purchase Price by two;
(2) such number of Common Shares of the Principal Party in such
Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book
Value immediately after giving effect to such Business Combination equal
to the result obtained by multiplying the Purchase Price by two; or
(3) if the Principal Party in such Business Combination is an
Affiliate of one or more Persons that has Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of such
Affiliates of the Principal Party has Registered Common Shares with the
greatest aggregate Market Value on the date of consummation of such
Business Combination as shall have an aggregate Market Value on the date
of such Business Combination equal to the result obtained by multiplying
the Purchase Price by two.
(II) The Company shall not consummate any Business Combination unless each
issuer of Common Shares for which Rights may be exercised, as set forth in this
Section 11(c), shall have sufficient authorized Common Shares that have not been
issued or reserved for issuance (and which shall, when issued upon exercise
thereof in accordance with this Rights Agreement, be validly issued, fully paid
and nonassessable and free of preemptive rights, rights of first refusal or any
other restrictions or limitations on the transfer
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or ownership thereof) to permit the exercise in full of the Rights in accordance
with this Section 11(c) and unless prior thereto:
(i) a registration statement under the Securities Act on an appropriate
form, with respect to the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights, shall be effective under the
Securities Act; and
(ii) the Company and each such issuer shall have:
(A) executed and delivered to the Rights Agent a supplemental
agreement providing for the assumption by such issuer of the obligations
set forth in this Section 11(c) (including the obligation of such issuer
to issue Common Shares upon the exercise of Rights in accordance with the
terms set forth in Sections 11(c)(I) and 11(c)(III)) and further
providing that such issuer, at its own expense, will use its best efforts
to:
(1) cause a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Common Shares of
such issuer purchasable upon exercise of the Rights, to remain
effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Expiration Date;
(2) qualify or register the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights under the blue sky or
securities laws of such jurisdictions as may be necessary or
appropriate; and
(3) list the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights on each national securities
exchange on which the Common Shares were listed prior to the
consummation of the Business Combination or, if the Common Shares
were not listed on a national securities exchange prior to the
consummation of the Business Combination, on a national securities
exchange;
(B) furnished to the Rights Agent a written opinion of independent
counsel stating that such supplemental agreement is a valid, binding and
enforceable agreement of such issuer; and
(C) filed with the Rights Agent a certificate of a nationally
recognized firm of independent accountants setting forth the number of
Common Shares of such issuer which may be purchased upon the exercise of
each Right after the consummation of such Business Combination.
(III) After consummation of any Business Combination and subject to the
provisions of Section 11(c)(II), (i) each issuer of Common Shares for which
Rights may be exercised as set forth in this Section 11(c) shall be liable for,
and shall assume, by virtue of such Business Combination, all the obligations
and duties of the Company pursuant to this Rights Agreement, (ii) the term
"Company" shall thereafter be deemed to refer to such issuer, (iii) each such
issuer shall take such steps in connection with such consummation as may be
necessary to assure that the provisions hereof (including the provisions of
Sections 11(a) and 11(c)) shall thereafter be applicable, as nearly as
reasonably may be, in relation to its Common Shares thereafter deliverable upon
the exercise of the Rights, and (iv) the number of Common Shares of each such
issuer thereafter receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11 and 12 and the provisions of
Section 7, 9 and 10 with respect to the Preferred Shares shall apply, as nearly
as reasonably may be, on like terms to any such Common Shares.
SECTION 12. CERTAIN ADJUSTMENTS. (a) To preserve the actual or potential
economic value of the Rights, if at any time after the date of this Rights
Agreement there shall be any change in the Common Shares or the Preferred
Shares, whether by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of securities, split-ups,
split-offs, spin-offs, liquidations, other similar changes in capitalization,
any distribution or issuance of cash, assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Common Shares or
Preferred Shares,
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as the case may be (other than distribution of the Rights or regular quarterly
cash dividends) or otherwise, then, in each such event the Board of Directors of
the Company shall make such appropriate adjustments in the number of Preferred
Shares (or the number and kind of other securities) issuable upon exercise of
each Right, the Purchase Price and Redemption Price in effect at such time and
the number of Rights outstanding at such time (including the number of Rights or
fractional Rights associated with each Common Share) such that following such
adjustment such event shall not have had the effect of reducing or limiting the
benefits the holders of the Rights would have had absent such event.
(b) If, as a result of an adjustment made pursuant to Section 12(a), the
holder of any Right thereafter exercised shall become entitled to receive any
securities other than Preferred Shares, thereafter the number of such securities
so receivable upon exercise of any Right shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions of Sections 11 and 12 and the provisions of Sections 7, 9 and 10 with
respect to the Preferred Shares shall apply, as nearly as reasonably may be, on
like terms to any such other securities.
(c) All Rights originally issued by the Company subsequent to any adjustment
made to the amount of Preferred Shares or other securities relating to a Right
shall evidence the right to purchase, for the Purchase Price, the adjusted
number and kind of securities purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein.
(d) Irrespective of any adjustment or change in the Purchase Price or the
number of Preferred Shares or number or kind of other securities issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the terms that expressed in the initial Right
Certificates issued were hereunder.
(e) In any case in which action taken pursuant to Section 12(a) requires
that an adjustment be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event the issuing to
the holder of any Right exercised after such record date the Preferred Shares
and/ or other securities, if any, issuable upon such exercise over and above the
Preferred Shares and/or other securities, if any, issuable before giving effect
to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional securities upon the occurrence of the event requiring
such adjustment.
SECTION 13. CERTIFICATE OF ADJUSTMENT. Whenever an adjustment is made as
provided in Section 11 or 12, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate (or, prior to
the Distribution Date, of the Common Shares) in accordance with Section 25. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
SECTION 14. ADDITIONAL COVENANTS. (a) Notwithstanding any other provision
of this Rights Agreement, no adjustment to the number of Preferred Shares (or
fractions of a share) or other securities for which a Right is exer-cisable or
the number of Rights outstanding or associated with each Common Share or any
similar or other adjustment shall be made or be effective if such adjustment
would have the effect of reducing or limiting the benefits the holders of the
Rights would have had absent such adjustment, including, without limitation, the
benefits under Sections 11 and 12, unless the terms of this Rights Agreement are
amended so as to preserve such benefits.
(b) The Company covenants and agrees that, after the Distribution Date,
except as permitted by Section 26, it will not take (or permit any Subsidiary of
the Company to take) any action if at the time such action is taken it is
intended or reasonably foreseeable that such action will reduce or otherwise
limit the benefits the holders of the Rights would have had absent such action,
including, without limitation, the benefits under Sections 11 and 12. Any action
taken by the Company during any period after any Person
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becomes an Acquiring Person but prior to the Distribution Date shall be null and
void unless such action could be taken under this Section 14(b) from and after
the Distribution Date. The Company shall not consummate any Business Combination
if any issuer of Common Shares for which Rights may be exercised after such
Business Combination in accordance with Section 11(c) shall have taken or
contemplated taking any action that reduces or otherwise limits the benefits the
holders of the Rights would have had absent such action, including, without
limitation, the benefits under Sections 11 and 12.
SECTION 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company may,
but shall not be required to, issue fractions of Rights or distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, the Company may pay to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
Right. For purposes of this Section 15(a), the current market value of a whole
Right shall be the closing price of the Rights (as determined pursuant to the
second and third sentences of the definition of Market Value contained in
Section 1) for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue fractions of
Preferred Shares upon exercise of the Rights or distribute certificates which
evidence fractional Preferred Shares. In lieu of fractional Preferred Shares,
the Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Preferred Shares or (ii) in the case of a fraction of a Preferred
Share (other than one one-hundredth (1/100th) of a Preferred Share or any
integral multiple thereof), pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preferred Share, if any
are outstanding and publicly traded (or the Formula Number times the current
market value of one Common Share if the Preferred Shares are not outstanding and
publicly traded). For purposes of this Section 15(b), the current market value
of a Preferred Share (or Common Share) shall be the closing price of a Preferred
Share (or Common Share) (as determined pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date of such exercise. If, as a result of
an adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Preferred
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
(c) The Company may, but shall not be required to, issue fractions of Common
Shares upon exchange of Rights pursuant to Section 11(b), or to distribute
certificates that evidence fractional Common Shares. In lieu of such fractional
Common Shares, the Company may pay to the registered holders of the Right
Certificates with regard to that such fractional Common Shares would otherwise
be issuable an amount in cash equal to the same fraction of the current Market
Value of one Common Share as of the date on which a Person became an Acquiring
Person.
(d) Any holder of Rights by the acceptance of the Rights expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right except as provided in this Section 15.
SECTION 16. RIGHTS OF ACTION. (a) All rights of action in respect of this
Rights Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares) may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Rights Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Rights Agreement and shall be entitled to specific
performance of the obligations of any
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Person under, and injunctive relief against actual or threatened violations of
the obligations of any Person subject to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the provisions
of this Rights Agreement shall be entitled to recover the reasonable costs and
expenses, including attorneys' fees, incurred in such action.
SECTION 17. TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT CERTIFICATES. (a)
Prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares and the Right associated with
each Common Share shall be automatically transferred upon the transfer of each
Common Share.
(b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e), only on the registry books of the Rights
Agent if surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in whose
name a Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated certificate for Common
Shares made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
SECTION 18. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Right Certificate shall be entitled to vote or receive dividends
or be deemed, for any purpose, the holder of the Preferred Shares or of any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company,
including, without limitation, any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders, or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
SECTION 19. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and from time to time, on demand of the Rights Agent, its reasonable
counsel fees and expenses and other disbursements incurred in the administration
and execution of this Rights Agreement and the exercise and performance of its
duties hereunder, including any taxes or governmental charges imposed as a
result of the action taken by it hereunder (other than any taxes on the fees
payable to it).
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Rights Agreement in reliance upon any Right Certificate
or certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, opinion, instruction, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
SECTION 20. MERGER OR CONSOLIDATION OR CHANGE OF RIGHTS AGENT. (a) Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Rights Agreement without
the execution or filing of any paper or any further act
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on the part of any of the parties hereto; PROVIDED, HOWEVER, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 22. In case, at the time such successor Rights Agent
shall succeed to the agency created by this Rights Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
SECTION 21. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties
and obligations imposed by this Rights Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certifi-cates
(or, prior to the Distribution Date, of the Common Shares), by their acceptance
thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel satisfactory to it (who
may be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken, suffered or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties under this Rights Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person) be proved
or established by the Company prior to taking, refraining from taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, a Vice President (whether
preceded by any additional title), the Treasurer or the Secretary of the Company
and delivered to the Rights Agent or by the directors of the Company whose vote
would be sufficient to redeem the Rights under Section 24. Such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Rights Agreement in reliance
upon such certificate. In the event any such certificate signed by such
directors is inconsistent with any other such certificate, the certificate
signed by such directors shall control.
(c) The Rights Agent shall be liable hereunder only for its own negligence,
bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of the
validity of this Rights Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Rights Agreement or in any Right Certificate; nor
shall it be responsible for any adjustment required under the
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provisions of Section 11 or 12 or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice of any such adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Preferred Shares or Common Shares
to be issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any Preferred Shares or Common Shares will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President, a
Vice President (whether preceded by any additional title), the Secretary or the
Treasurer of the Company or from the directors of the Company whose vote would
be sufficient to redeem the Rights under Section 24, and to apply to such
officers or directors for advice and instructions in connection with its duties
and it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officers or directors or
for any delay in acting while waiting for those instructions. Any application by
the Rights Agent for written instructions from the Company may, at the option of
the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Agreement and the date on and/or after
which such action shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or omission of, the Rights
Agent in accordance with a proposal included in such application on or after the
date specified in such application (which date shall not be less than three
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to any
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any stockholder, director, officer, employee or
affiliate of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Rights Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct provided reasonable care was exercised in the selection
and continued employment thereof.
(j) The Company agrees to indemnify and to hold the Rights Agent harmless
against any loss, liability, damage or expense (including reasonable fees and
expenses of legal counsel) which the Rights Agent may incur in connection with
this Rights Agreement; PROVIDED, HOWEVER, that the Rights Agent shall not be
indemnified or held harmless with respect to any such loss, liability, damage or
expense incurred by the Rights Agent as a result of, or arising out of, its own
negligence, bad faith or wilful misconduct. If any action, proceeding
(including, but not limited to, any governmental investigation), claim or
dispute (collectively, a "Proceeding") in respect of which indemnity may be
sought is brought or asserted against the Rights Agent, the Rights Agent shall
promptly (and in no event more than ten (10) days after receipt of written
notice of such Proceeding) notify the Company of such Proceeding. The failure of
the Rights
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Agent to so notify the Company shall not impair the Rights Agent's ability to
seek indemnification from the Company (but only for costs, expenses and
liabilities incurred after such notice) unless such failure adversely affects
the Company's ability to adequately oppose or defend such Proceeding. Upon
receipt of such notice from the Rights Agent, the Company shall be entitled to
participate in such Proceeding and, to the extent that it shall so desire and
provided no conflict of interest exists as specified in (b) below or there are
no other defenses available to the Rights Agent as specified in (d) below, to
assume the defense thereof with counsel reasonably satisfactory to the Rights
Agent (in which case all attorney's fees and expenses shall be borne by the
Company and the Company shall in good faith defend the Rights Agent). The Rights
Agent shall have the right to employ separate counsel in any such Proceeding and
to participate in the defense thereof, but the fees and expenses of such counsel
shall be borne by the Rights Agent unless (a) the Company agrees in writing to
pay such fees and expenses, (b) the Rights Agent shall have reasonably and in
good faith concluded that there is a conflict of interest between the Company
and the Rights Agent in the conduct of the defense of such action, (c) the
Company fails, within ten (10) days prior to the date the first response or
appearance is required to be made in such Proceeding, to assume the defense of
such Proceeding with counsel reasonably satisfactory to the Rights Agent or (d)
there are legal defenses available to the Rights Agent that are different from
or are in addition to those available to the Company. No compromise or
settlement of such Proceeding may be effected by either party without the other
party's consent unless (i) there is no finding or admission of any violation of
law and no effect on any other claims that may be made against such other party
and (ii) the sole relief provided is monetary damages that are paid in full by
the party seeking the settlement. Neither party shall have any liability with
respect to any compromise or settlement effected without its consent, which
consent shall not be unreasonably withheld. The Company shall have no obligation
to indemnify and hold harmless the Rights Agent from any loss, expense or
liability incurred by the Rights Agent as a result of a default judgment entered
against the Rights Agent unless such judgment was entered after the Company
agreed, in writing, to assume the defense of such Proceeding.
The provisions of this Section 21(j) shall survive expiration of the Rights
and the termination of this Agreement.
(k) The Rights Agent shall be under no obligation to institute any action,
suit or legal proceeding or to take any other action likely to involve expense
unless the Company or one or more registered holders of Right Certificates shall
furnish the Rights Agent with security and indemnity to its satisfaction for any
costs and expenses which may be incurred.
(l) The Rights Agent shall not be liable for failure to perform any duties
except as specifically set forth herein and no implied covenants or obligations
shall be read into this Agreement against the Rights Agent, whose duties and
obligations are ministerial and shall be determined solely by the express
provisions hereof.
SECTION 22. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Rights
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares and the Preferred Shares by registered or
certified mail. The Company may remove the Rights Agent or any successor Rights
Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common
Shares and the Preferred Shares by registered or certified mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (or, prior to the Distribution Date, of the Common Shares)
(who shall, with such notice, submit his Right Certificate or, prior to the
Distribution Date, the certificate representing his Common Shares, for
inspection by the Company), then the Rights Agent or the registered holder of
any Right Certificate (or, prior to the Distribution Date, of the Common Shares)
may apply to any court of competent jurisdiction
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for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or of the State of New
York (or of any other state of the United States so long as such corporation is
authorized to conduct a stock transfer or corporate trust business in the State
of New York), in good standing, having a principal office in the State of New
York, which is authorized under such laws to exercise stock transfer or
corporate trust powers and is subject to supervision or examination by Federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50,000,000; PROVIDED that the
principal transfer agent for the Common Shares shall in any event be qualified
to be the Rights Agent. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and the Preferred Shares, and mail a notice thereof in writing
to the registered holders of the Right Certificates (or, prior to the
Distribution Date, of the Common Shares). Failure to give any notice provided
for in this Section 22, however, or any defect therein shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
SECTION 23. ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT
CERTIFICATES. Notwithstanding any of the provisions of this Rights Agreement or
of the Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change made in accordance with the
provisions of this Rights Agreement. In addition, in connection with the
issuance or sale of Common Shares following the Distribution Date and prior to
the earlier of the Redemption Date and the Expiration Date, the Company (a)
shall, with respect to Common Shares so issued or sold pursuant to the exercise
of stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities, notes or debentures issued by
the Company, and (b) may, in any other case, if deemed necessary or appropriate
by the Board of Directors of the Company, issue Right Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
PROVIDED, HOWEVER, that (i) no such Right Certificate shall be issued if, and to
the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Right Certificate would be issued, (ii) no
such Right Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof and
(iii) no such Right Certificate shall be issued to an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
SECTION 24. REDEMPTION AND TERMINATION. (a) The Board of Directors of the
Company may, at its option, at any time prior to the earlier of (i) such time as
a Person becomes an Acquiring Person and (ii) the Expiration Date, order the
redemption of all, but not fewer than all, the then outstanding Rights at the
Redemption Price (the date of such redemption being the "Redemption Date"), and
the Company, at its option, may pay the Redemption Price either in cash or
Common Shares or other securities of the Company deemed by the Board of
Directors of the Company, in the exercise of its sole discretion, to be at least
equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. Within 10 Business Days after the action of the Board of Directors of the
Company ordering the redemption of the Rights, the Company shall give notice of
such redemption to the holders of the then outstanding Rights by mailing such
notice to all such holders at their last addresses as they appear upon
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the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Shares. Each such notice
of redemption will state the method by which payment of the Redemption Price
will be made. The notice, if mailed in the manner herein provided, shall be
conclusively presumed to have been duly given, whether or not the holder of
Rights receives such notice. In any case, failure to give such notice by mail,
or any defect in the notice, to any particular holder of Rights shall not affect
the sufficiency of the notice to other holders of Rights.
SECTION 25. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of a Right Certificate (or,
prior to the Distribution Date, of the Common Shares) to or on the Company shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
Homestake Mining Company
650 California Street
San Francisco, CA 94108-2788
Attn: General Counsel
Subject to the provisions of Section 22, any notice or demand authorized by this
Rights Agreement to be given or made by the Company or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
BankBoston N.A.
450 Tasso Street
Suite 250
Palo Alto, CA 94301
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the Common Shares) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Common Shares.
SECTION 26. SUPPLEMENTS AND AMENDMENTS. At any time prior to the
Distribution Date and subject to the last sentence of this Section 26, the
Company may, and the Rights Agent shall if the Company so directs, supplement or
amend any provision of this Rights Agreement (including, without limitation, the
date on which the Distribution Date shall occur, the definition of "Acquiring
Person", the time during which the Rights may be redeemed pursuant to Section 24
or any provision of the Certificate of Designation) without the approval of any
holder of the Rights. From and after the Distribution Date and subject to
applicable law, the Company may, and the Rights Agent shall if the Company so
directs, amend this Rights Agreement without the approval of any holders of
Right Certificates (i) to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision of this Rights Agreement or (ii) to make any other provisions in
regard to matters or questions arising hereunder which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Right Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person). Any supplement or amendment adopted during
any period after any Person has become an Acquiring Person but prior to the
Distribution Date shall be null and void unless such supplement or amendment
could have been adopted under the prior sentence from and after the Distribution
Date. Any supplement or amendment to this Rights Agreement duly approved by the
Company that does not amend Sections 19, 20, 21 or 22 in a manner adverse to the
Rights Agent shall become effective immediately upon execution by the Company,
whether or not also executed by the Rights Agent. The Rights Agent shall receive
prompt written notice from the Company of any amendment hereunder. Upon the
delivery of a certificate from an appropriate officer of the Company
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which states that the proposed supplement or amendment is in compliance with the
terms of this Section, the Rights Agent shall execute such supplement or
amendment. Notwithstanding any other provision hereof, the Rights Agent's
consent must be obtained regarding any amendment or supplement pursuant to this
Section 26 which alters the Rights Agent's rights or duties.
SECTION 27. SUCCESSORS. All the covenants and provisions of this Rights
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 28. BENEFITS OF RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE
BOARD OF DIRECTORS, ETC. (a) Nothing in this Rights Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, of the Common Shares) any legal or equitable right, remedy or claim under
this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, of the Common
Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement, the
Board of Directors of the Company shall have the exclusive power and authority
to administer this Rights Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Rights
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Rights Agreement and (ii) make all determinations deemed
necessary or advisable for the administration of this Rights Agreement
(including, without limitation, a determination to redeem or not redeem the
Rights or to amend this Rights Agreement and whether there is an Acquiring
Person).
(c) Nothing contained in this Rights Agreement shall be deemed to be in
derogation of the obligation of the Board of Directors of the Company to
exercise its fiduciary duty. Without limiting the foregoing, nothing contained
herein shall be construed to suggest or imply that the Board of Directors shall
not be entitled to reject any tender offer, or to recommend that holders of
Common Shares reject any tender offer or other acquisition proposal, or to take
any other action (including, without limitation, the commencement, prosecution,
defense or settlement of any litigation and the submission of additional or
alternative offers or other proposals) with respect to any tender offer or other
acquisition proposal that the Board of Directors believes is necessary or
appropriate in the exercise of such fiduciary duty.
SECTION 29. SEVERABILITY. If any term, provision, covenant or restriction
of this Rights Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Rights Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 30. GOVERNING LAW. THIS RIGHTS AGREEMENT AND EACH RIGHT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAW
OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND
PERFORMED ENTIRELY WITHIN SUCH STATE, PROVIDED, HOWEVER, THAT THE RIGHTS AND
OBLIGATIONS OF THE RIGHTS AGENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 31. COUNTERPARTS; EFFECTIVENESS. This Rights Agreement may be
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. This Rights Agreement shall
be effective as of the Close of Business on the date hereof.
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SECTION 32. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Rights Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions of
this Rights Agreement.
SECTION 1.02 AMENDMENT TO EXHIBIT B. Exhibit B to the Rights Agreement is
hereby amended, effective as of the date of this Agreement, by deleting it in
its entirety and by replacing it with Exhibit B attached hereto.
SECTION 1.03 AMENDMENT TO EXHIBIT C. Exhibit C to the Rights Agreement is
hereby deleted in its entirety.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed as of the day and year first above written.
<TABLE>
<S> <C> <C>
HOMESTAKE MINING COMPANY,
By: /s/ WAYNE KIRK
-----------------------------------------
Name: Wayne Kirk
Title: VICE PRESIDENT, CORPORATE SECRETARY
AND GENERAL COUNSEL
</TABLE>
<TABLE>
<S> <C> <C>
BANKBOSTON N.A., AS RIGHTS AGENT,
By: /s/ GEOFFREY D. ANDERSON
-----------------------------------------
Name: Geoffrey D. Anderson
Title: DIRECTOR
</TABLE>
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<PAGE>
APPENDIX C
PLAN OF ARRANGEMENT
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SCHEDULE 1
to the Arrangement Agreement made as of September - , 1998
among Prime Resources Group Inc., Homestake Canada Inc.,
Homestake Canada Holdings Company and Homestake Mining Company
PLAN OF ARRANGEMENT UNDER SECTION 252
OF THE COMPANY ACT (BRITISH COLUMBIA)
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS -- In this Plan of Arrangement:
(a) "ARRANGEMENT" means an arrangement under the provisions of Section 252
of the COMPANY ACT, on the terms and conditions set forth in this Plan of
Arrangement and any amendment or variation thereto made in accordance
with the terms of the Arrangement Agreement;
(b) "ARRANGEMENT AGREEMENT" means the Arrangement Agreement made as of
September - , 1998, among Prime, Homestake Canada, Holdco and
Homestake to which this Plan of Arrangement is attached as Schedule 1;
(c) "BUSINESS DAY" means a day, other than a Saturday, a Sunday or a
statutory holiday, when banks are generally open in each of Vancouver,
British Columbia, Toronto, Ontario, and San Francisco, California for the
transaction of banking business;
(d) "COMPANY ACT" means the Company ACT (British Columbia);
(e) "COURT" means the Supreme Court of British Columbia;
(f) "DISSENT PROCEDURES" means the procedures to be complied with by a
Dissenting Shareholder to properly exercise the Dissent Right as provided
in Article 4;
(g) "DISSENTING SHAREHOLDER" means each Prime Common Shareholder that has
delivered a valid Notice of Dissent pursuant to Article 4;
(h) "DISSENT RIGHT" means the rights of dissent as provided in Article 4;
(i) "EFFECTIVE DATE" means the date on which the Registrar accepts a
certified copy of the Final Order for filing;
(j) "EXCHANGE RATIO" means 0.74 Homestake Canada Exchangeable Shares or 0.74
shares of Homestake Common Stock, as the case may be, exchanged for one
Prime Common Share under the Arrangement;
(k) "EXCHANGEABLE SHARES" means shares of Homestake Canada having rights,
privileges, restrictions and conditions substantially as set forth in
Schedule 2 to the Arrangement Agreement;
(l) "FINAL ORDER" means the final order of the Court made in connection with
the approval of the Arrangement following the application therefor
contemplated by Section 2.2 of the Arrangement Agreement;
(m) "HOLDCO" means Homestake Canada Holdings Company, an unlimited liability
company incorporated under the laws of the Province of Nova Scotia;
(n) "HOMESTAKE" means Homestake Mining Company, a corporation incorporated
under the laws of the State of Delaware;
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(o) "HOMESTAKE CANADA" means Homestake Canada Inc., a corporation
incorporated under the laws of the Province of Ontario;
(p) "HOMESTAKE CANADA RIGHTS AGREEMENT" means the agreement set forth in
Schedule 6 to the Arrangement Agreement;
(q) "HOMESTAKE COMMON STOCK" means shares of common stock, par value US$1.00
per share, of Homestake;
(r) "ITA" means the INCOME TAX ACT (Canada);
(s) "INTERIM ORDER" means the interim order of the Court providing for the
calling and holding of the Prime Meeting and other procedural matters
following the application therefor contemplated by Section 2.1 of the
Arrangement Agreement;
(t) "LETTER OF TRANSMITTAL" means the letter of acceptance and transmittal
to be forwarded by Prime to holders of Prime Common Shares with the
management information circular for the Prime Meeting or such other
equivalent form of letter of acceptance and transmittal acceptable to
Prime and Homestake acting reasonably;
(u) "NOTICE OF APPROVAL" has the meaning prescribed in Section 4.5;
(v) "NOTICE OF DISSENT" means the written notice of a holder of Prime Common
Shares stating his, her or its intent to exercise his, her or its Dissent
Right;
(w) "PLAN OF ARRANGEMENT, "HEREOF", "HEREIN", "HEREUNDER", and similar
expressions refer to this Plan of Arrangement and not any particular
Article, Section or other portion hereof;
(x) "PRIME" means Prime Resources Group Inc., a company incorporated under
the laws of the Province of British Columbia;
(y) "PRIME COMMON SHAREHOLDERS" means holders of Prime Common Shares other
than Homestake Canada;
(z) "PRIME COMMON SHARES" means common shares in the capital of Prime;
(aa) "PRIME MEETING" means the extraordinary general meeting of the
shareholders of Prime (including any adjournment thereof) to be held to
consider and, if deemed advisable, to approve the Arrangement;
(bb) "REGISTRAR" means the registrar of companies appointed under Section
320 of the Company Act; and
(cc) "TRANSFER AGENT" means Montreal Trust Company of Canada at its
principal offices in Vancouver and Toronto.
1.2 HEADINGS AND REFERENCES -- The division of this Plan of Arrangement
into Articles and Sections and the insertion of headings are for convenience of
reference only and do not affect the construction or interpretation of this Plan
of Arrangement. Unless otherwise specified, references to Articles and Sections
are to Articles and Sections of this Plan of Arrangement.
1.3 NUMBER AND GENDER -- Unless the contrary intention appears, words
importing the singular include the plural and VICE VERSA; words importing gender
shall include all genders; words importing persons shall include a natural
person, firm, trust, partnership, association, corporation, joint venture or
government (including any governmental agency, political subdivision or
instrumentality thereof).
1.4 DATE FOR ANY ACTION -- If the date on which any action is required to
be taken hereunder by any of the parties is not a Business Day, such action
shall be required to be taken on the next succeeding day which is a Business
Day.
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1.5 CURRENCY -- Unless otherwise indicated, all references to cash or
currency in this Plan of Arrangement are to Canadian dollars.
1.6 TIME -- Unless otherwise indicated, all times expressed herein are
local time, Vancouver, British Columbia.
1.7 CONSTRUCTION -- In this Agreement:
(a) the word "including" shall mean "including without limitation"; and
(b) any reference to a statute shall mean the statute in force as at the
date hereof and any regulation in force thereunder, unless otherwise
expressly provided.
ARTICLE 2
PLAN OF ARRANGEMENT
2.1 ARRANGEMENT -- This Plan of Arrangement is made pursuant to and subject
to the provisions of the Arrangement Agreement.
2.2 EFFECTIVE -- This Plan of Arrangement will, upon the acceptance for
filing of a certified copy of the Final Order by the Registrar, become effective
in the sequence set out in Section 3.1 (except as otherwise provided) and be
binding from and after 12:01 (a.m.) on the Effective Date.
2.3 EXCEPTION -- The implementation of this Plan of Arrangement is
expressly subject to the fulfilment and/or waiver (by the relevant parties) of
the conditions precedent set out in the Arrangement Agreement.
ARTICLE 3
THE ARRANGEMENT
3.1 THE ARRANGEMENT -- On the Effective Date, subject to the provisions of
Section 3.2 and Section 3.3, the following will occur and will be deemed to
occur in the following order without any further act or formality:
(a) The Prime Common Shares, other than the Prime Common Shares held by (i)
Homestake Canada; (ii) holders who elect the direct exchange option for
Homestake Common Stock described in Section 3.1(b); and (iii) holders who
have exercised their Dissent Right (and who ultimately are entitled to be
paid fair value for such shares) will be acquired by Homestake Canada in
exchange for Exchangeable Shares at the Exchange Ratio.
(b) The Prime Common Shares held by holders who so elect in the Letter of
Transmittal will be acquired by Holdco in exchange for Homestake Common
Stock at the Exchange Ratio.
(c) With respect to each Prime Common Share transferred pursuant to the
provisions of Sections 3.1(a) and (b):
(i) the holder thereof shall cease to be a holder of Prime Common Shares
and such holder shall be removed from the register of members of
Prime with respect to such shares;
(ii) where the Prime Common Shareholder elects to transfer Prime Common
Shares as described in Section 3.1(b), Holdco shall be deemed to be
the transferee of such Prime Common Shares and shall be entered in
the register of members of Prime as the holder thereof; and
(iii) in all other circumstances Homestake Canada shall be deemed to be
the transferee of such Prime Common Shares and shall be entered in
the register of members of Prime as the holder thereof.
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<PAGE>
3.2 FRACTIONAL SHARES -- Notwithstanding the foregoing, if the aggregate
number of Exchangeable Shares or shares of Homestake Common Stock issuable to
any Prime Common Shareholder, pursuant to Section 3.1(a) or Section 3.1(b)
respectively, includes a fraction of an Exchangeable Share or a share of
Homestake Common Stock, as the case may be, no fractional Exchangeable Share or
fractional share of Homestake Common Stock will be issued to such Prime Common
Shareholder and such holder shall receive, in lieu of such fractional share, a
payment paid by cheque (i) from Homestake Canada in Canadian dollars in respect
of holders entitled to receive Exchangeable Shares, or (ii) from Holdco in US
dollars in respect of holders entitled to receive shares of Homestake Common
Stock, equal, in each case, to the amount (or the equivalent amount expressed in
Canadian dollars in the case of a payment for a fractional share in Canadian
dollars based on the noon spot exchange rate for US dollars expressed in
Canadian dollars as reported by the Bank of Canada or, in the event such spot
exchange rate is not available, such exchange rate on such day for US dollars as
may be deemed by the Board of Directors of Holdco to be appropriate for such
purpose, on the last day of the applicable five-day trading period) obtained by
multiplying such fraction by the average of the last reported sale prices of
Homestake Common Stock on the New York Stock Exchange (as reported in the Wall
Street Journal or, if not reported therein, in another authoritative source),
for the five trading days immediately preceding the Effective Date.
3.3 ACQUISITION OF COMMON SHARES OF DISSENTING HOLDERS -- Each Prime Common
Share of a holder who sent to Prime a Notice of Dissent prior to the Prime
Meeting in accordance with Article 4 below, as modified by the Interim Order or
the Final Order, shall be, and shall be deemed to be, transferred to Prime for
cancellation and cancelled contemporaneously with the acquisition by Homestake
Canada of Prime Common Shares pursuant to Section 3.1(a) and such holder shall
thereupon have no rights or entitlements with respect to those Prime Common
Shares except as provided in Article 4.
3.4 INCOME TAX ELECTION -- Holders of Prime Common Shares who are residents
of Canada for the purposes of the ITA, other than any such holder who is exempt
from tax under the ITA, ("Eligible Holders") and who have elected to receive
Exchangeable Shares shall be entitled to make an income tax election pursuant to
subsection 85(1) of the ITA or, in the case of a partnership, where one or more
of its partners is an Eligible Holder, pursuant to subsection 85(2) of the ITA
(and the analogous provisions of provincial income tax law) with respect to the
transfer of their Prime Common Shares to Homestake Canada by providing two
signed copies of the necessary election forms to Homestake Canada within 90 days
following the Effective Date, duly completed with the details of the number of
shares transferred and the applicable agreed amounts for the purposes of such
elections. Thereafter, subject to the election forms complying with the
provisions of the ITA (or applicable provincial income tax law), the forms will,
within 30 days after receipt by Homestake Canada, be signed by Homestake Canada
and either (a) returned to such holders of Prime Common Shares for filing with
Revenue Canada (or the applicable provincial taxing authority) or (b) in the
case where a holder provides written authorization to Homestake Canada (in the
form provided by Homestake Canada) together with such forms, filed by Homestake
Canada on behalf of the holder with Revenue Canada (or the applicable provincial
taxing authority).
3.5 CERTIFICATE OF CONTINGENT ENTITLEMENT TO RIGHTS -- Every Exchangeable
Share issued on the Effective Date shall have attached thereto a non-detachable
certificate of contingent entitlement to obtain Exchangeable Share purchase
rights in accordance with the Homestake Canada Rights Agreement.
3.6 SPECIFIED AMOUNT -- The specified amount, for the purposes of
subsection 191(4) of the ITA, for each Exchangeable Share received pursuant to
the exchange described in Section 3.1(a) shall be such amount as shall be
determined by Homestake and designated in writing to Prime prior to the
Effective Date.
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ARTICLE 4
RIGHTS OF DISSENT
4.1 GRANT OF RIGHTS OF DISSENT -- Notwithstanding Section 3.1, holders of
Prime Common Shares may exercise a Dissent Right in connection with the
Arrangement pursuant to the Interim Order and this Article 4.
4.2 DISSENT PROCEDURES -- A holder of Prime Common Shares who wishes to
exercise his, her or its Dissent Right must give a Notice of Dissent to Prime by
delivering such Notice of Dissent to Prime or mailing it to Prime by registered
mail, at its head office at 1055 West Georgia Street, Suite 1100, Vancouver,
British Columbia, V6E 3P3, marked to the attention of the Corporate Secretary,
in all cases so that it is received by Prime not later than forty-eight (48)
hours before the Prime Meeting. To be valid, a Notice of Dissent must:
(a) state that the Prime Common Shareholder is exercising his, her or its
Dissent Right, and
(b) specify the number of Prime Common Shares in respect of which such Prime
Common Shareholder is exercising his, her or its Dissent Right.
4.3 RIGHT TO VOTE -- The giving of a Notice of Dissent does not deprive a
Prime Common Shareholder of his, her or its right to vote at the Prime Meeting
on the special resolution approving the Arrangement. A vote against the special
resolution or the execution or exercise of a proxy requiring a vote against the
special resolution does not constitute a Notice of Dissent.
4.4 DISSENT RIGHT AVAILABILITY -- A Prime Common Shareholder is not
entitled to exercise a Dissent Right with respect to such Prime Common Shares as
such shareholder votes (or instructs, or is deemed, by submission of any
incomplete proxy, to have instructed his, her or its proxyholder to vote), in
favour of the special resolution approving the Arrangement. A Prime Common
Shareholder is entitled to exercise a Dissent Right with respect to all or
certain of his, her or its Prime Common Shares provided that such shareholder
does not vote (or instructs or is deemed, by submission of any incomplete proxy,
to have instructed his, her or its proxy holder to vote) such shares in respect
of which such shareholder is seeking to exercise a Dissent Right in favor of the
special resolution approving the Arrangement. A Prime Common Shareholder,
however, may vote as a proxy for a shareholder whose proxy required an
affirmative vote, without affecting his, her or its right to exercise the
Dissent Right in respect of his, her or its Prime Common Shares.
4.5 NOTICE OF APPROVAL -- If the special resolution approving the
Arrangement is duly passed, Prime will, within ten (10) days after such special
resolution is duly passed, give each Dissenting Shareholder notice that the
special resolution has been duly passed (a "Notice of Approval").
4.6 EXERCISE OF DISSENT RIGHT -- On receiving a Notice of Approval in
accordance with Section 4.5, a Dissenting Shareholder is entitled to require
Prime to purchase all of the Prime Common Shares in respect of which the Notice
of Dissent was given by delivering to Prime at the address specified in Section
4.2 within five (5) days after Prime gives the Notice of Approval in accordance
with Section 4.5,
(a) a notice that he, she or it requires Prime to purchase all of the Prime
Common Shares in respect of which the Notice of Dissent was given; and
(b) the share certificates representing all the Prime Common Shares in
respect of which the Notice of Dissent was given,
and thereupon the Dissenting Shareholder is bound to sell those Prime Common
Shares to Prime and Prime is bound to purchase them.
4.7 FAIR VALUE -- The price to be paid to a Dissenting Shareholder for his,
her or its Prime Common Shares will be their fair value as determined in
accordance with Section 4.8 as of the day before the date on
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which the special resolution referred to in Section 4.4 was duly passed and
every Dissenting Shareholder who has complied with Section 4.6 will be paid the
same price per Prime Common Share.
4.8 DETERMINATION OF FAIR VALUE -- If the Arrangement becomes effective,
Prime will be required to determine the fair value per share of the Prime Common
Shares and to make a written offer to pay such amount to the Dissenting
Shareholder. If such offer is not made by Prime or accepted by the Dissenting
Shareholder within thirty (30) days after the Effective Date, Prime may apply to
the Court to fix the fair value per share of the Prime Common Shares. There is
no obligation on Prime to apply to the Court. If Prime fails to make such an
application, a Dissenting Shareholder has the right to so apply within a further
twenty (20) days. If an application is made by either party, the Dissenting
Shareholder will be entitled to be paid the amount fixed by the Court.
4.9 APPLICATION TO THE COURT -- On an application to the Court under
Section 4.8:
(a) all Dissenting Shareholders whose Prime Common Shares have not been
purchased by Prime will be joined as parties and will be bound by the
decision of the Court, and
(b) Prime will notify each affected Dissenting Shareholder of the date,
place and consequences of the application and of his, her or its right to
be heard in person or by counsel.
4.10 POWER OF THE COURT -- On an application to the Court under Section
4.8, the Court will fix a fair value per share for the Prime Common Shares of
all Dissenting Shareholders.
4.11 NOTICE -- Any notice required to be given by Prime or a Dissenting
Shareholder to the other in connection with the exercise of the Dissent Right
will be deemed to have been given and received, if delivered, on the day of
delivery, or, if mailed, on the earlier of the date of receipt and the fifth
Business Day after the day of mailing, or, if sent by telecopier or other
similar form of transmission, on the first Business Day after the date of
transmittal.
4.12 PROCEDURES -- A holder of Prime Common Shares who
(a) properly exercises the Dissent Right by complying with all of the
Dissent Procedures required to be complied with by a Dissenting
Shareholder, will
(i) be bound by the provisions of this Article 4;
(ii) be deemed not to have participated in the Arrangement;
(iii) as of the Effective Date cease to have any rights as a Prime Common
Shareholder other than the right to be paid the fair value of the
Prime Common Shares held by him, her or it by Prime in accordance
with the Dissent Procedures, or
(b) seeks to exercise the Dissent Right, but
(i) who for any reason does not properly fulfil each of the Dissent
Procedures required to be completed by a Dissenting Shareholder, or
(ii) subsequent to giving his, her or its Notice of Dissent, acts
inconsistently with such dissent,
will be deemed to have participated in the Arrangement on the same basis as each
non-dissenting Prime Common Shareholder and will be issued, as of the Effective
Date, such Exchangeable Shares as he, she or it is entitled to on the basis
determined in accordance with Subsecemtion 3.1(a) and a cash payment in lieu of
any fractional Exchangeable Shares, as determined in accordance with Section
3.2.
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ARTICLE 5
CASH AND CERTIFICATES
5.1 RIGHTS TO PAYMENT AND SHARE CERTIFICATES --
(a) Subject to Section 5.2, as soon as practicable following the Effective
Date where a Prime Common Shareholder has delivered to the Transfer Agent
a duly completed Letter of Transmittal and the certificates representing
such holder's Prime Common Shares, Prime will cause the Transfer Agent to
either:
(i) forward or cause to be forwarded by first class mail to the Prime
Common Shareholder at the address specified in the Letter of
Transmittal,
(ii) if requested by the Prime Common Shareholder in the Letter of
Transmittal, make available at the principal offices of the Transfer
Agent in Vancouver and Toronto for pick-up by the Prime Common
Shareholder, or
(iii) if the Letter of Transmittal neither specifies an address nor
contains a request as described in Paragraph 5.1(a)(ii), forward or
cause to be forwarded to the Prime Common Shareholder at the address
of the holder as shown on the register of members maintained by
Prime,
a certificate representing the number of Exchangeable Shares or shares of
Homestake Common Stock (rounded down to the nearest whole number) required
to be delivered to such Prime Common Shareholder pursuant to the provisions
hereof, a cheque for any dividends or distributions with respect thereto
payable pursuant to Section 5.1(d), and a cheque for any cash amount in lieu
of a fractional Exchangeable Share or share of Homestake Common Stock
payable pursuant to Section 3.2, and the certificates so surrendered shall
be cancelled.
(b) As soon as practicable following the Effective Date, where a Prime
Common Shareholder has not delivered a duly completed Letter of
Transmittal and certificates representing Prime Common Shares
contemplated by Subsecemtion 5.1(a) (including, without limitation, where
no election is specified in a delivered Letter of Transmittal) and has
not exercised the Dissent Right in accordance with Section 4.2, Prime
will cause the Transfer Agent to make available at the principal office
of the Transfer Agent in Vancouver certificates representing the
Exchangeable Shares and any cash amount in lieu of a fractional
Exchangeable Share required to be delivered to such Prime Common
Shareholder pursuant to the provisions hereof upon presentation of the
certificates evidencing the Prime Common Shares held by such Prime Common
Shareholder.
(c) Homestake Canada and Holdco shall provide the Transfer Agent with
sufficient funds and certificates representing the Exchangeable Shares
and shares of Homestake Common Stock to fulfill their respective
requirements pursuant to Sections 3.1 and 3.2, prior to the filing of the
Final Order with the Registrar and Homestake shall cause Homestake Canada
and Holdco to take such actions. No interest will accrue or be paid by
any of Prime, Homestake, Homestake Canada, Holdco or the Transfer Agent
on the consideration for the Prime Common Shares acquired pursuant to the
Arrangement, regardless of any delay in making such payment.
(d) No dividends or other distributions declared or made after the Effective
Date with respect to Exchangeable Shares or shares of Homestake Common
Stock with a record date after the Effective Date shall be paid to the
holder of any unsurrendered certificate that, immediately prior to the
Effective Date, represented outstanding Prime Common Shares and no cash
payment in lieu of any fractional share shall be paid to any such holder
pursuant to Section 3.2, unless and until such certificate shall be
surrendered in accordance with this Section 5.1. Subject to applicable
law at the time of such surrender of any such certificate (or, in the
case of clause (iii) below, at the appropriate payment date), there shall
be paid to the registered holder of a certificate representing whole
Exchangeable Shares or shares of Homestake Common Stock
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(i) the amount of any cash payable in lieu of a fractional Exchangeable
Share or share of Homestake Common Stock to which such holder is entitled
pursuant to section 3.2, (ii) the amount of dividends or other
distributions with a record date after the Effective Date theretofore
paid with respect to such whole Exchangeable Shares or shares of
Homestake Common Stock and (iii) the amount of dividends or other
distributions with a record date after the Effective Date but prior to
surrender and a payment date subsequent to surrender payable with respect
to such whole Exchangeable Shares or shares of Homestake Common Stock.
5.2 PAYMENT REGISTRATION -- Unless otherwise directed by the Letter of
Transmittal, the certificates representing the Exchangeable Shares and the
shares of Homestake Common Stock referred to in Section 5.1 will be issued in
the name of the registered holder of the Prime Common Shares acquired. In the
event of a transfer of ownership of Prime Common Shares that is not registered
in the transfer records of Prime, a certificate representing the proper number
of Exchangeable Shares or shares of Homestake Common Stock may be issued to the
transferee if the certificate representing such Prime Common Shares is presented
to the Transfer Agent accompanied by all documents required by the Transfer
Agent and Homestake Canada or Holdco, as the case may be, to evidence and effect
such transfer.
5.3 ILLEGALITY OF DELIVERY OF SHARES -- Notwithstanding the foregoing, if
Homestake concludes that it would be contrary to applicable law to issue
Exchangeable Shares or shares of Homestake Common Stock pursuant to the
Arrangement to a person that is not a resident of Canada or the United States of
America, the Homestake Common Stock that otherwise would be issued to that
person if such person had elected to receive Homestake Common Stock in
accordance with Subsecemtion 3.1(b), will be issued and delivered to the
Transfer Agent for sale by the Transfer Agent on behalf of that person. The
Homestake Common Stock so delivered will be pooled and sold as soon as
practicable after the Effective Date, on such dates and at such prices as the
Transfer Agent determines in its sole discretion. The Transfer Agent shall not
be obligated to seek or obtain a minimum price for any of the shares of
Homestake Common Stock sold by it. Each such person will receive a PRO RATA
share of the cash proceeds from the sale of the shares of Homestake Common Stock
sold by the Transfer Agent (less commissions, other reasonable expenses incurred
in connection with the sale of the shares of Homestake Common Stock and any
amount withheld in respect of Canadian taxes) in lieu of the shares of Homestake
Common Stock. The net proceeds will be remitted in the same manner as other
payments pursuant to this Article 5. None of Prime, Homestake, Homestake Canada,
Holdco or the Transfer Agent will be liable for any loss arising out of any such
sales.
5.4 LOST, STOLEN OR DESTROYED SHARE CERTIFICATES -- If any certificate,
which immediately prior to the Effective Date represented outstanding Prime
Common Shares that were transferred pursuant to Sections 3.1(a) or (b), has been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such certificate to be lost, stolen or destroyed, the Transfer
Agent will issue in exchange for such lost, stolen or destroyed certificate, a
certificate representing Exchangeable Shares or shares of Homestake Common Stock
(and a cheque for any dividends or distributions with respect thereto pursuant
to Section 5.1(d) and any cash for a fractional Exchangeable Share or share of
Homestake Common Stock pursuant to Section 3.2) deliverable in respect thereof.
When authorizing such payment in exchange for any lost, stolen or destroyed
certificate, the person to whom a certificate representing Exchangeable Shares
or shares of Homestake Common Stock is to be issued shall, as a condition
precedent to the issuance thereof, give a bond satisfactory to Homestake, Prime,
Homestake Canada, Holdco and the Transfer Agent in such sum as Homestake, Prime,
Homestake Canada and Holdco may direct or otherwise indemnify Homestake, Prime,
Homestake Canada, Holdco and the Transfer Agent in a manner satisfactory to them
against any claim that may be made against Homestake, Prime, Homestake Canada,
Holdco or the Transfer Agent with respect to the certificate alleged to have
been lost, stolen or destroyed.
5.5 EXTINGUISHMENT OF RIGHTS -- Notwithstanding any of the other provisions
hereof, any certificate which immediately prior to the Effective Date
represented outstanding Prime Common Shares that were exchanged pursuant to
Sections 3.1(a) or (b) and has not been surrendered with all other instruments
required by Section 5.1 on or prior to the sixth anniversary of the Effective
Date (or immediately prior to
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such earlier date pursuant to any applicable abandoned property, escheat or
similar law) shall cease to represent a claim or interest of any kind or nature
as a shareholder of Prime. On such date, the Exchangeable Shares or shares of
Homestake Common Stock to which the former registered holder of such certificate
was ultimately entitled shall be deemed to have been surrendered to Prime
together with all entitlements to dividends, distributions and cash for
fractional interests thereon held for such former registered holder for no
consideration.
5.6 RIGHTS AFTER EFFECTIVE DATE -- Subject to Article 4, Section 5.1 and
Section 5.5, at and after the Effective Date, any certificate formerly
representing Prime Common Shares will represent only the right to receive
Exchangeable Shares or shares of Homestake Common Stock, and cash in lieu of
fractions thereof and dividends with respect thereto, in accordance with this
Plan of Arrangement.
ARTICLE 6
AMENDMENT
6.1 PLAN OF ARRANGEMENT AMENDMENT -- Prime reserves the right to amend,
modify or supplement this Plan of Arrangement at any time and from time to time,
provided that any such amendment, modification or supplement must be contained
in a written document that is (a) agreed to by Homestake, Homestake Canada and
Holdco, (b) if made prior to or at the Prime Meeting, approved by the persons
voting at the Prime Meeting, subject to the Interim Order; and (c) if made
following the Prime Meeting, but prior to the Final Order, approved by the
Court.
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APPENDIX D
HCI EXCHANGEABLE SHARE PROVISIONS
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SCHEDULE 2
to the Arrangement Agreement made as of September - , 1998
among Prime Resources Group Inc.,
Homestake Canada Inc., Homestake Canada Holdings Company and Homestake Mining
Company
HOMESTAKE CANADA INC.
EXCHANGEABLE SHARES
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In these Exchangeable Share Provisions, unless something in the subject
matter or context is inconsistent therewith:
"ARRANGEMENT AGREEMENT" means the agreement among Prime Resources Group
Inc., Homestake, Holdco and the Corporation, made as of September - ,
1998, as the same may be amended, providing for, among other things, the
Arrangement.
"AUTOMATIC EXCHANGE RIGHT" has the meaning set out in Section 5.3(2).
"BOARD OF DIRECTORS" means the board of directors of the Corporation.
"BUSINESS DAY" means a day, other than a Saturday, a Sunday or a statutory
holiday, when banks are generally open in each of San Francisco, California,
Toronto, Ontario and Vancouver, British Columbia for the transaction of
banking business.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the official
noon spot exchange rate on such date for such foreign currency as reported
by the Bank of Canada or, in the event such spot exchange rate is not
available, such exchange rate on such date for such foreign currency as may
be deemed by the Board of Directors to be appropriate for such purpose.
"COMMON SHARES" means the Common Shares of the Corporation.
"CORPORATION" means Homestake Canada Inc., a corporation existing under the
laws of the Province of Ontario, and any successor corporation.
"CURRENT MARKET PRICE" means, in respect of a share of Homestake Common
Stock on any date, the Canadian Dollar Equivalent of the average closing
sales price of a share of Homestake Common Stock for the five consecutive
trading days ending not more than five trading days before such date on the
New York Stock Exchange or, if the shares of Homestake Common Stock are not
then listed on the New York Stock Exchange, on such other stock exchange or
automated quotation system on which the shares of Homestake Common Stock are
listed or quoted, as the case may be, as may be selected by the Board of
Directors for such purpose; provided, however, that if in the opinion of the
Board of Directors the public distribution or trading activity of shares of
Homestake Common Stock during such period is inadequate to create a market
that reflects the fair market value of a share of Homestake Common Stock,
then the Current Market Price of a share of Homestake Common Stock
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shall be determined by the Board of Directors based upon the advice of such
qualified independent financial advisors as the Board of Directors may deem
to be appropriate, and provided further that any such selection, opinion or
determination by the Board of Directors shall be conclusive and binding.
"DIVIDEND AMOUNT" means an amount equal to the full amount of all dividends
and distributions declared and unpaid on each Exchangeable Share plus the
amount of all dividends and distributions declared on a share of Homestake
Common Stock in respect of which no dividend or distribution has been
declared on each Exchangeable Share in accordance with Section 3.1, in each
case with a record date prior to the effective date of the exchange of
Exchangeable Shares for shares of Homestake Common Stock hereunder.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges, restrictions
and conditions set forth herein.
"EXCHANGEABLE SHARES" means the Exchangeable Shares of the Corporation to
which are attached the Exchangeable Share Provisions.
"EXCHANGE RIGHT" has the meaning set out in Section 5.1 of the Voting,
Support and Exchange Trust Agreement;
"HOLDCO" means Homestake Canada Holdings Company, an unlimited liability
company incorporated under the laws of Nova Scotia;.
"HOMESTAKE" means Homestake Mining Company, a corporation existing under the
laws of the State of Delaware, and any successor corporation.
"HOMESTAKE CALL NOTICE" has the meaning set out in Section 6.2(2).
"HOMESTAKE COMMON STOCK" means the shares of common stock of Homestake, par
value US$1.00 per share, having voting rights of one vote per share, and any
other securities into which such shares may be changed or for which such
shares may be exchanged (whether or not Homestake shall be the issuer of
such other securities) or any other consideration which may be received by
the holders of such shares pursuant to a recapitalization, reconstruction,
reorganization or reclassification of, or amalgamation, merger, liquidation
or similar transaction affecting, such shares.
"HOMESTAKE DIVIDEND DECLARATION DATE" means the date on which the board of
directors of Homestake declares any dividend on the shares of Homestake
Common Stock.
"HOMESTAKE LIQUIDATION EVENT" has the meaning set out in Section 5.3(1).
"HOMESTAKE LIQUIDATION EVENT EFFECTIVE DATE" has the meaning set out in
Section 5.3(3).
"INSOLVENCY EVENT" has the meaning set out in Section 1.1 of the Voting,
Support and Exchange Trust Agreement;
"LCR EXERCISING PARTY" has the meaning set out in Section 5.2(1).
"LIQUIDATION AMOUNT" has the meaning set out in Section 5.1(1).
"LIQUIDATION CALL PURCHASE PRICE" has the meaning set out in Section 5.2(1).
"LIQUIDATION CALL RIGHT" has the meaning set out in Section 5.2(1).
"LIQUIDATION DATE" has the meaning set out in Section 5.1(1).
"OBCA" means the Business Corporations Act (Ontario), as amended.
"OPTIONAL REDEMPTION DATE" means a date, if any, established by the Board of
Directors for the redemption of Exchangeable Shares pursuant to Section 7.1
hereof, provided that such date shall not
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be earlier than December 31, 2008 unless there are less than 1,390,000
Exchangeable Shares outstanding (other than Exchangeable Shares held by
Homestake and its Subsidiaries and as such number of shares may be adjusted
as deemed appropriate by the Board of Directors to give effect to any
subdivision, combination or consolidation of or stock dividend on the
Exchangeable Shares, any issue or distribution of rights to acquire
Exchangeable Shares or securities exchangeable for or convertible into
Exchangeable Shares, any issue or distribution of other securities or rights
or evidences of indebtedness or assets, or any other capital reorganization
or other transaction affecting the Exchangeable Shares).
"PLAN OF ARRANGEMENT" means the plan of arrangement contemplated in the
Arrangement Agreement.
"RCR EXERCISING PARTY" has the meaning set out in Section 6.2(1) and Section
7.2(1).
"REDEMPTION CALL PURCHASE PRICE" has the meaning set out in Section 7.2(1).
"REDEMPTION CALL RIGHT" has the meaning set out in Section 7.2(1).
"REDEMPTION PRICE" has the meaning set out in Section 7.1(1).
"RETRACTED SHARES" has the meaning set out in Section 6.1(1).
"RETRACTION CALL PURCHASE PRICE" has the meaning set out in Section 6.2(1).
"RETRACTION CALL RIGHT" has the meaning set out in Section 6.2(1).
"RETRACTION DATE" has the meaning set out in Section 6.1(1).
"RETRACTION PRICE" has the meaning set out in Section 6.1(1).
"RETRACTION REQUEST" has the meaning set out in Section 6.1(1).
"SUBSIDIARY" means, when used with reference to Homestake, any corporation
more than 50% of the outstanding stock of which, by vote or by value, is
owned, directly or indirectly, by Homestake, by one or more other
Subsidiaries of Homestake, or by Homestake and one or more other
Subsidiaries of Homestake.
"TRANSFER AGENT" means Montreal Trust Company of Canada, a corporation
existing under the laws of Canada, or such other person as may from time to
time be the registrar and transfer agent for the Exchangeable Shares.
"TRUSTEE" means Montreal Trust Company of Canada, a corporation existing
under the laws of Canada, and any successor trustee appointed under the
Voting, Support and Exchange Trust Agreement.
"TRUST ESTATE" has the meaning set out in Section 1.1 of the Voting, Support
and Exchange Trust Agreement.
"VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT" means the Voting, Support and
Exchange Trust Agreement among Homestake, the Corporation and the Trustee,
made as of the date that the Plan of Arrangement becomes effective.
1.2 SECTIONS AND HEADINGS
The division of these Exchangeable Share Provisions into articles and
sections and the insertion of headings are for reference purposes only and shall
not affect the interpretation of these Exchangeable Share Provisions. Unless
otherwise indicated, any reference in these Exchangeable Share Provisions to an
article or section refers to the specified article or section of these
Exchangeable Share Provisions.
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1.3 NUMBER, GENDER AND PERSONS
In these Exchangeable Share Provisions, unless the context otherwise
requires, words importing the singular number include the plural and vice versa,
words importing any gender include all genders and words importing persons
include individuals, corporations, partnerships, companies, associations,
trusts, unincorporated organizations, governmental bodies and other legal or
business entities of any kind.
1.4 PAYMENTS
All payments to be made hereunder shall be made without interest and less
any tax required by law to be deducted and withheld.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 RANKING
The Exchangeable Shares shall be entitled to a preference over the Common
Shares and any other shares ranking junior to the Exchangeable Shares with
respect to the payment of dividends as and to the extent provided in Article 3
and with respect to any return of capital or any distribution of assets in the
event of the liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its affairs as
and to the extent provided in Article 5.
ARTICLE 3
DIVIDENDS
3.1 DIVIDENDS
A holder of an Exchangeable Share shall be entitled to receive and the Board
of Directors shall, subject to applicable law, on each Homestake Dividend
Declaration Date, declare a dividend on each Exchangeable Share (a) in the case
of a cash dividend or distribution declared on the shares of Homestake Common
Stock, in an amount in cash for each Exchangeable Share equal to the Canadian
Dollar Equivalent on the Homestake Dividend Declaration Date of the cash
dividend or distribution declared on each share of Homestake Common Stock, (b)
in the case of a stock dividend or distribution declared on the shares of
Homestake Common Stock to be paid in the shares of Homestake Common Stock, in
such number of Exchangeable Shares for each Exchangeable Share as is equal to
the number of shares of Homestake Common Stock to be paid on each share of
Homestake Common Stock or (c) in the case of a dividend or distribution declared
on the shares of Homestake Common Stock to be paid in property other than cash
or shares of Homestake Common Stock, in such type and amount of property for
each Exchangeable Share as is the same as or economically equivalent to (to be
determined by the Board of Directors as contemplated by Section 6.7 of the
Voting, Support and Exchange Trust Agreement) the type and amount of property
declared as a dividend or distribution on each share of Homestake Common Stock.
Such dividends shall be paid out of the assets of the Corporation properly
applicable to the payment of dividends, or out of authorized but unissued shares
or other securities of the Corporation.
3.2 PAYMENT OF DIVIDENDS
Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends or
distributions contemplated by Section 3.1(a) hereof and the sending of such a
cheque to each holder of an Exchangeable Share shall satisfy the cash dividend
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represented thereby unless the cheque is not paid on presentation. Certificates
registered in the name of the registered holder of Exchangeable Shares shall be
issued or transferred in respect of any stock dividends or other distribution of
Exchangeable Shares contemplated by Section 3.1(b) hereof and the sending of
such a certificate to each holder of an Exchangeable Share shall satisfy the
stock dividend or other distribution of Exchangeable Shares represented thereby.
Such other type and amount of property in respect of any dividends or
distributions contemplated by Section 3.1(c) hereof shall be issued, distributed
or transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
an Exchangeable Share shall satisfy the dividend or distribution represented
thereby. No holder of an Exchangeable Share shall be entitled to recover by
action or other legal process against the Corporation any dividend that is
represented by a cheque that has not been duly presented to the Corporation's
bankers for payment or that otherwise remains unclaimed for a period of six
years from the date on which such dividend or distribution was payable.
3.3 RECORD AND PAYMENT DATES
The record date for the determination of the holders of Exchangeable Shares
entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Exchangeable Shares under Section 3.1 hereof shall
be the same as the record date and payment date, respectively, for the
corresponding dividend or distribution declared on the shares of Homestake
Common Stock.
3.4 PARTIAL PAYMENT
If on any payment date for any dividends or distributions declared on the
Exchangeable Shares under Section 3.1 hereof the dividends or distributions are
not paid in full on all of the Exchangeable Shares then outstanding, any such
dividends or distributions that remain unpaid shall be paid on a subsequent date
or dates determined by the Board of Directors on which the Corporation shall
have sufficient money or other assets properly applicable to the payment of such
dividends or distributions.
3.5 LIMIT TO ENTITLEMENT
Except as provided in this Article 3, the holders of the Exchangeable Shares
shall not be entitled to receive dividends in respect thereof.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 CERTAIN RESTRICTIONS
(1) Except as provided in Section 4.1(2), so long as any of the Exchangeable
Shares are outstanding, the Corporation shall not at any time without,
but may at any time with, the approval of the holders of the Exchangeable
Shares given as specified in Section 9.2 hereof:
(a) pay any dividends on the Common Shares or any other shares ranking
junior to the Exchangeable Shares, other than stock dividends payable
in Common Shares or such other shares ranking junior to the
Exchangeable Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Common Shares or any other shares ranking junior to the Exchangeable
Shares;
(c) redeem or purchase any other shares of the Corporation ranking
equally with the Exchangeable Shares with respect to the payment of
dividends or on any liquidation distribution; or
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(d) issue any shares other than (i) Exchangeable Shares, (ii) Common
Shares and (iii) any other shares not ranking superior to the
Exchangeable Shares.
(2) The restrictions in Section 4.1(1)(a), 4.1(1)(b) and 4.1(1)(c) shall not
apply if all dividends and distributions on the outstanding Exchangeable
Shares corresponding to dividends and distributions declared to date on
the Homestake Common Stock shall have been declared on the Exchangeable
Shares and the Corporation shall have sufficient assets, funds and other
property available to enable the due and punctual payment in accordance
with applicable law of such dividends in accordance with these
provisions.
ARTICLE 5
LIQUIDATION
5.1 PARTICIPATION UPON LIQUIDATION, DISSOLUTION OR WINDING UP OF THE
CORPORATION
(1) Subject to applicable law and the due exercise by Homestake or Holdco of
a Liquidation Call Right, in the event of the liquidation, dissolution or
winding up of the Corporation or any other distribution of the assets of
the Corporation among its shareholders for the purpose of winding up its
affairs, a holder of Exchangeable Shares shall be entitled to receive
from the assets of the Corporation in respect of each Exchangeable Share
held by such holder on the effective date of such liquidation,
dissolution or winding up (the "Liquidation Date"), before any
distribution of any part of the assets of the Corporation among the
holders of the Common Shares or any other shares ranking junior to the
Exchangeable Shares, an amount per share equal to (a) the Current Market
Price of a share of Homestake Common Stock on the last Business Day prior
to the Liquidation Date, which shall be satisfied in full by the
Corporation causing to be delivered to such holder one share of Homestake
Common Stock, plus (b) the Dividend Amount, if any (collectively, the
"Liquidation Amount").
(2) In the case of a distribution on Exchangeable Shares under this Section
5.1, on or promptly after the Liquidation Date, the Corporation shall
cause to be delivered to the holders of the Exchangeable Shares the
Liquidation Amount for each such Exchangeable Share upon presentation and
surrender of the certificates representing such Exchangeable Shares,
together with such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the OBCA and the by-laws
of the Corporation and such additional documents and instruments as the
Transfer Agent and the Corporation may reasonably require, at the
registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of
the Exchangeable Shares. Payment of the aggregate Liquidation Amount for
such Exchangeable Shares shall be made by delivery to each holder, at the
address of the holder recorded in the securities register of the
Corporation for the Exchangeable Shares or by holding for pick up by the
holder at the registered office of the Corporation or at any office of
the Transfer Agent as may be specified by the Corporation by notice to
the holders of Exchangeable Shares, certificates representing the
aggregate number of shares of Homestake Common Stock deliverable by the
Corporation to such holder (which shares shall be duly issued as fully
paid and non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) and a cheque of the
Corporation payable at par at any branch of the bankers of the
Corporation in payment of the remaining portion, if any, of the aggregate
Liquidation Amount payable to such holder. On or before the Liquidation
Date, the Corporation shall deposit or cause to be deposited the total
Liquidation Amount in respect of the Exchangeable Shares in a custodial
account with any chartered bank or trust company in Canada named in such
notice. Upon such deposit being made, the rights of the holders of
Exchangeable Shares as such shall be limited to receiving their
proportionate part of the total
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Liquidation Amount for such Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by them,
respectively, in accordance with the foregoing provisions and any
interest allowed on such deposit shall belong to the Corporation. Upon
such payment or deposit of the total Liquidation Amount, the holders of
the Exchangeable Shares shall thereafter be considered and deemed for all
purposes to be the holders of the shares of Homestake Common Stock
delivered to them.
(3) After the Corporation has satisfied its obligations to pay the holders
of the Exchangeable Shares the total Liquidation Amount pursuant to this
Section 5.1, such holders shall not be entitled to share in any further
distribution of the assets of the Corporation.
5.2 LIQUIDATION CALL RIGHTS
(1) Subject to the limitations set forth in Section 5.2(2), Homestake and
Holdco shall each have the overriding right (a "Liquidation Call Right"),
in the event of and notwithstanding the proposed liquidation, dissolution
or winding up of the Corporation pursuant to Section 5.1 hereof, to
purchase from all but not less than all of the holders of Exchangeable
Shares on the Liquidation Date (other than Homestake and any Subsidiary)
all but not less than all of the Exchangeable Shares held by each such
holder on payment by whichever of Homestake or Holdco is exercising such
right (the "LCR Exercising Party") of an amount per share equal to (a)
the Current Market Price of a share of Homestake Common Stock on the last
Business Day prior to the Liquidation Date, which shall be satisfied in
full by causing to be delivered to such holder one share of Homestake
Common Stock, plus (b) the Dividend Amount, if any (collectively, the
"Liquidation Call Purchase Price"). In the event of the exercise of a
Liquidation Call Right, each holder of Exchangeable Shares (other than
Homestake and any Subsidiary) shall be obligated to sell all the
Exchangeable Shares held by such holder to the LCR Exercising Party on
the Liquidation Date on payment by the LCR Exercising Party to the holder
of the Liquidation Call Purchase Price for each such share.
(2) Holdco shall only be entitled to exercise its Liquidation Call Right
with respect to those holders of Exchangeable Shares, if any, in respect
of which Homestake has not exercised its Liquidation Call Right. In order
to exercise its Liquidation Call Right, an LCR Exercising Party must
notify in writing the Transfer Agent, as agent for the holders of
Exchangeable Shares, and the Corporation of its intention to exercise
such right at least 55 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding up of the Corporation and
at least five Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding up of the Corporation.
The Transfer Agent will notify the holders of Exchangeable Shares as to
whether or not a Liquidation Call Right has been exercised (such notice
to specify the LCR Exercising Party) forthwith after the expiry of the
date by which the same may be exercised, such form of notice to be
provided by Homestake to the Transfer Agent. If an LCR Exercising Party
duly exercises its Liquidation Call Right and completes the purchase of
Exchangeable Shares pursuant thereto in accordance with this Section 5.2
and Section 5.3 respectively, all obligations of the Corporation under
Section 5.1 shall terminate and on the Liquidation Date such LCR
Exercising Party will purchase and the holders of Exchangeable Shares
(other than Homestake and any Subsidiary) will sell all of their
Exchangeable Shares then outstanding for a price per share equal to the
Liquidation Call Purchase Price.
(3) For the purposes of completing a purchase of the Exchangeable Shares
pursuant to the exercise of a Liquidation Call Right, the LCR Exercising
Party shall deposit or cause to be deposited with the Transfer Agent, on
or before the Liquidation Date, certificates representing the total
number of shares of Homestake Common Stock deliverable by, or at the
direction of, the LCR Exercising Party (which shares shall be duly issued
as fully paid and non-assessable and shall be free and
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clear of any lien, claim, encumbrance, security interest or adverse
claim) in payment of the portion of the total Liquidation Call Purchase
Price payable by the delivery of shares of Homestake Common Stock and a
cheque in the amount of the remaining portion, if any, of the total
Liquidation Call Purchase Price; any interest allowed on such deposit
shall belong to the LCR Exercising Party. Provided that the total
Liquidation Call Purchase Price for all Exchangeable Shares has been so
deposited with the Transfer Agent, on and after the Liquidation Date the
rights of each holder of Exchangeable Shares (other than Homestake and
any Subsidiary) will be limited to receiving such holder's proportionate
part of the total Liquidation Call Purchase Price payable by the LCR
Exercising Party, upon presentation and surrender by the holder of
Exchangeable Shares of certificates representing the Exchangeable Shares
held by such holder in accordance with the following provisions and such
holder shall on and after the Liquidation Date be considered and deemed
for all purposes to be the holder of the shares of Homestake Common Stock
delivered to such holder. Upon surrender to the Transfer Agent of a
certificate representing Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the by-laws of the Corporation and
such additional documents and instruments as the Transfer Agent and the
Corporation may reasonably require, the holder of such surrendered
certificate shall be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of the LCR Exercising Party shall deliver to
such holder, a certificate representing the shares of Homestake Common
Stock to which such holder is entitled and a cheque in payment of the
remaining portion, if any, of the holder's proportionate part of the
total Liquidation Call Purchase Price. If neither Homestake nor Holdco
exercises its Liquidation Call Right in the manner described above, on
the Liquidation Date the holders of Exchangeable Shares shall be entitled
to receive in exchange therefor the liquidation price otherwise payable
by the Corporation in connection with the liquidation, dissolution or
winding up of the Corporation pursuant to Section 5.1 hereof.
5.3 AUTOMATIC EXCHANGE ON LIQUIDATION OF HOMESTAKE
(1) Homestake shall give the Transfer Agent written notice of each of the
following events (each a "Homestake Liquidation Event") at the time set
forth below:
(a) in the event of any determination by the board of directors of
Homestake to institute voluntary liquidation, dissolution or winding
up proceedings with respect to Homestake or to effect any other
distribution of assets of Homestake among its stockholders for the
purpose of winding up its affairs, at least 60 days prior to the
proposed effective date of such liquidation, dissolution, winding up
or other distribution; and
(b) immediately, upon the earlier of (i) receipt by Homestake of notice
of and (ii) Homestake otherwise becoming aware of any threatened or
instituted claim, suit, petition or other proceedings with respect to
the involuntary liquidation, dissolution or winding up of Homestake
or to effect any other distribution of assets of Homestake among its
stockholders for the purpose of winding up its affairs.
(2) Immediately following receipt by the Transfer Agent from Homestake of
notice of any Homestake Liquidation Event contemplated by Section
5.3(1)(a) or 5.3(1)(b), the Transfer Agent will give notice thereof to
the holders of Exchangeable Shares. Such notice shall be provided by
Homestake to the Transfer Agent and shall include a brief description of
the automatic exchange of Exchangeable Shares for shares of Homestake
Common Stock provided for in Section 5.3(4) below (the "Automatic
Exchange Right").
(3) In order that the holders of Exchangeable Shares (other than Homestake
and any Subsidiary) will be able to participate on a pro rata basis with
the holders of Homestake Common Stock in the distribution of assets of
Homestake in connection with a Homestake Liquidation Event, on the
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fifth Business Day prior to the effective date (the "Homestake
Liquidation Event Effective Date") of a Homestake Liquidation Event all
of the then outstanding Exchangeable Shares (other than Exchangeable
Shares held by Homestake and any Subsidiary) shall be automatically
exchanged for shares of Homestake Common Stock. To effect such automatic
exchange, Homestake shall purchase each Exchangeable Share outstanding on
the fifth Business Day prior to the Homestake Liquidation Event Effective
Date and held by a holder of Exchangeable Shares (other than Homestake
and any of its Subsidiaries), and each such holder shall sell the
Exchangeable Shares held by it at such time, for a purchase price per
share equal to (a) the Current Market Price of a share of Homestake
Common Stock on the fifth Business Day prior to the Homestake Liquidation
Event Effective Date, which shall be satisfied in full by Homestake
delivering to such holder one share of Homestake Common Stock, plus (b)
the Dividend Amount, if any.
(4) On the fifth Business Day prior to the Homestake Liquidation Event
Effective Date, the closing of the transaction of purchase and sale
contemplated by the automatic exchange of Exchangeable Shares for
Homestake Common Stock shall be deemed to have occurred, and each holder
of Exchangeable Shares (other than Homestake and any Subsidiary) shall be
deemed to have transferred to Homestake all of such holder's right, title
and interest in and to such Exchangeable Shares and shall cease to be a
holder of such Exchangeable Shares at such time as Homestake shall
deliver or cause to be delivered to the Transfer Agent, for delivery to
such holders, the certificates representing the number of shares of
Homestake Common Stock deliverable upon the automatic exchange of
Exchangeable Shares for Homestake Common Stock (which shares shall be
duly issued as fully paid and non-assessable and shall be free and clear
of any lien, claim or encumbrance, security interest or adverse claim)
and a cheque for the balance, if any, of the total purchase price for
such Exchangeable Shares; interest on such deposit shall belong to
Homestake. Concurrently with each such holder ceasing to be a holder of
Exchangeable Shares, such holder shall be considered and deemed for all
purposes to be the holder of the shares of Homestake Common Stock
delivered to it, or to the Transfer Agent on its behalf, pursuant to the
automatic exchange of Exchangeable Shares for Homestake Common Stock and
the certificates held by such holder previously representing the
Exchangeable Shares exchanged by such holder with Homestake pursuant to
such automatic exchange shall thereafter be deemed to represent the
shares of Homestake Common Stock delivered to such holder by Homestake
pursuant to such automatic exchange. Upon the request of any such former
holder of Exchangeable Shares and the surrender by such holder of
Exchangeable Share certificates deemed to represent shares of Homestake
Common Stock, duly endorsed in blank and accompanied by such instruments
of transfer as Homestake may reasonably require, the Transfer Agent shall
deliver or cause to be delivered to such holder certificates representing
the shares of Homestake Common Stock of which such holder is the holder
and a cheque in payment of the remaining portion, if any, of the
aggregate purchase price therefor.
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ARTICLE 6
RETRACTION AT OPTION OF HOLDER
6.1 RETRACTION AT OPTION OF HOLDER
(1) Subject to applicable law, the due exercise by either Homestake or
Holdco of a Retraction Call Right and otherwise upon compliance with the
provisions of this Article 6, a holder of Exchangeable Shares shall be
entitled at any time to require the Corporation to redeem, on the fifth
Business Day after the date on which the Retraction Request is received
by the Corporation (the "Retraction Date"), any or all of the
Exchangeable Shares registered in the name of such holder for an amount
per share equal to (a) the Current Market Price of a share of Homestake
Common Stock on the last Business Day prior to the Retraction Date, which
shall be satisfied in full by the Corporation causing to be delivered to
such holder one share of Homestake Common Stock for each Exchangeable
Share presented and surrendered by the holder, plus (b) the Dividend
Amount, if any (collectively, the "Retraction Price"). To effect a
redemption under this Section 6.1, the holder must present and surrender
at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the
holders of Exchangeable Shares the certificate representing the
Exchangeable Shares that the holder desires to have the Corporation
redeem, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the OBCA and
the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent and the Corporation may reasonably
require, together with a duly executed statement (the "Retraction
Request") in the form of Schedule A hereto or in such other form as may
be acceptable to the Corporation specifying that the holder desires to
have all or any number specified therein of the Exchangeable Shares
represented by such certificate (the "Retracted Shares") redeemed by the
Corporation.
(2) In the case of a redemption of Exchangeable Shares under this Section
6.1, upon receipt by the Corporation or the Transfer Agent in a manner
specified in Section 6.1(1) hereof of a certificate representing the
number of Exchangeable Shares which the holder desires to have the
Corporation redeem, together with a Retraction Request, and provided that
the Retraction Request is not revoked by the holder in the manner
specified in Section 6.1(5), the Corporation shall redeem the Retracted
Shares effective at the close of business on the Retraction Date. On the
Retraction Date, the Corporation shall deliver or cause the Transfer
Agent to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the
Exchangeable Shares or at the address specified in the holder's
Retraction Request or by holding for pick up by the holder at the
registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of
Exchangeable Shares, a certificate representing the number of shares of
Homestake Common Stock to which such holder is entitled (which shares
shall be duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim, encumbrance, security interest or adverse
claim) registered in the name of the holder or in such other name as the
holder may request in payment of the portion of the Retraction Price
payable by the delivery of shares of Homestake Common Stock and a cheque
of the Corporation payable at par at any branch of the bankers of the
Corporation in payment of the remaining portion, if any, of the aggregate
Retraction Price to which such holder is entitled and such delivery of
such certificate and cheque on behalf of the Corporation by the Transfer
Agent shall be deemed to be payment of and shall satisfy and discharge
all liability for the Retraction Price to the extent that the same is
represented by such share certificates and cheque, unless such cheque is
not paid on due presentation. If only a part of the Exchangeable Shares
represented by any certificate is redeemed, a new certificate for the
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balance of such Exchangeable Shares shall be issued to the holder at the
expense of the Corporation.
(3) On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall cease to be a holder of such Retracted Shares
and shall not be entitled to exercise any of the rights of a holder in
respect thereof, other than the right to receive the aggregate Retraction
Price for such Retracted Shares, unless upon presentation and surrender
of certificates in accordance with the foregoing provisions, payment of
the aggregate Retraction Price payable to such holder shall not be made,
in which case the rights of such holder shall remain unaffected until
such aggregate Retraction Price has been paid in the manner hereinbefore
provided. On and after the close of business on the Retraction Date,
provided that presentation and surrender of certificates and payment of
such aggregate Retraction Price has been made in accordance with the
foregoing provisions, the holder of the Retracted Shares so redeemed by
the Corporation shall thereafter be considered and deemed for all
purposes to be a holder of the shares of Homestake Common Stock delivered
to such holder.
(4) Notwithstanding any other provision of this Section 6.1, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder
in a Retraction Request to the extent that such redemption of Retracted
Shares would be contrary to solvency requirements, other provisions of
applicable law or Section 6.1 of the Rights, Privileges, Conditions and
Restrictions attaching to the third preference shares, Series 1 of the
Corporation. If the Corporation believes that on any Retraction Date it
would not be permitted by any of such provisions to redeem the Retracted
Shares tendered for redemption on such date, and neither Homestake nor
Holdco shall have exercised its Retraction Call Right with respect to the
Retracted Shares, the Corporation shall only be obligated to redeem
Retracted Shares specified by a holder in a Retraction Request to the
extent of the maximum number that may be so redeemed (rounded down to the
next whole number of shares) as would not be contrary to such
requirements, or provisions and shall notify the holder at least two
Business Days prior to the Retraction Date as to the number of Retracted
Shares which will not be redeemed by the Corporation. In any case in
which the redemption by the Corporation of Retracted Shares would be
contrary to solvency requirements, other provisions of applicable law or
Section 6.1 of the Rights, Privileges, Conditions and Restrictions
attaching to the third preference shares, Series 1 of the Corporation and
more than one holder has delivered a Retraction Request, the Corporation
shall redeem Retracted Shares in accordance with Section 6.1(2) on a pro
rata basis and shall issue to each such holder of Retracted Shares a new
certificate, at the expense of the Corporation, representing the
Retracted Shares not redeemed by the Corporation pursuant to Section
6.1(2) hereof. If the Retraction Request is not revoked by the holder in
the manner specified in Section 6.1(5) and neither Homestake nor Holdco
shall have exercised its Retraction Call Right in respect of any such
Retracted Shares, an Insolvency Event (as defined in the Voting, Support
and Exchange Trust Agreement) shall, to the extent it has not theretofore
occurred, be deemed thereupon to have occurred and the holder of any such
Retracted Shares not redeemed by the Corporation pursuant to Section
6.1(2) as a result of solvency requirements, other provisions of
applicable law or Section 6.1 of the Rights, Privileges, Conditions and
Restrictions attaching to the third preference shares, Series 1 of the
Corporation shall be deemed by giving the Retraction Request to have
exercised its Exchange Right (as defined in the Voting, Support and
Exchange Trust Agreement) so as to require Homestake to purchase the
unredeemed Retracted Shares from such holder on the Retraction Date or as
soon as practicable thereafter on payment by Homestake to such holder of
the purchase price for each such Retracted Share, all as more
specifically provided in the Voting, Support and Exchange Trust
Agreement.
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(5) A holder of Retracted Shares may, by notice in writing given by the
holder to the Corporation before the close of business on the Business
Day immediately preceding the Retraction Date, withdraw its Retraction
Request in which event such Retraction Request shall be null and void.
6.2 RETRACTION CALL RIGHTS
(1) In the event that a holder of Exchangeable Shares delivers a Retraction
Request pursuant to Section 6.1 and subject to the limitations set forth
in Section 6.2(2), Homestake and Holdco shall each have the overriding
right (a "Retraction Call Right"), notwithstanding the proposed
redemption of the Exchangeable Shares by the Corporation pursuant to
Section 6.1 hereof, to purchase from such holder on the Retraction Date
all but not less than all of the Retracted Shares held by such holder on
payment by whichever of Homestake or Holdco is exercising such right (the
"RCR Exercising Party") of an amount per share equal to the Retraction
Call Purchase Price. In the event of the exercise of a Retraction Call
Right, a holder of Exchangeable Shares who has delivered a Retraction
Request shall be obligated to sell all the Retracted Shares to the RCR
Exercising Party on the Retraction Date on payment by the RCR Exercising
Party of an amount per share equal to (a) the Current Market Price of a
share of Homestake Common Stock on the last Business Day prior to the
Retraction Date, which shall be satisfied in full by the RCR Exercising
Party causing to be delivered to such holder one share of Homestake
Common Stock for each Exchangeable Share presented and surrendered by the
holder, plus (b) the Dividend Amount, if any (collectively, the
"Retraction Call Purchase Price").
(2) Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify Homestake and Holdco thereof. For greater
certainty, Holdco shall only be entitled to exercise its Retraction Call
Right with respect to those holders of Exchangeable Shares, if any, in
respect of which Homestake has not exercised its Retraction Call Right.
In order to exercise its Retraction Call Right, the RCR Exercising Party
must notify the Corporation in writing of its determination to do so (a
"Homestake Call Notice") within two Business Days of notification to such
RCR Exercising Party by the Corporation of the receipt by the Corporation
of the Retraction Request. If either Homestake or Holdco so notifies the
Corporation within such two Business Day period, the Corporation shall
notify the holder as soon as possible thereafter as to the exercise of a
Retraction Call Right (such notice to specify the RCR Exercising Party).
If either Homestake or Holdco delivers a Homestake Call Notice within
such two Business Day period and duly exercises its Retraction Call Right
and completes the purchase of Exchangeable Shares pursuant thereto in
accordance with this Section 6.2 and Section 6.3, respectively, the
obligation of the Corporation to redeem the Retracted Shares shall
terminate and, provided that the Retraction Request is not revoked by the
holder in the manner specified in Section 6.1(5), the RCR Exercising
Party shall purchase from such holder and such holder shall sell to the
RCR Exercising Party on the Retraction Date the Retracted Shares for the
aggregate Retraction Call Purchase Price therefor. For the purposes of
completing a purchase pursuant to a Retraction Call Right, the RCR
Exercising Party shall deposit with the Transfer Agent, on or before the
Retraction Date, certificates representing the number of shares of
Homestake Common Stock to which such holder is entitled and a cheque in
the amount of the remaining portion, if any, of the aggregate Retraction
Call Purchase Price to which such holder is entitled. Provided that the
aggregate Retraction Call Purchase Price has been so deposited with the
Transfer Agent, the closing of the purchase and sale of the Retracted
Shares pursuant to the Retraction Call Right shall be deemed to have
occurred as at the close of business on the Retraction Date and, for
greater certainty, no redemption by the Corporation of such Retracted
Shares shall take place on the Retraction Date. In the event that neither
Homestake nor Holdco delivers a Homestake Call Notice within such two
Business Day period, and provided that the Retraction Request is not
revoked by the holder in the manner specified in Section 6.1(5), the
Corporation shall redeem the
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Retracted Shares on the Retraction Date and in the manner otherwise
contemplated in Section 6.1.
(3) For the purpose of completing a purchase of Exchangeable Shares pursuant
to the exercise of a Retraction Call Right, the RCR Exercising Party
shall deliver or cause the Transfer Agent to deliver to the relevant
holder, at the address of the holder recorded in the securities register
of the Corporation for the Exchangeable Shares or at the address
specified in the holder's Retraction Request or by holding for pick up by
the holder at the registered office of the Corporation or at any office
of the Transfer Agent as may be specified by the Corporation by notice to
the holders of Exchangeable Shares, a certificate representing the number
of shares of Homestake Common Stock to which such holder is entitled
(which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim, encumbrance, security
interest or adverse claim) registered in the name of the holder or in
such other name as the holder may request in payment of the portion of
the aggregrate Retraction Call Purchase Price payable by the delivery of
shares of Homestake Common Stock and a cheque of the RCR Exercising Party
payable at par at any branch of the bankers of Homestake, Holdco or of
the Corporation in Canada in payment of the remaining portion, if any, of
the aggregate Retraction Call Purchase Price to which such holder is
entitled and such delivery of such certificate and cheque on behalf of
the RCR Exercising Party by the Transfer Agent shall be deemed to be
payment of and shall satisfy and discharge all liability for the
Retraction Call Purchase Price to the extent that the same is represented
by such share certificates and cheque, unless such cheque is not paid on
due presentation.
(4) On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall not be entitled to exercise any of the rights
of a holder in respect thereof, other than the right to receive the
aggregate Retraction Call Purchase Price therefor unless upon
presentation and surrender of certificates in accordance with the
foregoing provisions, payment of the aggregate Retraction Call Purchase
Price payable to such holder shall not be made, in which case the rights
of such holder shall remain unaffected until such aggregate Retraction
Call Purchase Price has been paid in the manner hereinbefore provided. On
and after the close of business on the Retraction Date, provided that
presentation and surrender of certificates and payment of such aggregate
Retraction Call Purchase Price has been made in accordance with the
foregoing provisions, the holder of the Retracted Shares so purchased by
the RCR Exercising Party shall thereafter be considered and deemed for
all purposes to be a holder of the shares of Homestake Common Stock
delivered to such holder.
ARTICLE 7
REDEMPTION BY THE CORPORATION
7.1 REDEMPTION BY THE CORPORATION
(1) Subject to applicable law and the due exercise by either Homestake or
Holdco of a Redemption Call Right, the Corporation shall on any Optional
Redemption Date redeem all of the then outstanding Exchangeable Shares
for an amount per share equal to (a) the Current Market Price of a share
of Homestake Common Stock on the last Business Day prior to such Optional
Redemption Date, which shall be satisfied in full by the Corporation
causing to be delivered to each holder of Exchangeable Shares one share
of Homestake Common Stock for each Exchangeable Share held by such
holder, plus (b) the Dividend Amount, if any (collectively, the
"Redemption Price"). If either Homestake or Holdco exercises a Redemption
Call Right and all of the then outstanding Exchangeable Shares other than
the Exchangeable Shares held by Homestake or any Subsidiary are purchased
pursuant to Section 7.2, the remaining outstanding Exchangeable
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Shares continue to be redeemable by the Corporation on a subsequent
Optional Redemption Date pursuant to the provisions of this Section 7.1.
(2) In case of a redemption of Exchangeable Shares under this Section 7.1,
the Corporation shall, at least 120 days before any Optional Redemption
Date, send or cause to be sent to each holder of Exchangeable Shares a
notice in writing of the redemption by the Corporation or the purchase by
Homestake or Holdco under its Redemption Call Right, as the case may be,
of the Exchangeable Shares held by such holder. Such notice shall set out
the formula for determining the Redemption Price or the Redemption Call
Purchase Price, as the case may be, such Optional Redemption Date and, if
applicable, particulars of the Redemption Call Right.
(3) On or after any Optional Redemption Date and subject to the exercise by
Homestake or Holdco of a Redemption Call Right, the Corporation shall
cause to be delivered to the holders of the Exchangeable Shares to be
redeemed the Redemption Price for each such Exchangeable Share upon
presentation and surrender at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the
Corporation in such notice of the certificates representing such
Exchangeable Shares, together with such other documents and instruments
as may be required to effect a transfer of Exchangeable Shares under the
OBCA and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent and the Corporation may reasonably
require. Payment of the aggregate Redemption Price for Exchangeable
Shares held by a holder shall be made by delivery to such holder, at the
address of such holder recorded in the securities register of the
Corporation or by holding for pick up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may
be specified by the Corporation in such notice, of a certificate
representing the aggregate number of shares of Homestake Common Stock
deliverable by the Corporation to such holder (which shares shall be duly
issued as fully paid and non-assessable and shall be free and clear of
any lien, claim, encumbrance, security interest or adverse claim) and a
cheque of the Corporation payable at par at any branch of the bankers of
the Corporation in respect of the remaining portion, if any, of such
aggregate Redemption Price. On and after any Optional Redemption Date,
the holders of the Exchangeable Shares called for redemption shall not be
entitled to exercise any of the rights of holders in respect thereof,
other than the right to receive their proportionate part of the total
Redemption Price for all Exchangeable Shares being redeemed, unless
payment of the aggregate Redemption Price deliverable to a holder for
Exchangeable Shares shall not be made upon the presentation and surrender
of share certificates in accordance with the foregoing provisions, in
which case the rights of the holder shall remain unaffected until the
aggregate Redemption Price deliverable to such holder has been paid in
the manner hereinbefore provided. The Corporation shall have the right at
any time after the sending of notice of its intention to redeem the
Exchangeable Shares as aforesaid to deposit or cause to be deposited the
total Redemption Price of the Exchangeable Shares so called for
redemption, or of such of the said Exchangeable Shares represented by
certificates that have not at the date of such deposit been surrendered
by the holders thereof in connection with such redemption, in a custodial
account with any chartered bank or trust company in Canada named in such
notice and any interest allowed on such deposit shall belong to the
Corporation. Provided that such total Redemption Price has been so
deposited prior to any Optional Redemption Date, on and after such
Optional Redemption Date, the Exchangeable Shares shall be redeemed and
the rights of the holders thereof after such Optional Redemption Date
shall be limited to receiving their proportionate part of the total
Redemption Price for such Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by them,
respectively, in accordance with the foregoing provisions. Upon such
payment or deposit of the total Redemption Price, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all
purposes to be holders of the shares of Homestake Common Stock delivered
to them.
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7.2 REDEMPTION CALL RIGHTS
(1) Subject to the limitations set forth in Section 7.2(2), Homestake and
Holdco shall each have the overriding right (a "Redemption Call Right"),
notwithstanding the proposed redemption of the Exchangeable Shares by the
Corporation pursuant to Section 7.1 hereof, to purchase from all but not
less than all of the holders of Exchangeable Shares (other than Homestake
and any Subsidiary) on the last Business Day prior to the Optional
Redemption Date in respect of which the Redemption Call Right is
exercised all but not less than all of the Exchangeable Shares held by
each such holder on payment by whichever of Homestake or Holdco is
exercising such right (the "RCR Exercising Party") of an amount per share
equal to (a) the Current Market Price of a share of Homestake Common
Stock on the last Business Day prior to such Optional Redemption Date,
which shall be satisfied in full by causing to be delivered to such
holder one share of Homestake Common Stock plus (b) the Dividend Amount,
if any (collectively, the "Redemption Call Purchase Price"). In the event
of the exercise of a Redemption Call Right, each holder of Exchangeable
Shares (other than Homestake and any Subsidiary) shall be obligated to
sell all the Exchangeable Shares held by such holder to the RCR
Exercising Party on the last Business Day prior to such Optional
Redemption Date on payment by the RCR Exercising Party to such holder of
the Redemption Call Purchase Price for each such share.
(2) Holdco shall only be entitled to exercise its Redemption Call Right with
respect to those holders of Exchangeable Shares, if any, in respect of
which Homestake has not exercised its Redemption Call Right. In order to
exercise its Redemption Call Right, an RCR Exercising Party must notify
in writing the Transfer Agent, as agent for the holders of Exchangeable
Shares, and the Corporation of its intention to exercise such right at
least 125 days before an Optional Redemption Date. The Transfer Agent
will notify the holders of Exchangeable Shares as to whether or not a
Redemption Call Right has been exercised (such notice to specify the RCR
Exercising Party) forthwith after the expiry of the date by which the
same may be exercised, such form of notice to be provided by Homestake to
the Transfer Agent. If an RCR Exercising Party duly exercises its
Redemption Call Right in accordance with this Section 7.2, the right of
the Corporation to redeem any Exchangeable Shares pursuant to Section 7.1
on such Optional Redemption Date shall terminate at such time and on the
last Business Day prior to such Optional Redemption Date such RCR
Exercising Party will purchase and the holders of Exchangeable Shares
(other than Homestake and any Subsidiary) will sell all of their
Exchangeable Shares then outstanding for a price per share equal to the
Redemption Call Purchase Price.
(3) For the purposes of completing a purchase of the Exchangeable Shares
pursuant to the exercise of a Redemption Call Right, the RCR Exercising
Party shall deposit, or cause to be deposited, with the Transfer Agent,
on or before the last Business Day prior to the Optional Redemption Date,
certificates representing the total number of shares of Homestake Common
Stock deliverable by the RCR Exercising Party in connection with such
purpose (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) in payment of the
portion of the total Redemption Call Purchase Price payable by the
delivery of shares of Homestake Common Stock and a cheque in the amount
of the remaining portion, if any, of the total Redemption Call Purchase
Price and for all such Exchangeable Shares being purchased; interest
allowed on such deposit shall belong to the RCR Exercising Party.
Provided that the total Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after such Optional Redemption
Date the rights of each holder of Exchangeable Shares (other than
Homestake and any Subsidiary) will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price payable by
the RCR Exercising Party upon presentation and surrender by such holder
of certificates representing the Exchangeable Shares held by such holder
in accordance with the following provisions and such holder shall on and
after the last Business Day prior to such
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Optional Redemption Date be considered and deemed for all purposes to be
the holder of the shares of Homestake Common Stock delivered to such
holder. Upon surrender to the Transfer Agent of a certificate
representing Exchangeable Shares, together with such documents and
instruments as may be required to effect a transfer of Exchangeable
Shares under the OBCA and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent and the
Corporation may reasonably require, the holder of such surrendered
certificate shall be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of the RCR Exercising Party shall deliver to
such holder, a certificate representing the shares of Homestake Common
Stock to which such holder is entitled and a cheque in payment of the
remaining portion, if any, of the holder's proportionate part of the
total Redemption Call Purchase Price. If neither Homestake nor Holdco
exercises the Redemption Call Right in the manner described above, on the
Optional Redemption Date a holder of Exchangeable Shares shall be
entitled to receive in exchange therefor the redemption price otherwise
payable by the Corporation in connection with the redemption of the
Exchangeable Shares pursuant to Section 7.1 hereof.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and the provisions of Section 9.1,
10.1 and 11.2, the holders of the Exchangeable Shares shall not be entitled as
such to receive notice of or to attend any meeting of the shareholders of the
Corporation or to vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
9.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of a
least 50% of the outstanding Exchangeable Shares at that time are present or
represented by proxy; provided that such approval must be given also by the
affirmative vote of holders of not less than two-thirds of the Exchangeable
Shares represented in person or by proxy at the meeting excluding Exchangeable
Shares beneficially owned by Homestake or any of its Subsidiaries. If at any
such meeting the holders of at least 50% of the outstanding Exchangeable Shares
at that time are not present or represented by proxy within one-half hour after
the time appointed for such meeting then the meeting shall be adjourned to such
date not less than 10 days thereafter and to such time and place as may be
designated by the chairman of such meeting. At such adjourned meeting the
holders of Exchangeable Shares present or represented by proxy thereat may
transact the business for which the meeting was originally called and a
resolution at such meeting by the affirmative vote of not less than two-thirds
of the votes cast on such resolution shall constitute the approval or consent of
the holders of the Exchangeable Shares.
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ARTICLE 10
RECIPROCAL CHANGES, ETC.
IN RESPECT OF HOMESTAKE COMMON STOCK
10.1
(1) Each holder of an Exchangeable Share acknowledges that the Voting,
Support and Exchange Trust Agreement provides, in part, that
Homestake will not, except as provided in the Voting, Support and
Exchange Trust Agreement, without the prior approval of the
Corporation and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 9.2 hereof:
(a) issue or distribute shares of Homestake Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire Homestake Common Stock) to the holders of all
or substantially all of the then outstanding shares of Homestake
Common Stock by way of stock dividend or other distribution,
other than an issue of shares of Homestake Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire Homestake Common Stock) to holders of shares of
Homestake Common Stock who exercise an option to receive
dividends in shares of Homestake Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire shares of Homestake Common Stock) in lieu of receiving
cash dividends;
(b) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding shares of
Homestake Common Stock entitling them to subscribe for or to
purchase shares of Homestake Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire Homestake Common Stock); or
(c) issue or distribute to the holders of all or substantially all of
the then outstanding shares of Homestake Common Stock (i) shares
or securities of Homestake of any class other than Homestake
Common Stock (other than shares convertible into or exchangeable
for or carrying rights to acquire shares of Homestake Common
Stock), (ii) rights, options or warrants other than those
referred to in Section 10.1(1)(b) above, (iii) evidences of
indebtedness of Homestake or (iv) assets of Homestake;
unless the same or the economic equivalent (on a per share basis)
of such rights, options, securities, shares, evidences of
indebtedness or other assets is issued or distributed
simultaneously to holders of the Exchangeable Shares.
(2) Each holder of an Exchangeable Share acknowledges that the Voting,
Support and Exchange Trust Agreement further provides, in part, that
Homestake will not, except as provided in the Voting, Support and
Exchange Trust Agreement, without the prior approval of the
Corporation and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 9.2 hereof:
(a) subdivide, redivide or change the then outstanding shares of
Homestake Common Stock into a greater number of shares of
Homestake Common Stock; or
(b) reduce, combine or consolidate or change the then outstanding
shares of Homestake Common Stock into a lesser number of shares
of Homestake Common Stock; or
(c) reclassify or otherwise change the shares of Homestake Common
Stock or effect an amalgamation, merger, reorganization or other
transaction affecting the Homestake Common Stock;
unless the same or an economically equivalent change shall
simultaneously be made to, or in the rights of the holders of, the
Exchangeable Shares.
The Voting, Support and Exchange Trust Agreement further provides, in part,
that the aforesaid provisions of the Voting, Support and Exchange Trust
Agreement shall not be changed without the approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 hereof.
D-18
<PAGE>
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER THE VOTING,
SUPPORT AND EXCHANGE TRUST AGREEMENT
11.1 The Corporation shall take all such action and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by Homestake with all provisions of the Voting,
Support and Exchange Trust Agreement applicable to the Corporation and
Homestake, respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation all rights and benefits in favour of the Corporation
under or pursuant to such agreement.
11.2 The Corporation shall not agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Voting, Support and Exchange Trust Agreement without the approval of the holders
of the Exchangeable Shares given in accordance with Section 9.2 hereof other
than such amendments, waivers and/or forgiveness as may be necessary or
advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such agreement
for the protection of the holders of Exchangeable Shares or the
Corporation provided that the Board of Directors shall be of the opinion,
after consultation with counsel, that the addition of such covenants or
parties to such agreements will not be prejudicial to the interests of
the holders of Exchangeable Shares;
(b) making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the opinion of the Board of
Directors, it may be expedient to make, provided that the Board of
Directors shall be of the opinion, after consultation with counsel, that
such provisions and modifications will not be prejudicial to the
interests of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purposes of
curing or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error contained therein,
provided that the Board of Directors shall be of the opinion, after
consultation with counsel, that the addition of such changes or
corrections will not be prejudicial to the interests of the holders of
Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the provisions of the Plan of Arrangement and the
Voting, Support and Exchange Trust Agreement (including the provisions with
respect to the call rights, voting rights and exchange rights thereunder).
ARTICLE 13
NOTICES
13.1 Subject to applicable law, any notice, request or other communication
to be given to the Corporation by a holder of Exchangeable Shares shall be in
writing and shall be valid and effective if given by mail (postage prepaid) or
by telecopy or by delivery to the registered office of the Corporation and
addressed to the attention of the President. Any such notice, request or other
communication, if given by
D-19
<PAGE>
mail, telecopy or delivery, shall only be deemed to have been given and received
upon actual receipt thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable Shares to
the Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding up of the
Corporation or any retraction or redemption of Exchangeable Shares or any
purchase thereof as a result of the exercise of any Retraction Call Right,
Redemption Call Right or Liquidation Call Right shall be made by registered mail
(postage prepaid) or by delivery to the registered office of the Corporation or
to such office of the Transfer Agent as may be specified by the Corporation, in
each case addressed to the attention of the President of the Corporation. Any
such presentation and surrender of certificates shall only be deemed to have
been made and to be effective upon actual receipt thereof by the Corporation or
the Transfer Agent, as the case may be. Any such presentation and surrender of
certificates made by registered mail shall be at the sole risk of the holder
mailing the same.
13.3 Subject to applicable law, any notice, request or other communication
to be given to a holder of Exchangeable Shares by or on behalf of the
Corporation shall be in writing and shall be valid and effective if given by
mail (postage prepaid) or by delivery to the address of the holder recorded in
the securities register of the Corporation or, in the event of the address of
any such holder not being so recorded, then at the last known address of such
holder. Any such notice, request or other communication, if given by mail, shall
be deemed to have been given and received on the fifth Business Day following
the date of mailing and, if given by delivery, shall be deemed to have been
given and received on the date of delivery. Accidental failure or omission to
give any notice, request or other communication to one or more holders of
Exchangeable Shares, or any defect in such notice, shall not invalidate or
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
D-20
<PAGE>
SCHEDULE A
NOTICE OF RETRACTION
To the Corporation, Homestake and Holdco
c/o Montreal Trust Company of Canada
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the Exchangeable Share(s) of the Corporation
represented by this certificate and all capitalized words and expressions used
in this notice that are defined in the Share Provisions have the meanings
ascribed to such words and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem on the Retraction Date (being the fifth Business Day after
the date upon which this notice is received by the Corporation) in accordance
with Article 6 of the Share Provisions:
/ / all share(s) represented by this certificate; or
/ / share(s) only.
The undersigned acknowledges the Retraction Call Right of Homestake and, in
certain circumstances, Holdco, to purchase all but not less than all the
Retracted Shares from the undersigned and that this notice shall be deemed to be
a revocable offer by the undersigned to sell the Retracted Shares to Homestake
or Holdco, as the case may be, in accordance with the Retraction Call Right on
the Retraction Date for the Retraction Price per Retracted Share and on the
other terms and conditions set out in Section 6.2 of the Share Provisions. If
neither Homestake nor Holdco determines to exercise its Retraction Call Right,
the Corporation will notify the undersigned of such fact as soon as possible.
This notice of retraction, and offer to sell the Retracted Shares to Homestake
or Holdco, may be revoked and withdrawn by the undersigned by notice in writing
given to the Corporation at any time before the close of business on the
Business Day immediately preceding the Retraction Date.
The undersigned acknowledges and agrees that if, as a result of solvency
requirements or other provisions of applicable law, the Corporation is unable to
redeem all Retracted Shares, an Insolvency Event (as defined in the Voting,
Support and Exchange Trust Agreement) shall, to the extent it shall not
theretofore have occurred, be deemed thereupon to have occurred, and the
undersigned will be deemed to have exercised the Exchange Right (as defined in
the Voting, Support and Exchange Trust Agreement) so as to require Homestake to
purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation, Homestake
and Holdco that the undersigned has good title to, and owns, the share(s)
represented by this certificate to be acquired by the Corporation, Homestake or
Holdco, as the case may be, free and clear of all liens, claims and
encumbrances.
<TABLE>
<S> <C> <C>
- --------------------------- --------------------------- ---------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
</TABLE>
/ / Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up
by the shareholder at the principal transfer office of Transfer Agent in
Toronto, failing which the securities and any cheque will be mailed to the
last address of the shareholder as it appears on the register.
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent and the Corporation may
require, must be deposited with the Transfer Agent at its principal
transfer office in Toronto. The securities and any cheque resulting from
the retraction or purchase of the Retracted Shares will be issued and
registered in, and made payable
D-21
<PAGE>
to, respectively, the name of the shareholder as it appears on the
register of the Corporation and the securities and cheque resulting from
such retraction or purchase will be delivered to such shareholder as
indicated above, unless the form appearing immediately below is duly
completed, all exigible transfer taxes are paid and the signature of the
registered holder is guaranteed by a Canadian chartered bank or trust
company, member of a recognized stock exchange in Canada or member of the
Securities Transfer Association Medallion (STAMP) Program.
<TABLE>
<S> <C>
Date: ---------------------------------
- ------------------------------------------------
Name of Person in Whose Name Securities and
Cheque Are To Be Registered, Issued or Delivered
(please print)
- ------------------------------------------------ --------------------------------------
Street Address or P.O. Box Signature of Registered Holder
- ------------------------------------------------ --------------------------------------
City - Province and Postal Code Signature Guaranteed by
</TABLE>
Note: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the remaining
shares of the Corporation will be issued and registered in the name of
the shareholder as it appears on the register of the Corporation, unless
the Share Transfer Power on the share certificate is duly completed in
respect of such shares.
U.S. Residents/Citizens must provide their Taxpayer Identification Number here:
- --------------------------------------------------------------------------------
D-22
<PAGE>
APPENDIX E
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
E-1
<PAGE>
SCHEDULE 4
HOMESTAKE MINING COMPANY, a corporation
existing under the laws of the State of
Delaware ("Homestake")
-and-
HOMESTAKE CANADA INC., a corporation
existing under the laws of the Province of
Ontario ("HCI")
-and-
MONTREAL TRUST COMPANY OF CANADA, a trust
company existing under the laws of Canada
(the "Trustee")
- --------------------------------------------------------------------------------
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
- --------------------------------------------------------------------------------
E-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS AND INTERPRETATION............................................ E-7
1.1 Definitions............................................................... E-7
1.2 Interpretation Not Affected by Headings, etc.............................. E-9
1.3 Number, Gender and Persons................................................ E-9
1.4 Date for Any Action....................................................... E-9
1.5 Payments.................................................................. E-9
ARTICLE 2 TRUST..................................................................... E-10
2.1 Establishment of Trust.................................................... E-10
ARTICLE 3 VOTING SHARE.............................................................. E-10
3.1 Issue and Ownership of Voting Share....................................... E-10
3.2 Legended Share Certificate................................................ E-10
3.3 Safekeeping of Certificate................................................ E-10
ARTICLE 4 EXERCISE OF VOTING RIGHTS................................................. E-10
4.1 Voting Rights............................................................. E-10
4.2 Number of Votes........................................................... E-11
4.3 Mailings to Shareholders.................................................. E-11
4.4 Copies of Stockholder Information......................................... E-12
4.5 Other Materials........................................................... E-12
4.6 List of Persons Entitled to Vote.......................................... E-12
4.7 Entitlement to Direct Votes............................................... E-12
4.8 Voting by Trustee, and Attendance of Trustee Representative, at Meeting... E-13
4.9 Distribution of Written Materials......................................... E-13
4.10 Termination of Voting Rights.............................................. E-13
ARTICLE 5 EXCHANGE RIGHT AND HOMESTAKE SUPPORT...................................... E-14
5.1 Grant and Ownership of the Exchange Right................................. E-14
5.2 Legended Share Certificate................................................ E-14
5.3 General Exercise of Exchange Right........................................ E-14
5.4 Purchase Price............................................................ E-14
5.5 Exercise Instructions..................................................... E-14
5.6 Delivery of Homestake Common Stock; Effect of Exercise.................... E-15
5.7 Exercise of Exchange Right Subsequent to Retraction....................... E-16
5.8 Stamp or other Transfer Taxes............................................. E-16
5.9 Notice of Insolvency Event................................................ E-16
5.10 Homestake Support of Holdco............................................... E-16
5.11 Call Rights............................................................... E-17
ARTICLE 6 COVENANTS, REPRESENTATIONS AND WARRANTIES................................. E-17
6.1 Covenants of Homestake Regarding Exchangeable Shares...................... E-17
6.2 Segregation of Funds...................................................... E-18
6.3 Certain Representations................................................... E-18
6.4 Notification of Certain Events............................................ E-18
6.5 Delivery of Shares of Homestake Common Stock.............................. E-18
6.6 Qualification of Shares of Homestake Common Stock......................... E-18
6.7 Economic Equivalence...................................................... E-19
6.8 Tender Offers, etc........................................................ E-21
6.9 Ownership of Outstanding Shares........................................... E-21
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6.10 Homestake Not to Vote Exchangeable Shares................................. E-21
6.11 Due Performance........................................................... E-22
ARTICLE 7 CONCERNING THE TRUSTEE.................................................... E-22
7.1 Powers and Duties of the Trustee.......................................... E-22
7.2 No Conflict of Interest................................................... E-23
7.3 Dealings with Transfer Agents, Registrars, etc............................ E-23
7.4 Books and Records......................................................... E-23
7.5 Income Tax Returns and Reports............................................ E-24
7.6 Indemnification Prior to Certain Actions by Trustee....................... E-24
7.7 Actions by Non-Affiliated Holders......................................... E-24
7.8 Reliance upon Declarations................................................ E-24
7.9 Evidence and Authority to Trustee......................................... E-24
7.10 Experts, Advisers and Agents.............................................. E-25
7.11 Investment of Money Held by Trustee....................................... E-25
7.12 Trustee Not Required to Give Security..................................... E-26
7.13 Trustee Not Bound to Act on HCI's Request................................. E-26
7.14 Authority to Carry on Business............................................ E-26
7.15 Conflicting Claims........................................................ E-26
7.16 Acceptance of Trust....................................................... E-26
ARTICLE 8 COMPENSATION.............................................................. E-27
8.1 Fees and Expenses of the Trustee.......................................... E-27
ARTICLE 9 INDEMNIFICATION AND LIMITATION OF LIABILITY............................... E-27
9.1 Indemnification of the Trustee............................................ E-27
9.2 Limitation of Liability................................................... E-27
ARTICLE 10 CHANGE OF TRUSTEE......................................................... E-28
10.1 Resignation............................................................... E-28
10.2 Removal................................................................... E-28
10.3 Successor Trustee......................................................... E-28
10.4 Notice of Successor Trustee............................................... E-28
ARTICLE 11 HOMESTAKE SUCCESSORS...................................................... E-28
11.1 Certain Requirements in Respect of Combination, etc....................... E-28
11.2 Vesting of Powers in Successor............................................ E-29
11.3 Wholly-Owned Subsidiaries................................................. E-29
ARTICLE 12 AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS.............................. E-29
12.1 Amendments, Modifications, etc............................................ E-29
12.2 Ministerial Amendments.................................................... E-29
12.3 Meeting to Consider Amendments............................................ E-30
12.4 Changes in Capital of Homestake and HCI................................... E-30
12.5 Execution of Supplemental Trust Agreements................................ E-30
ARTICLE 13 TERMINATION............................................................... E-30
13.1 Term...................................................................... E-30
13.2 Survival of Agreement..................................................... E-30
ARTICLE 14 GENERAL................................................................... E-31
14.1 Severability.............................................................. E-31
14.2 Enurement................................................................. E-31
14.3 Notices to Parties........................................................ E-31
</TABLE>
E-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
14.4 Notice of Non-Affiliated Holders.......................................... E-31
14.5 Risk of Payments by Post.................................................. E-31
14.6 Counterparts.............................................................. E-31
14.7 Jurisdiction.............................................................. E-32
14.8 Attornment................................................................ E-32
</TABLE>
E-5
<PAGE>
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
AGREEMENT made as of the day of , 1998
AMONG:
HOMESTAKE MINING COMPANY, a
corporation existing under the
laws of the State of Delaware
("Homestake")
-and-
HOMESTAKE CANADA INC., a
corporation existing under the
laws of the Province of Ontario
("HCI")
-and-
MONTREAL TRUST COMPANY OF
CANADA, a trust company existing
under the laws of Canada (the
"Trustee")
WHEREAS pursuant to an arrangement agreement dated as of September -, 1998
among Homestake, HCI, Holdco (as hereinafter defined), and Prime Resources Group
Inc. ("Prime") (such agreement as it may be amended or restated is hereinafter
referred to as the "Arrangement Agreement"), Homestake, HCI, Holdco and Prime
agreed that on the Effective Date (as defined in the Arrangement Agreement),
Homestake, HCI, and a Canadian trust company would execute and deliver a Voting,
Support and Exchange Trust Agreement substantially in the form set forth in
Schedule 4 to the Arrangement Agreement;
AND WHEREAS, pursuant to an arrangement (the "Arrangement") effected
pursuant to Section 252 of the COMPANY ACT (British Columbia), each issued and
outstanding Common Share of Prime (a "Prime Common Share"), other than Prime
Common Shares held by HCI or by holders who duly exercised their rights of
dissent, was exchanged at the option of its holder for 0.74 issued and
outstanding Exchangeable Shares of HCI (the "Exchangeable Shares") or 0.74
issued and outstanding shares of Common Stock of Homestake, par value (U.S.)
$1.00 per share (the "Homestake Common Stock");
AND WHEREAS, HCI may issue additional Exchangeable Shares in the future
other than in connection with the Arrangement;
AND WHEREAS Homestake is to grant to and in favour of Non-Affiliated Holders
(as hereinafter defined) of Exchangeable Shares the right, in the circumstances
set forth herein, to require Homestake to purchase from each Non-Affiliated
Holder all or any part of the Exchangeable Shares held by the Non-Affiliated
Holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in Homestake shall be exercisable by
Non-Affiliated Holders of Exchangeable Shares by and through the Trustee, which
will hold legal title to the Voting Share (as hereinafter defined) to which
voting rights attach for the benefit of Non-Affiliated Holders and whereby the
rights to require Homestake to purchase Exchangeable Shares from the
Non-Affiliated Holders shall be exercisable by Non-Affiliated Holders of
Exchangeable Shares by and through the Trustee, which will hold legal title to
such rights for the benefit of Non-Affiliated Holders;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby Homestake will be able to take certain actions and
make certain payments and to deliver or cause to be delivered shares of
Homestake Common Stock (as hereinafter defined) in satisfaction of the
obligations of Homestake under the Exchangeable Share Provisions (as hereinafter
defined) and this trust agreement
E-6
<PAGE>
and Homestake will take certain actions such that if Holdco seeks to exercise
its rights under the Exchangeable Share Provisions, it will only do so if it
will be able to make certain payments and cause to be delivered shares of
Homestake Common Stock in satisfaction of the obligations of Holdco under the
Exchangeable Share Provisions;
AND WHEREAS these recitals and any statements of fact in this trust
agreement are made by Homestake and HCI and not by the Trustee;
NOW THEREFORE, in consideration of the respective covenants and agreements
provided in this trust agreement and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS: In this trust agreement, unless something in the subject
matter or content is inconsistent therewith:
"APPLICABLE LAWS" has the meaning set out in Section 6.6 hereof.
"ARRANGEMENT" has the meaning set out in the recitals hereto.
"ARRANGEMENT AGREEMENT" has the meaning set out in the recitals hereto.
"AUTOMATIC EXCHANGE RIGHTS" means the automatic exchange of shares of
Homestake Common Stock for Exchangeable Shares pursuant to Section 5.3 of
the Exchangeable Share Provisions.
"BOARD OF DIRECTORS" means the board of directors of HCI.
"BUSINESS DAY" means a day, other than a Saturday, a Sunday or a
statutory holiday, when banks are generally open in each of San Francisco,
California, Toronto, Ontario and Vancouver, British Columbia for the
transaction of banking business.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed in
a foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the official
noon spot exchange rate on such date for such foreign currency as reported
by the Bank of Canada or, in the event such spot exchange rate is not
available, such exchange rate on such date for such foreign currency as may
be deemed by the Board of Directors to be appropriate for such purpose.
"CURRENT MARKET PRICE" means, in respect of a share of Homestake Common
Stock on any date, the Canadian Dollar Equivalent of the average closing
sales price of shares of Homestake Common Stock during a period of five
consecutive trading days ending not more than five trading days before such
date on the New York Stock Exchange or, if the shares of Homestake Common
Stock are not then listed on the New York Stock Exchange, on such other
stock exchange or automated quotation system on which the shares of
Homestake Common Stock are listed or quoted, as the case may be, as may be
selected by the Board of Directors for such purpose; provided, however, that
if in the opinion of the Board of Directors the public distribution or
trading activity of Homestake Common Stock during such period is inadequate
to create a market that reflects the fair market value of the Homestake
Common Stock, then the Current Market Price of a share of Homestake Common
Stock shall be determined by the Board of Directors based upon the advice of
such qualified independent financial advisors as the Board of Directors may
deem to be appropriate, and provided further that any such selection,
opinion or determination by the Board of Directors shall be conclusive and
binding.
"DIVIDEND AMOUNT" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
E-7
<PAGE>
"EFFECTIVE DATE" has the meaning set out in Section 1.1 of the Plan of
Arrangement.
"EXCHANGE RIGHT" has the meaning set out in Section 5.1 hereof.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares.
"EXCHANGEABLE SHARES" has the meaning set out in the recitals hereto.
"HCI BOARD OF DIRECTORS" means the board of directors of HCI.
"HOLDCO" means Homestake Canada Holdings Company, an unlimited liability
company incorporated under the laws of Nova Scotia;
"HOMESTAKE BOARD OF DIRECTORS" means the board of directors of
Homestake.
"HOMESTAKE COMMON STOCK" means the shares of common stock of Homestake,
par value (U.S.) $1.00 per share, having voting rights of one vote per
share, and any other securities into which such shares may be changed or for
which such shares may be exchanged (whether or not Homestake shall be the
issuer of such other securities) or any other consideration which may be
received by the holders of such shares, pursuant to a recapitalization,
reconstruction, reorganization or reclassification of, or amalgamation,
merger, liquidation or similar transaction, affecting such shares.
"HOMESTAKE CONSENT" has the meaning set out in Section 4.2 hereof.
"HOMESTAKE MEETING" has the meaning set out in Section 4.2 hereof.
"HOMESTAKE SUCCESSOR" has the meaning set out in Section 11.1 hereof.
"INSOLVENCY EVENT" means the institution by HCI of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound up, or the
consent of HCI to the institution of bankruptcy, insolvency, dissolution or
winding up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding up under any bankruptcy, insolvency
or analogous laws, including without limitation the COMPANIES CREDITORS'
ARRANGEMENT ACT (Canada) and the BANKRUPTCY AND INSOLVENCY ACT (Canada), and
the failure by HCI to contest in good faith any such proceedings commenced
in respect of HCI within 15 days of becoming aware thereof, or the consent
by HCI to the filing of any such petition or to the appointment of a
receiver, or the making by HCI of a general assignment for the benefit of
creditors, or the admission in writing by HCI of its inability to pay its
debts generally as they become due, or HCI not being permitted, pursuant to
solvency requirements or other provisions of applicable law or the
provisions of Section 6.01 of the Rights, Privileges, Conditions and
Restrictions attaching to the third preference shares, Series 1 of HCI, to
redeem any Retracted Shares pursuant to Section 6.1 of the Exchangeable
Share Provisions.
"LIQUIDATION AMOUNT" has the meaning set out in Section 5.1(1) of the
Exchangeable Share Provisions.
"LIQUIDATION CALL RIGHT" has the meaning set out in Section 5.2(1) of
the Exchangeable Share Provisions.
"LIST" has the meaning set out in Section 4.6 hereof.
"NON-AFFILIATED HOLDER VOTES" has the meaning set out in Section 4.2
hereof.
"NON-AFFILIATED HOLDERS", when used in Article 3 or Article 4 or
otherwise with respect to the right to vote or direct the vote to be cast by
the holder of the Voting Shares, means the registered holders of
Exchangeable Shares other than Homestake and its Subsidiaries.
"OFFER" has the meaning set out in Section 6.8 hereof.
E-8
<PAGE>
"OFFICER'S CERTIFICATE" means, with respect to Homestake or HCI, as the
case may be, a certificate signed by any one of the Chairman of the Board,
the Chief Executive Officer, the President, any Vice-President or any other
senior officer of Homestake or HCI, as the case may be.
"PLAN OF ARRANGEMENT" means the plan of arrangement of Prime providing
for the Arrangement.
"PRIME COMMON SHARES" has the meaning set out in the recitals hereto.
"REDEMPTION CALL RIGHT" has the meaning set out in Section 7.2(1) of the
Exchangeable Share Provisions.
"REDEMPTION PRICE" has the meaning set out in Section 7.1(1) of the
Exchangeable Share Provisions.
"RETRACTED SHARES" has the meaning set out in Section 5.7 hereof.
"RETRACTION CALL RIGHT" has the meaning set out in Section 6.2(1) of the
Exchangeable Share Provisions.
"RETRACTION PRICE" has the meaning set out in Section 6.1(1) of the
Exchangeable Share Provisions.
"SUBSIDIARY" of Homestake means any corporation more than 50% of the
outstanding stock of which, by vote or value, is owned, directly or
indirectly, by Homestake, by one or more other Subsidiaries of Homestake or
by Homestake and one or more other Subsidiaries of Homestake.
"TRANSFER AGENT" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
"TRUST" means the trust created by this trust agreement.
"TRUST ESTATE" means the Voting Share, any other securities, the
Exchange Right and any money or other rights or assets that may be held by
the Trustee from time to time pursuant to this trust agreement.
"TRUSTEE" means Montreal Trust Company of Canada and, subject to the
provisions of Article 10 hereof, includes any successor trustee or permitted
assigns.
"VOTING RIGHTS" means the voting rights attached to the Voting Share.
"VOTING SHARE" means the one share of Special Voting Stock of Homestake,
par value (U.S.) $1.00, issued by Homestake to and deposited with the
Trustee, which entitles the holder of record to a number of votes at
meetings of holders of Homestake Common Stock equal to the number of
Exchangeable Shares outstanding from time to time that are held by
Non-Affiliated Holders.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
trust agreement into articles and Sections and the insertion of headings are for
reference purposes only and shall not affect the interpretation of this trust
agreement. Unless otherwise indicated, any reference in this trust agreement to
an article or Section refers to the specified article or Section of this trust
agreement.
1.3 NUMBER, GENDER AND PERSONS. In this trust agreement, unless the
context otherwise requires, words importing the singular number include the
plural and vice versa, words importing any gender include all genders and words
importing persons include individuals, corporations, partnerships, companies,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entitles of any kind.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this trust agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
1.5 PAYMENTS. All payments to be made hereunder will be made without
interest and less any tax required by law to be deducted and withheld.
E-9
<PAGE>
ARTICLE 2
TRUST
2.1 ESTABLISHMENT OF TRUST. One of the purposes of this trust agreement is
to create the Trust for the benefit of the Non-Affiliated Holders, as herein
provided. The Trustee will hold the Voting Share in order to enable the Trustee
to exercise the Voting Rights and will hold the Exchange Right in order to
enable the Trustee to exercise such right and will hold the other rights granted
in or resulting from the Trustee being a party to this trust agreement in order
to enable the Trustee to exercise or enforce such rights, in each case as
trustee for and on behalf of the Non-Affiliated Holders as provided in this
trust agreement.
ARTICLE 3
VOTING SHARE
3.1 ISSUE AND OWNERSHIP OF VOTING SHARE. Simultaneously with the execution
and delivery of this trust agreement, Homestake will issue to and deposit with
the Trustee the Voting Share to be hereafter held at all times of record by the
Trustee as trustee for and on behalf of, and for the use and benefit of, the
Non-Affiliated Holders, in accordance with the provisions of this trust
agreement. Homestake hereby acknowledges receipt from the Trustee as trustee for
and on behalf of the Non-Affiliated Holders of good and valuable consideration
(and the adequacy thereof) for the issuance of the Voting Share by Homestake to
the Trustee. During the term of the Trust and subject to the terms and
conditions of this trust agreement, the Trustee shall possess and be vested with
full legal ownership of the Voting Share and shall be entitled to exercise all
of the rights and powers of an owner with respect to the Voting Share, provided
that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely for
the use and benefit of the Non-Affiliated Holders in accordance with the
provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no power
or authority to sell, transfer, vote or otherwise deal in or with the
Voting Share, and the Voting Share shall not be used or disposed of by
the Trustee for any purpose other than the purposes for which the Trust
is created pursuant to this trust agreement.
3.2 LEGENDED SHARE CERTIFICATE. HCI will cause each certificate
representing Exchangeable Shares to bear an appropriate legend notifying the
Non-Affiliated Holders of their right to instruct the Trustee with respect to
the exercise of the Voting Rights with respect to the Exchangeable Shares held
by a Non-Affiliated Holder.
3.3 SAFEKEEPING OF CERTIFICATE. The certificate representing the Voting
Share shall at all times be held in safe keeping by the Trustee or its agent.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 VOTING RIGHTS. The Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the Voting Rights, including the right to
give consent or to vote in person or by proxy on any matter, question or
proposition whatsoever that may come before the stockholders of Homestake at a
Homestake Meeting or in connection with a Homestake Consent. The Voting Rights
shall be and remain vested in and exercised by the Trustee. Subject to Section
7.15 hereof, the Trustee shall exercise the Voting Rights only on the basis of
instructions received pursuant to this Article 4 from Non-Affiliated Holders
entitled to instruct the Trustee as to the voting thereof at the time at which
the Homestake Consent is sought or the Homestake Meeting is held. To the extent
that no instructions are received from a Non-Affiliated Holder with respect to
the Voting Rights to which such Non-Affiliated Holder is entitled, the Trustee
shall not
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exercise or permit the exercise of the Voting Rights relating to such
Non-Affiliated Holder's Exchangeable Shares.
4.2 NUMBER OF VOTES. With respect to all meetings of stockholders of
Homestake at which holders of shares of Homestake Common Stock are entitled to
vote (a "Homestake Meeting") and with respect to all written consents sought
from the holders of shares of Homestake Common Stock (a "Homestake Consent"),
each Non-Affiliated Holder shall be entitled to instruct the Trustee to cast and
exercise, in the manner instructed, one vote for each Exchangeable Share owned
of record by such Non-Affiliated Holder on the record date established by
Homestake or by applicable law for such Homestake Meeting or Homestake Consent,
as the case may be (the "Non-Affiliated Holder Votes") in respect of each
matter, question or proposition to be voted on at such Homestake Meeting or to
be consented to in connection with such Homestake Consent.
4.3 MAILINGS TO SHAREHOLDERS. With respect to each Homestake Meeting and
Homestake Consent, the Trustee will mail or cause to be mailed (or otherwise
communicate in the same manner that Homestake utilizes in communications to
holders of Homestake Common Stock, subject to the Trustee being advised in
writing of such method and its ability to provide this method of communication)
to each of the Non-Affiliated Holders named in the List on the same day as the
initial mailing or notice (or other communication) with respect thereto is given
by Homestake to its stockholders:
(a) a copy of such notice, together with any proxy or information statement
and related materials to be provided to stockholders of Homestake;
(b) a statement that such Non-Affiliated Holder is entitled, subject to the
provisions of Section 4.7 hereof, to instruct the Trustee as to the
exercise of the Non-Affiliated Holder Votes with respect to such
Homestake Meeting or Homestake Consent, as the case may be, or, pursuant
and subject to Section 4.7 hereof, to attend such Homestake Meeting and
to exercise personally the Non-Affiliated Holder Votes thereat;
(c) a statement as to the manner in which such instructions may be given to
the Trustee, including an express indication that instructions may be
given to the Trustee to give:
(i) a proxy to such Non-Affiliated Holder or its designee to exercise
personally such holder's Non-Affiliated Holder Votes; or
(ii) a proxy to a designated agent or other representative of the
management of Homestake to exercise such Non-Affiliated Holder
Votes;
(d) a statement that if no such instructions are received from the
Non-Affiliated Holder, the Non-Affiliated Holder Votes to which such
Non-Affiliated Holder is entitled will not be exercised;
(e) a form of direction whereby the Non-Affiliated Holder may so direct and
instruct the Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such instructions must be
received by the Trustee in order to be binding upon it, which in the case
of a Homestake Meeting shall not be earlier than the close of business on
the second Business Day prior to such meeting, and (ii) the method for
revoking or amending such instructions.
The materials referred to above are to be provided by Homestake to the
Trustee, and but for the materials referenced in paragraph (a) shall be subject
to review and comment by the Trustee. For the purpose of determining
Non-Affiliated Holder Votes to which a Non-Affiliated Holder is entitled in
respect of any such Homestake Meeting or Homestake Consent, the number of
Exchangeable Shares owned of record by the Non-Affiliated Holder shall be
determined at the close of business on the record date established by Homestake
or by applicable law for purposes of determining the stockholders entitled
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to vote at such Homestake Meeting or to give written consent in connection with
such Homestake Consent. Homestake will notify the Trustee in writing of any
decision of the board of directors of Homestake with respect to the calling of
any such Homestake Meeting or the seeking of any such Homestake Consent and the
setting of a record date and shall provide all necessary information and
materials to the Trustee in each case promptly and in any event in sufficient
time to enable the Trustee to perform its obligations contemplated by this
Section 4.3.
4.4 COPIES OF STOCKHOLDER INFORMATION. Homestake will deliver to the
Trustee copies of all proxy materials (including notices of Homestake Meetings
but excluding proxies to vote shares of Homestake Common Stock), information
statements, reports (including without limitation all interim and annual
financial statements) and other written communications that are to be
distributed to holders of Homestake Common Stock, in sufficient quantities and
in sufficient time so as to enable the Trustee to send those materials to each
Non-Affiliated Holder at the same time as such materials are first sent to
holders of Homestake Common Stock. The Trustee will mail or otherwise send to
each Non-Affiliated Holder, at the expense of Homestake, copies of all such
materials (and all materials specifically directed to the Non-Affiliated Holders
or to the Trustee for the benefit of the Non-Affiliated Holders by Homestake)
received by the Trustee from Homestake at the same time as such materials are
first sent to holders of Homestake Common Stock. The Trustee will make copies of
all such materials available for inspection by any Non-Affiliated Holder at the
Trustee's principal office in the cities of Toronto and Vancouver.
4.5 OTHER MATERIALS. Immediately after receipt by Homestake of any
material to be sent or given generally to the holders of Homestake Common Stock
by or on behalf of a third party, including without limitation dissident proxy
and information circulars (and related information and material) and tender and
exchange offer circulars (and related information and material), Homestake shall
use reasonable efforts to obtain and deliver to the Trustee copies thereof in
sufficient quantities so as to enable the Trustee to forward such material
(unless the same has been provided to the Trustee or sent directly to
Non-Affiliated Holders by such third party) to each Non-Affiliated Holder as
soon as practicable thereafter. As soon as practicable after receipt thereof,
the Trustee will mail or otherwise send to each Non-Affiliated Holder, at the
expense of Homestake, copies of all such materials received by the Trustee from
Homestake. The Trustee will also make copies of all such materials available for
inspection by any Non-Affiliated Holder at the Trustee's principal office in the
cities of Toronto and Vancouver.
4.6 LIST OF PERSONS ENTITLED TO VOTE. HCI shall, (a) prior to each annual,
general and special Homestake Meeting or the seeking of any Homestake Consent
and (b) forthwith upon each request made at any time by the Trustee in writing,
prepare or cause to be prepared a list (a "List") of the names and addresses of
the Non-Affiliated Holders arranged in alphabetical order and showing the number
of Exchangeable Shares held of record by each such Non-Affiliated Holder, in
each case at the close of business on the date specified by the Trustee in such
request or, in the case of a List prepared in connection with a Homestake
Meeting or a Homestake Consent, at the close of business on the record date
established by Homestake or pursuant to applicable law for determining the
holders of Homestake Common Stock entitled to receive notice of and/or to vote
at such Homestake Meeting or to give consent in connection with such Homestake
Consent. Each such List shall be delivered to the Trustee promptly after receipt
by HCI of such request or the record date for such meeting or seeking of
consent, as the case may be, and, in any event, within sufficient time as to
enable the Trustee to perform its obligations under this trust agreement.
Homestake agrees to give HCI written notice (with a copy to the Trustee) of the
calling of any Homestake Meeting or the seeking of any Homestake Consent,
together with the record dates therefor, sufficiently prior to the date of the
calling of such meeting or seeking of such consent so as to enable HCI to
perform its obligations under this Section 4.6.
4.7 ENTITLEMENT TO DIRECT VOTES. Any Non-Affiliated Holder named in a List
prepared in connection with any Homestake Meeting or any Homestake Consent will
be entitled (a) to instruct the Trustee in the manner described in Section 4.3
hereof with respect to the exercise of the Non-Affiliated Holder Votes to which
such Non-Affiliated Holder is entitled or (b) to attend such meeting and
personally to exercise
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thereat (or to exercise with respect to any written consent), as the proxy of
the Trustee, the Non-Affiliated Holder Votes as to which such Non-Affiliated
Holder is entitled to instruct the Trustee.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT
MEETING.
(1) In connection with each Homestake Meeting and Homestake Consent, the
Trustee shall exercise, either in person or by proxy, in accordance with
the instructions received from a Non-Affiliated Holder pursuant to
Section 4.3 hereof, the Non-Affiliated Holder Votes as to which such Non-
Affiliated Holder is entitled to instruct the Trustee (or any lesser
number thereof as may be set forth in the instructions); provided,
however, that such written instructions are received by the Trustee from
the Non-Affiliated Holder prior to the time and date fixed by it for
receipt of such instructions in the statement given by the Trustee to the
Non-Affiliated Holder pursuant to Section 4.3 hereof.
(2) The Trustee shall cause such representatives as are empowered by it to
sign and deliver, on behalf of the Trustee, proxies for Voting Rights
enabling a Non-Affiliated Holder to attend each Homestake Meeting. Upon
submission by a Non-Affiliated Holder (or its designee) of identification
satisfactory to the Trustee's representatives, and at the Non-Affiliated
Holder's request, such representatives shall sign and deliver to such
Non-Affiliated Holder (or its designee) a proxy to exercise personally
the Non-Affiliated Holder Votes as to which such Non-Affiliated Holder is
otherwise entitled hereunder to direct the vote at any Homestake Meeting,
if such Non-Affiliated Holder either (i) has not previously given the
Trustee instructions pursuant to Section 4.3 hereof in respect of such
meeting, or (ii) submits to the Trustee's representatives written
revocation of any such previous instructions. At such meeting, the
Non-Affiliated Holder exercising such Non-Affiliated Holder Votes shall
have the same right as the Trustee to speak at the meeting in respect of
any matter, question or proposition, to vote by way of ballot at the
meeting in respect of any matter, question or proposition and to vote at
such meeting by way of a show of hands in respect of any matter, question
or proposition.
4.9 DISTRIBUTION OF WRITTEN MATERIALS. Any written materials to be
distributed by the Trustee to the Non-Affiliated Holders pursuant to this trust
agreement shall be delivered or sent by mail (or otherwise communicated in the
same manner as Homestake utilizes in communications to holders of Homestake
Common Stock, subject to the Trustee being advised in writing of such method of
communication and its ability to provide same) to each Non-Affiliated Holder at
its address as shown on the share register of HCI. HCI shall provide or cause to
be provided to the Trustee for this purpose, on a timely basis and without
charge or other expense:
(a) current lists of the Non-Affiliated Holders; and
(b) upon the request of the Trustee, mailing labels to enable the Trustee to
carry out its duties under this trust agreement;
The materials referred to above are to be provided by Homestake to the
Trustee, but shall be subject to review and comment by the Trustee.
4.10 TERMINATION OF VOTING RIGHTS. All the rights of a Non-Affiliated
Holder with respect to the Non-Affiliated Holder Votes exercisable in respect of
the Exchangeable Shares held by such Non-Affiliated Holder, including the right
to instruct the Trustee as to the voting of or to vote personally such Non-
Affiliated Holder Votes, shall be deemed to be surrendered by the Non-Affiliated
Holder to Homestake and such Non-Affiliated Holder Votes and the Voting Rights
represented thereby shall cease immediately upon the delivery by such
Non-Affiliated Holder to the Trustee of the certificates representing such
Exchangeable Shares in connection with the exercise by the Non-Affiliated Holder
of the Exchange Right or the occurrence of the automatic exchange of
Exchangeable Shares for shares of Homestake Common Stock, as specified in
Article 5 hereof, or upon the redemption of Exchangeable Shares pursuant to
Article 6 or Article 7 of the Exchangeable Share Provisions, or upon the
effective date of the liquidation,
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dissolution or winding up of HCI pursuant to Article 5 of the Exchangeable Share
Provisions, or upon the purchase of Exchangeable Shares from the holder thereof
by Homestake or Holdco pursuant to the exercise by Homestake or Holdco of the
Retraction Call Right, the Redemption Call Right or the Liquidation Call Right
(unless in any case HCI, Homestake or Holdco shall not have delivered the
requisite shares of Homestake Common Stock and cheque, if any, deliverable in
exchange therefor to the Transfer Agent or the Trustee for delivery to the
Non-Affiliated Holders).
ARTICLE 5
EXCHANGE RIGHT AND HOMESTAKE SUPPORT
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. Homestake hereby grants to
the Trustee as trustee for and on behalf of, and for the use and benefit of, the
Non-Affiliated Holders the right (the "Exchange Right"), upon the occurrence and
during the continuance of an Insolvency Event, to require Homestake to purchase
from each Non-Affiliated Holder all or any part of the Exchangeable Shares held
by the Non-Affiliated Holder, all in accordance with the provisions of this
trust agreement. Homestake hereby acknowledges receipt from the Trustee, as
trustee for and on behalf of the Non-Affiliated Holders, of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right by
Homestake to the Trustee. During the term of the Trust and subject to the terms
and conditions of this trust agreement, the Trustee shall possess and be vested
with full legal ownership of the Exchange Right and shall be entitled to
exercise all of the rights and powers of an owner with respect to the Exchange
Right, provided that the Trustee shall:
(a) hold the Exchange Right and the legal title thereto as trustee solely
for the use and benefit of the Non-Affiliated Holders in accordance with
the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no power
or authority to exercise or otherwise deal in or with the Exchange Right,
and the Trustee shall not exercise such right for any purpose other than
the purposes for which this Trust is created pursuant to this trust
agreement.
5.2 LEGENDED SHARE CERTIFICATE. HCI will cause each certificate
representing Exchangeable Shares to bear an appropriate legend notifying the
Non-Affiliated Holders of their right to instruct the Trustee with respect to
the exercise of the Exchange Right in respect of the Exchangeable Shares held by
a Non-Affiliated Holder.
5.3 GENERAL EXERCISE OF EXCHANGE RIGHT. The Exchange Right shall be and
remain vested in and exercisable by the Trustee. Subject to Section 7.15 hereof,
the Trustee shall exercise the Exchange Right only on the basis of instructions
received pursuant to this Article 5 from Non-Affiliated Holders entitled to
instruct the Trustee as to the exercise thereof. To the extent that no
instructions are received from a Non-Affiliated Holder with respect to the
Exchange Right, the Trustee shall not exercise or permit the exercise of the
Exchange Right.
5.4 PURCHASE PRICE. The purchase price payable by Homestake for each
Exchangeable Share to be purchased by Homestake under the Exchange Right shall
be an amount per share equal to (a) the Current Market Price of a share of
Homestake Common Stock on the last Business Day prior to the day of closing of
the purchase and sale of such Exchangeable Share under the Exchange Right, which
shall be satisfied in full by causing to be delivered to such holder one share
of Homestake Common Stock plus (b) the Dividend Amount, if any. The purchase
price for each such Exchangeable Share so purchased may be satisfied only by
Homestake delivering or causing to be delivered to the Trustee, on behalf of the
relevant Non-Affiliated Holder, one share of Homestake Common Stock and a cheque
for the balance, if any, of the purchase price.
5.5 EXERCISE INSTRUCTIONS. Subject to the terms and conditions herein set
forth, a Non-Affiliated Holder shall be entitled, upon the occurrence and during
the continuance of an Insolvency Event, to
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instruct the Trustee to exercise the Exchange Right with respect to all or any
part of the Exchangeable Shares registered in the name of such Non-Affiliated
Holder on the books of HCI. To cause the exercise of the Exchange Right by the
Trustee, the Non-Affiliated Holder shall deliver to the Trustee, in person or by
certified or registered mail, at its principal office in Vancouver, British
Columbia or at such other places in Canada as the Trustee may from time to time
designate by written notice to the Non-Affiliated Holders, the certificates
representing the Exchangeable Shares which such Non-Affiliated Holder desires
Homestake to purchase, duly endorsed in blank, and accompanied by such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the BUSINESS CORPORATIONS ACT (Ontario) and the
by-laws of HCI and such additional documents and instruments as the Trustee and
HCI may reasonably require together with (a) a duly completed form of notice of
exercise of the Exchange Right, contained on the reverse of or attached to the
Exchangeable Share certificates, stating (i) that the Non-Affiliated Holder
thereby instructs the Trustee to exercise the Exchange Right so as to require
Homestake to purchase from the Non-Affiliated Holder the number or Exchangeable
Shares specified therein, (ii) that such Non-Affiliated Holder has good title to
and owns all such Exchangeable Shares to be acquired by Homestake free and clear
of all liens, claims and encumbrances, (iii) the names in which the certificates
representing Homestake Common Stock issuable in connection with the exercise of
the Exchange Right are to be issued and (iv) the names and addresses of the
persons to whom such new certificates should be delivered and (b) payment (or
evidence satisfactory to the Trustee, HCI and Homestake of payment) of the taxes
(if any) payable as contemplated by Section 5.8 of this trust agreement. If only
a portion of the Exchangeable Shares represented by any certificate delivered to
the Trustee are to be purchased by Homestake under the Exchange Right, a new
certificate for the balance of such Exchangeable Shares shall be issued to the
holder at the expense of HCI.
5.6 DELIVERY OF HOMESTAKE COMMON STOCK; EFFECT OF EXERCISE. Promptly after
receipt of the certificates representing the Exchangeable Shares that a
Non-Affiliated Holder desires Homestake to purchase under the Exchange Right
(together with such documents and instruments of transfer and a duly completed
form of notice of exercise of the Exchange Right and payment of taxes payable as
contemplated by Section 5.8, if any, or evidence thereof), duly endorsed for
transfer to Homestake, the Trustee shall notify Homestake and HCI of its receipt
of the same, which notice to Homestake and HCI shall constitute exercise of the
Exchange Right by the Trustee on behalf of the holder of such Exchangeable
Shares, and Homestake shall immediately thereafter deliver or cause to be
delivered to the Trustee, for delivery to the Non-Affiliated Holder of such
Exchangeable Shares (or to such other persons, if any, properly designated by
such Non-Affiliated Holder), a certificate for the number of shares of Homestake
Common Stock deliverable in connection with such exercise of the Exchange Right
(which shares shall be duly issued as fully paid and non-assessable and shall be
free and clear of any lien, claim or encumbrance, security interest or adverse
claim) and a cheque for the balance, if any, of the purchase price therefor;
provided, however, that no such delivery shall be made unless and until the
Non-Affiliated Holder requesting the same shall have paid (or provided evidence
satisfactory to the Trustee, HCI and Homestake of the payment of) the taxes (if
any) payable as contemplated by Section 5.8 of this trust agreement. Immediately
upon the giving of notice by the Trustee to Homestake and HCI of the exercise of
the Exchange Right, as provided in this Section 5.6, the closing of the
transaction of purchase and sale contemplated by the Exchange Right shall be
deemed to have occurred, and the Non-Affiliated Holder of such Exchangeable
Shares shall be deemed to have transferred to Homestake all of its right, title
and interest in and to such Exchangeable Shares and the related interest in the
Trust Estate and shall not be entitled to exercise any of the rights of a holder
in respect thereof, other than the right to receive its proportionate part of
the total purchase price therefor, unless the requisite number of shares of
Homestake Common Stock (together with a cheque for the balance, if any, of the
total purchase price therefor) is not delivered by Homestake to the Trustee, for
delivery to such Non-Affiliated Holder (or to such other persons, if any,
properly designated by such Non-Affiliated Holder), within five Business Days of
the date of the giving of such notice by the Trustee, in which case the rights
of the Non-Affiliated Holder shall remain unaffected until such shares of
Homestake Common Stock are so delivered by Homestake and any such cheque is so
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delivered and paid. Concurrently with the closing of the transaction of purchase
and sale contemplated by the Exchange Right, such Non-Affiliated Holder shall be
considered and deemed for all purposes to be the holder of the shares of
Homestake Common Stock delivered to it pursuant to the Exchange Right.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the event that
a Non-Affiliated Holder has exercised its right under Article 6 of the
Exchangeable Share Provisions to require HCI to redeem any or all of the
Exchangeable Shares held by the Non-Affiliated Holder (the "Retracted Shares")
and is notified by HCI pursuant to Section 6.1(4) of the Exchangeable Share
Provisions that HCI will not be permitted as a result of solvency requirements
of applicable law to redeem all such Retracted Shares, subject to receipt by the
Trustee of written notice to that effect from HCI and provided that neither
Homestake nor Holdco shall have exercised its Retraction Call Right with respect
to the Retracted Shares and that the Non-Affiliated Holder shall not have
revoked the retraction request delivered by the Non-Affiliated Holder to HCI
pursuant to Section 6.1(5) of the Exchangeable Share Provisions, the retraction
request will constitute and will be deemed to constitute notice from the
Non-Affiliated Holder to the Trustee instructing the Trustee to exercise the
Exchange Right with respect to those Retracted Shares that HCI is unable to
redeem. In any such event, HCI hereby agrees with the Trustee and in favour of
the Non-Affiliated Holder immediately to notify the Trustee of such prohibition
against HCI redeeming all of the Retracted Shares and immediately to forward or
cause to be forwarded to the Trustee all relevant materials delivered by the
Non-Affiliated Holder to HCI or to the Transfer Agent (including without
limitation a copy of the retraction request delivered pursuant to Section 6.1(1)
of the Exchangeable Shares Provisions) in connection with such proposed
redemption of the Retracted Shares and the Trustee will thereupon exercise the
Exchange Right with respect to the Retracted Shares that HCI is not permitted to
redeem and will require Homestake to purchase such shares in accordance with the
provisions of this Article 5.
5.8 STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable Shares to
Homestake pursuant to the Exchange Right, the share certificate or certificates
representing the Homestake Common Stock to be delivered in connection with the
payment of the total purchase price therefor shall be issued in the name of the
Non-Affiliated Holder of the Exchangeable Shares so sold or in such names as
such Non-Affiliated Holder may otherwise direct in writing without charge to the
holder of the Exchangeable Shares so sold; provided, however, that such
Non-Affiliated Holder (a) shall pay (and neither Homestake, HCI nor the Trustee
shall be required to pay) any documentary, stamp, transfer or other similar
taxes that may be payable in respect of any transfer involved in the issuance or
delivery of such shares to a person other than such Non-Affiliated Holder or (b)
shall have established to the satisfaction of the Trustee, Homestake and HCI
that such taxes, if any, have been paid.
5.9 NOTICE OF INSOLVENCY EVENT. Immediately upon the occurrence of an
Insolvency Event or any event that with the giving of notice or the passage of
time or both would be an Insolvency Event, HCI and Homestake shall give written
notice thereof to the Trustee. As soon as practicable after receiving notice
from HCI or Homestake or from any other person of the occurrence of an
Insolvency Event, the Trustee will mail to each Non-Affiliated Holder, at the
expense of Homestake, a notice of such Insolvency Event in the form provided by
Homestake, which notice shall contain a brief statement of the right of the Non-
Affiliated Holders with respect to the Exchange Right.
5.10 HOMESTAKE SUPPORT OF HOLDCO. Homestake will act to ensure that Holdco
will exercise its rights under the Liquidation Call Right, the Redemption Call
Right and the Retraction Call Right only in circumstances where Holdco is able
to perform in accordance with applicable law, its obligations with respect to
the Liquidation Call Right, the Redemption Call Right and the Retraction Call
Right, including without limitation, the delivery of Homestake Common Stock to
the holders of Exchangeable Shares in accordance with the Plan of Arrangement
including the Exchangeable Share Provisions. All shares of Homestake Common
Stock delivered to or to the order of a former holder of surrendered
Exchangeable Shares shall be duly issued as fully paid, non-assessable, free of
pre-emptive rights and shall be free and clear of any lien claim, encumbrance,
security interest or adverse claim.
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5.11 CALL RIGHTS. The Liquidation Call Right, the Redemption Call Right,
the Retraction Call Right and the Automatic Exchange Right are hereby agreed,
acknowledged and confirmed, and it is agreed and acknowledged that such rights
are granted in part in consideration of the obligations of Homestake under this
trust agreement.
ARTICLE 6
COVENANTS, REPRESENTATIONS AND WARRANTIES
6.1 COVENANTS OF HOMESTAKE REGARDING EXCHANGEABLE SHARES. So long as any
Exchangeable Shares are outstanding Homestake will:
(a) not declare or pay any dividend on the Homestake Common Stock unless (i)
HCI will have sufficient money or other assets or authorized but unissued
securities available to enable the due declaration and the due and
punctual payment in accordance with applicable law, of an equivalent
dividend on the Exchangeable Shares and (ii) HCI shall simultaneously
declare or pay, as the case may be, an equivalent dividend on the
Exchangeable Shares;
(b) advise HCI sufficiently in advance of the declaration by Homestake of
any dividend on the Homestake Common Stock and take all such other
actions as are necessary, in cooperation with HCI, to ensure that the
respective declaration date, record date and payment date for a dividend
on the Exchangeable Shares shall be the same as the declaration date,
record date and payment date for the corresponding dividend on the
Homestake Common Stock and that such dividend on the Exchangeable Shares
shall correspond with any requirements of the stock exchange(s) on which
the Exchangeable Shares are listed;
(c) ensure that the record date for determining shareholders entitled to
receive any dividend declared on the Homestake Common Stock is not less
than 10 Business Days after the declaration date for such dividend or
such shorter period within which applicable law may be complied with;
(d) take all such actions and do all such things as are necessary or
desirable to enable and permit HCI, in accordance with applicable law, to
pay and otherwise perform its obligations with respect to the
satisfaction of the Liquidation Amount in respect of each issued and
outstanding Exchangeable Share upon the liquidation, dissolution or
winding up of HCI, including without limitation all such actions and all
such things as are necessary or desirable to enable and permit HCI to
cause to be delivered shares of Homestake Common Stock to the holders of
Exchangeable Shares in accordance with the provisions of Article 5 of the
Exchangeable Share Provisions;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit HCI, in accordance with applicable law, to
pay and otherwise perform its obligations with respect to the
satisfaction of the Retraction Price and the Redemption Price, including
without limitation all such actions and all such things as are necessary
or desirable to enable and permit HCI to cause to be delivered shares of
Homestake Common Stock to the holders of Exchangeable Shares, upon the
retraction or redemption of the Exchangeable Shares in accordance with
the provisions of Article 6 or Article 7 of the Exchangeable Share
Provisions as the case may be;
(f) use its best efforts to enable HCI to maintain the listing of the
Exchangeable Shares on The Toronto Stock Exchange or another stock
exchange in Canada prescribed under Section 3200 of the Regulation under
the INCOME TAX ACT (Canada); and
(g) not exercise its vote as a shareholder to initiate the voluntary
liquidation, dissolution or winding up of HCI nor take any action or omit
to take any action that is designed to result in the liquidation,
dissolution or winding up of HCI.
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6.2 SEGREGATION OF FUNDS. Homestake will cause HCI to deposit a sufficient
amount of funds in a separate account and segregate a sufficient amount of such
other assets as is necessary to enable HCI to pay or otherwise satisfy the
applicable dividends, Liquidation Amount, Retraction Price or Redemption Price,
in each case for the benefit of Non-Affiliated Holders from time to time of the
Exchangeable Shares, and to use such funds and other assets so segregated
exclusively for the payment of dividends and the payment or other satisfaction
of the Liquidation Amount, the Retraction Price or the Redemption Price, as
applicable.
6.3 CERTAIN REPRESENTATIONS. Homestake hereby represents, warrants and
covenants that it has irrevocably reserved for issuance and will at all times
keep available for issuance hereunder or under the Exchangable Share Provisions,
free from pre-emptive and other rights, out of its authorized and unissued
capital stock such number of shares of Homestake Common Stock (or other shares
or securities into which the Homestake Common Stock may be reclassified or
changed as contemplated by Section 6.7 hereof) (i) as is equal to the sum of (x)
the number of Exchangeable Shares issued and outstanding from time to time and
(y) the number of Exchangeable Shares issuable upon the exercise of all rights
to acquire Exchangeable Shares outstanding from time to time and (ii) as are now
and may hereafter be required to enable and permit each of HCI, Homestake and
Holdco to meet its obligations hereunder and under the Exchangeable Share
Provisions.
6.4 NOTIFICATION OF CERTAIN EVENTS. In order to assist Homestake to comply
with its obligations hereunder, HCI will give Homestake notice of each of the
following events at the time set forth below:
(a) in the event of any determination by the Board of Directors to institute
voluntary liquidation, dissolution or winding up proceedings with respect
to HCI or to effect any other distribution of the assets of HCI among its
shareholders for the purpose of winding up its affairs, at least 60 days
prior to the proposed effective date of such liquidation, dissolution,
winding up or other distribution;
(b) immediately, upon the earlier of (i) receipt by HCI of notice of, and
(ii) HCI otherwise becoming aware of, any threatened or instituted claim,
suit, petition or other proceedings with respect to the involuntary
liquidation, dissolution or winding up of HCI or to effect any other
distribution of the assets of HCI among its shareholders for the purpose
of winding up its affairs;
(c) immediately, upon receipt by HCI of a Retraction Request (as defined in
the Exchangeable Share Provisions);
(d) at least 130 days prior to any Optional Redemption Date determined by
the Board of Directors in accordance with the Exchangeable Share
Provisions; and
(e) as soon as practicable upon the issuance by HCI of any Exchangeable
Shares or rights to acquire Exchangeable Shares.
6.5 DELIVERY OF SHARES OF HOMESTAKE COMMON STOCK. Upon notice of any event
that requires HCI to cause to be delivered shares of Homestake Common Stock to
any holder of Exchangeable Shares, Homestake shall, in any manner deemed
appropriate by it, provide such shares or cause such shares to be provided to
HCI, which shall forthwith deliver the requisite shares of Homestake Common
Stock to or to the order of the former holder of the surrendered Exchangeable
Shares as HCI shall direct. All such shares of Homestake Common Stock shall be
duly issued as fully paid, non-assessable, free of pre-emptive rights and shall
be free and clear of any lien, claim, encumbrance, security interest or adverse
claim.
6.6 QUALIFICATION OF SHARES OF HOMESTAKE COMMON STOCK. Homestake covenants
that if any shares of Homestake Common Stock (or other shares or securities into
which Homestake Common Stock may be reclassified or changed as contemplated by
Section 6.7 hereof) to be issued and delivered hereunder, the Exchangeable Share
Provisions or the Exchange Right, require registration or qualification with or
approval of or the filing of any document including any prospectus or similar
document or the taking of any proceeding with or the obtaining of any order,
ruling or consent from any governmental or regulatory
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authority under any Canadian or United States federal, provincial or state law
or regulation or pursuant to the rules and regulations of any regulatory
authority or the fulfillment of any other legal requirement (collectively, the
"Applicable Laws") before such shares (or other shares or securities into which
Homestake Common Stock may be reclassified or changed as contemplated by Section
6.7 hereof) may be issued and delivered by Homestake to the initial holder
thereof or in order that such shares may be freely traded thereafter (other than
any restrictions on transfer by reason of a holder being a "control person" of
Homestake for purposes of Canadian federal or provincial securities law or an
"affiliate" of Homestake or, prior to the Effective Date, of Prime for purposes
of United States federal or state securities law), Homestake will in good faith
expeditiously take all such actions and do all such things as are necessary to
cause such shares of Homestake Common Stock (or other shares or securities into
which Homestake Common Stock may be reclassified or changed as contemplated by
Section 6.7 hereof) to be and remain duly registered, qualified or approved.
Homestake represents and warrants that it has in good faith taken all actions
and done all things necessary under Applicable Laws as they exist on the date
hereof to cause the shares of Homestake Common Stock (or other shares or
securities into which Homestake Common Stock may be reclassified or changed as
contemplated by Section 6.7 hereof) to be issued and delivered hereunder,
including for greater certainty, pursuant to the Plan of Arrangement, the
Exchangeable Share Provisions or the Exchange Right, to be freely tradeable
thereafter (other than restrictions on transfer by reason of a holder being a
"control person" of Homestake for the purposes of Canadian federal and
provincial securities law or an "affiliate" of Homestake or, prior to the
Effective Date, of Prime for the purposes of United States federal or state
securities law). Homestake will in good faith expeditiously take all such
actions and do all such things necessary to cause all shares of Homestake Common
Stock (or other shares or securities into which Homestake Common Stock may be
reclassified or changed as contemplated by Section 6.7 hereof) to be delivered
hereunder, including for greater certainty, pursuant to the Plan of Arrangement,
the Exchangeable Share Provisions or the Exchange Right, to be listed, quoted or
posted for trading on all stock exchanges and quotation systems on which other
outstanding shares of Homestake Common Stock are listed, quoted or posted for
trading at such time. Homestake will in good faith expeditiously take all such
action and do all such things as are necessary to cause all Exchangeable Shares
to be listed and posted for trading on a stock exchange in Canada prescribed
under the INCOME TAX ACT (Canada).
6.7 ECONOMIC EQUIVALENCE.
(1) Homestake will not without the prior approval of HCI and the prior
approval of the holders of the Exchangeable Shares given in accordance
with Section 9.2 of the Exchangeable Share Provisions:
(a) issue or distribute shares of Homestake Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire
shares of Homestake Common Stock) to the holders of all or
substantially all of the then outstanding Homestake Common Stock by
way of stock dividend or other distribution, other than an issue of
shares of Homestake Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of Homestake
Common Stock) to holders of shares of Homestake Common Stock who
exercise an option to receive dividends in Homestake Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Homestake Common Stock) in lieu of receiving cash
dividends;
(b) issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding shares of Homestake
Common Stock entitling them to subscribe for or to purchase shares of
Homestake Common Stock (or securities exchangeable for or convertible
into or carrying rights to acquire shares of Homestake Common Stock);
or
(c) issue or distribute to the holders of all or substantially all of the
then out standing shares of Homestake Common Stock (i) shares or
securities of Homestake of any class other than Homestake Common
Stock (other than shares convertible into or exchangeable for or
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carrying rights to acquire shares of Homestake Common Stock), (ii)
rights, options or warrants other than those referred to in Section
6.7(1)(b) above, (iii) evidences of indebtedness of Homestake or (iv)
assets of Homestake;
unless (x) HCI is permitted under applicable law to issue or
distribute the economic equivalent on a per share basis of such
rights, options, securities, shares, evidences of indebtedness or
other assets to holders of the Exchangeable Shares and (y) HCI shall
issue or distribute such rights, options, securities, shares,
evidences of indebtedness or other assets simultaneously to holders
of the Exchangeable Shares.
(2) Homestake will not without the prior approval of HCI and the prior
approval of the holders of the Exchangeable Shares given in accordance
with Section 9.2 of the Exchangeable Share Provisions:
(a) subdivide, redivide or change the then outstanding shares of
Homestake Common Stock into a greater number of shares of Homestake
Common Stock; or
(b) reduce, combine or consolidate or change the then outstanding shares
of Homestake Common Stock into a lesser number of shares of Homestake
Common Stock; or
(c) reclassify or otherwise change the shares of Homestake Common Stock
or effect an amalgamation, merger, reorganization or other
transaction affecting the shares of Homestake Common Stock;
unless (x) HCI is permitted under applicable law to simultaneously make
the same or an economically equivalent change to, or in the rights of
holders of, the Exchangeable Shares and (y) the same or an economically
equivalent change is made to, or in the rights of the holders of, the
Exchangeable Shares.
(3) Homestake will ensure that the record date for any event referred to in
Section 6.7(1) or 6.7(2) above, or (if no record date is applicable for
such event) the effective date for any such event, is not less than 10
Business Days after the date on which such event is declared or announced
by Homestake (with simultaneous notice thereof to be given by Homestake
to HCI).
(4) The Board of Directors shall determine, in good faith and in its sole
discretion (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the board may
require), economic equivalence for the purposes of any event referred to
in Section 6.7(1) or 6.7(2) and each such determination shall be
conclusive and binding on Homestake. In making each such determination,
the following factors shall, without excluding other factors determined
by the board to be relevant, be considered by the Board of Directors:
(a) in the case of any stock dividend or other distribution payable in
shares of Homestake Common Stock, the number of such shares issued in
proportion to the number of shares of Homestake Common Stock
previously outstanding;
(b) in the case of the issuance or distribution of any rights, options or
warrants to subscribe for or purchase shares of Homestake Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of Homestake Common Stock), the relationship
between the exercise price of each such right, option or warrant and
the current market value (as determined by the Board of Directors in
the manner above contemplated) of a share of Homestake Common Stock;
(c) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of
Homestake of any class other than Homestake Common Stock, any rights,
options or warrants other than those referred to in Section 6.7(4)(b)
above, any evidences of indebtedness of Homestake or any assets of
Homestake), the relationship between the fair market value (as
determined by the Board of
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Directors in the manner above contemplated) of such property to be
issued or distributed with respect to each outstanding share of
Homestake Common Stock and the current market value (as determined by
the Board of Directors in the manner above contemplated) of a share
of Homestake Common Stock;
(d) in the case of any subdivision, redivision or change of the then
outstanding shares of Homestake Common Stock into a greater number of
shares of Homestake Common Stock or the reduction, combination or
consolidation or change of the then outstanding shares of Homestake
Common Stock into a lesser number of shares of Homestake Common Stock
or any amalgamation, merger, reorganization or other transaction
affecting Homestake Common Stock, the effect thereof upon the then
outstanding shares of Homestake Common Stock; and
(e) in all such cases, the general taxation consequences in Canada of the
relevant event to holders of Exchangable Shares in Canada to the
extent that such consequences may differ from the taxation
consequences to holders of shares of Homestake Common Stock in Canada
(except for any differing consequences arising as a result of
differing marginal taxation rates and without regard to the
individual circumstances of holders of Exchangable Shares).
For purposes of the foregoing determinations, the current market value of
any security listed and traded or quoted on a securities exchange shall be the
weighted average of the daily trading prices of such security during a period of
not less than five consecutive trading days ending not more than five trading
days before the date of determination on the principal securities exchange on
which such securities are listed and traded or quoted; provided, however, that
if in the opinion of the Board of Directors the public distribution or trading
activity of such securities during such period does not create a market that
reflects the fair market value of such securities, then the current market value
thereof shall be determined by the Board of Directors, in good faith and in its
sole discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the board may require), and provided
further that any such determination by the Board of Directors shall be
conclusive and binding on Homestake.
6.8 TENDER OFFERS, ETC. In the event that a tender offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect to
Homestake Common Stock (each, an "Offer") is proposed by Homestake or is
proposed to Homestake or its shareholders and is recommended by the Board of
Directors of Homestake, or is otherwise effected or to be effected with the
consent or approval of the Board of Directors of Homestake, Homestake will use
reasonable efforts (to the extent, in the case of an Offer by a third party,
within its control) expeditiously and in good faith to take all such actions and
do all such things as are necessary or desirable to enable and permit holders of
Exchangeable Shares to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of shares of Homestake Common
Stock, without discrimination. Homestake may discharge this obligation by
ensuring that holders of Exchangeable Shares may participate in all such Offers
by means of retraction of Exchangeable Shares as against HCI which shall be
effective only upon, and shall be conditional upon, the closing of the Offer and
only to the extent necessary to tender or deposit to the Offer.
6.9 OWNERSHIP OF OUTSTANDING SHARES. Without the prior approval of HCI and
the prior approval of the Non-Affiliated Holders given in accordance with
Section 9.2 of the Exchangeable Share Provisions, Homestake covenants and agrees
that, as long as any outstanding Exchangeable Shares are owned by any person or
entity other than Homestake, Holdco or any of their Subsidiaries, Homestake will
be and remain the direct or indirect beneficial owner of at least 50.1% of all
issued and outstanding securities of HCI carrying or otherwise entitled to
voting rights in any circumstances, other than the Exchangeable Shares.
6.10 HOMESTAKE NOT TO VOTE EXCHANGEABLE SHARES. Homestake covenants and
agrees that it will appoint and cause to be appointed proxyholders with respect
to all Exchangeable Shares held by
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Homestake and its Subsidiaries for the sole purpose of attending each meeting of
holders of Exchangeable Shares in order to be counted as part of the quorum for
each such meeting. Homestake further covenants and agrees that it will not, and
will cause its Subsidiaries not to, exercise any voting rights that may be
exercisable by holders of Exchangeable Shares from time to time pursuant to the
Exchangeable Share Provisions or pursuant to the provisions of the BUSINESS
CORPORATIONS ACT (Ontario) (or any successor or other corporate statute by which
HCI may in the future be governed) with respect to any Exchangeable Shares held
by it or by its direct or indirect Subsidiaries in respect of any matter
considered at any meeting of holders of Exchangeable Shares.
6.11 DUE PERFORMANCE. On and after the Effective Date of the Plan of
Arrangement, Homestake shall duly and timely perform all of its obligations
provided for in the Plan of Arrangement including any obligations that may arise
upon the exercise of rights by any holder of Exchangeable Shares, or Homestake
under the Exchangeable Share Provisions. Homestake shall be responsible for the
due performance of all of Holdco's obligations hereunder and under the Plan of
Arrangement including the Exchangeable Share Provisions, except that in respect
of the rights of Holdco under the Liquidation Call Right, the Redemption Call
Right and the Retraction Call Right, Homestake's obligation shall be limited to
acting to ensure that Holdco will exercise its rights under the Liquidation Call
Right, the Redemption Call Right and the Retraction Call Right only in
circumstances where Holdco is able to duly and timely perform in accordance with
applicable law its obligations with respect to the Liquidation Call Right, the
Redemption Call Right and the Retraction Call Right.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities
of the Trustee under this trust agreement, in its capacity as trustee of the
Trust, shall include:
(a) receipt and deposit of the Voting Share from Homestake as trustee for
and on behalf of the Non-Affiliated Holders in accordance with the
provisions of this trust agreement;
(b) granting proxies and distributing materials to Non-Affiliated Holders as
provided in this trust agreement;
(c) voting the Non-Affiliated Holder Votes in accordance with the provisions
of this trust agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange
Rights from Homestake as trustee for and on behalf of the Non-Affiliated
Holders in accordance with the provisions of this trust agreement;
(e) exercising the Exchange Right in accordance with the provisions of this
trust agreement, and in connection therewith receiving from
Non-Affiliated Holders Exchangeable Shares and other requisite documents
and distributing to such Non-Affiliated Holders the shares of Homestake
Common Stock and cheques, if any, to which such Non-Affiliated Holders
are entitled upon the exercise of the Exchange Right;
(f) holding title to the Trust Estate;
(g) investing any money forming, from time to time, a part of the Trust
Estate as provided in this trust agreement;
(h) taking action at the direction of a Non-Affiliated Holder to enforce the
obligations of HCI and/or Homestake under this trust agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
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In the exercise of such rights, powers and authorities the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this trust agreement as
the Trustee, acting in good faith and in the reasonable exercise of its
discretion, may deem necessary, appropriate or desirable to effect the purpose
of the Trust. Any exercise of such discretionary rights, powers and authorities
by the Trustee shall be final, conclusive and binding upon all persons. For
greater certainty, the Trustee shall have only those duties as are set out
specifically in this trust agreement. The Trustee in exercising its rights,
powers, duties and authorities hereunder shall act honestly and in good faith
with a view to the best interests of the Non-Affiliated Holders and shall
exercise the care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances. The Trustee shall not be bound to give any
notice or do or take any act, action or proceeding by virtue of the powers
conferred on it hereby unless and until it shall be specifically required to do
so under the terms hereof; nor shall the Trustee be required to take any notice
of, or to do or to take any act, action or proceeding as a result of any default
or breach of any provision hereunder, unless and until notified in writing of
such default or breach, which notice shall distinctly specify the default or
breach desired to be brought to the attention of the Trustee and in the absence
of such notice the Trustee may for all purposes of this trust agreement
conclusively assume that no default or breach has been made in the observance or
performance of any of the representations, warranties, covenants, agreements or
conditions contained herein.
7.2 NO CONFLICT OF INTEREST. The Trustee represents to HCI and Homestake
that at the date of execution and delivery of this trust agreement there exists
no material conflict of interest in the role of the Trustee as a fiduciary
hereunder and the role of the Trustee in any other capacity. The Trustee shall,
within 90 days after it becomes aware that such a material conflict of interest
exists, either eliminate such material conflict of interest or resign in the
manner and with the effect specified in Article 10 hereof. If, notwithstanding
the foregoing provisions of this Section 7.2, the Trustee has such a material
conflict of interest, the validity and enforceability of this trust agreement
shall not be affected in any manner whatsoever by reason only of the existence
of such material conflict of interest. If the Trustee contravenes the foregoing
provisions of this Section 7.2, any interested party may apply to the Ontario
Court (General Division) for an order that the Trustee be replaced as trustee
hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. HCI and Homestake
irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars
and transfer agents, and with any such subsequent registrar or transfer
agent, of the Exchangeable Shares and Homestake Common Stock; and
(b) requisition, from time to time, from any such registrar or transfer
agent any information readily available from the records maintained by it
which the Trustee may reasonably require for the discharge of its duties
and responsibilities under this trust agreement. Homestake covenants that
it will supply, and will cause Holdco to supply, the Trustee, or the
Transfer Agent, as the case may be, in a timely manner with duly executed
share certificates for the purpose of completing the exercise from time
to time of all rights to acquire Homestake Common Stock hereunder, under
the Plan of Arrangement, under the Exchangeable Share Provisions and
under any other security or commitment given to the Non-Affiliated
Holders pursuant thereto, in each case pursuant to the provisions hereof,
of the Plan of Arrangement or of the Exchangeable Share Provisions or
otherwise.
7.4 BOOKS AND RECORDS. The Trustee shall keep available for inspection by
Homestake and HCI, at the Trustee's principal office in Vancouver, British
Columbia, correct and complete books and records of account relating to the
Trustee's actions under this trust agreement, including without limitation all
information relating to mailings and instructions to and from Non-Affiliated
Holders and all transactions pursuant to the Voting Rights and the Exchange
Right for the term of this Agreement. On or before March 31, 1999, and on or
before March 31 in every year thereafter, so long as the Voting Share is on
deposit with the Trustee, the Trustee shall transmit to Homestake and HCI a
brief report, dated as of the
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preceding December 31, with respect to: (a) the property and funds comprising
the Trust Estate as of that date; (b) the number of exercises of the Exchange
Right, if any, and the aggregate number of Exchangeable Shares received by the
Trustee on behalf of Non-Affiliated Holders in consideration of the issue and
delivery by Homestake of shares of Homestake Common Stock in connection with the
Exchange Right, during the calendar year ended on such date; and (c) all other
actions taken by the Trustee in the performance of its duties under this trust
agreement which it had not previously reported.
7.5. INCOME TAX RETURNS AND REPORTS. The Trustee shall, to the extent
necessary, prepare and file on behalf of the Trust appropriate United States and
Canadian income tax returns and any other returns or reports as may be required
by applicable law or pursuant to the rules and regulations of any securities
exchange or other trading system through which the Exchangeable Shares are
traded and, in connection therewith, may obtain the advice and assistance of
such experts as the Trustee may consider necessary or advisable. If required by
the Trustee, Homestake shall retain such experts as may be required for the
purposes of providing such advice and assistance.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee shall
exercise any or all of the rights, duties, powers of authorities vested in it by
this trust agreement at the request, order or direction of any Non-Affiliated
Holder upon such Non-Affiliated Holder furnishing to the Trustee reasonable
funding, security and indemnity against the costs, expenses and liabilities that
may be incurred by the Trustee therein or thereby, provided that no
Non-Affiliated Holder shall be obligated to furnish to the Trustee any such
funding, security or indemnity in connection with the exercise by the Trustee of
any of its rights, duties, powers and authorities with respect to the Voting
Share pursuant to Article 4 hereof and with respect to the Exchange Right
pursuant to Article 5 hereof, subject to the provisions of Section 7.15 hereof.
None of the provisions contained in this trust agreement shall require the
Trustee to expend or risk its own funds or otherwise incur financial liability
in the exercise of any of its rights, powers, duties or authorities unless
funded, given funds, security and indemnified as aforesaid.
7.7 ACTIONS BY NON-AFFILIATED HOLDERS. No Non-Affiliated Holder shall have
the right to institute any action, suit or proceeding or to exercise any other
remedy authorized by this trust agreement for the purpose of enforcing any of
its rights or for the execution of any trust or power hereunder unless the Non-
Affiliated Holder has requested the Trustee to take or institute such action,
suit or proceeding and furnished the Trustee with the funding, security and
indemnity referred to in Section 7.6 hereof and the Trustee shall have failed to
act within a reasonable time thereafter. In such case, but not otherwise, the
Non-Affiliated Holder shall be entitled to take proceedings in any court of
competent jurisdiction such as the Trustee might have taken; it being understood
and intended that no one or more Non-Affiliated Holders shall have any right in
any manner whatsoever to affect, disturb or prejudice the rights hereby created
by any such action, or to enforce any right hereunder or under the Voting Rights
or the Exchange Right except subject to the conditions and in the manner herein
provided, and that all powers and trusts hereunder shall be exercised and all
proceedings at law be instituted, had and maintained by the Trustee, except only
as herein provided, and in any event for the equal benefit of all Non-Affiliated
Holders.
7.8 RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities hereunder
if, when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder and such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of Section 7.9 hereof, if applicable, and with any
other applicable provisions of this trust agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE. HCI and/or Homestake shall furnish
to the Trustee evidence of compliance with the conditions provided for in this
trust agreement relating to any action or step required or permitted to be taken
by HCI and/or Homestake or the Trustee under this trust agreement or
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as a result of any obligation imposed under this trust agreement, including,
without limitation, in respect of the Voting Rights or the Exchange Right and
the taking of any other action to be taken by the Trustee at the request of or
on the application of HCI and/or Homestake forthwith if and when:
(a) such evidence is required by any other Section of this trust agreement
to be furnished to the Trustee in accordance with the terms of this
Section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this trust agreement, gives HCI and/or Homestake
written notice requiring it to furnish such evidence in relation to any
particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of HCI and/or
Homestake or a statutory declaration or a certificate made by persons entitled
to sign an Officer's Certificate stating that any such condition has been
complied with in accordance with the terms of this trust agreement. Whenever
such evidence relates to a matter other than the Voting Rights or the Exchange
Right and except as otherwise specifically provided herein, such evidence may
consist of a report or opinion of any solicitor, auditor, accountant, appraiser,
valuer, engineer or other expert or any other person whose qualifications give
authority to a statement made by such person, provided that if such report or
opinion is furnished by a director, officer or employee of HCI and/or Homestake
it shall be in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this trust
agreement shall include a statement by the person giving the evidence:
(a) declaring that such person has read and understands the provisions of
this trust agreement relating to the condition in question; and
(b) declaring that such person has made such examination or investigation as
such person believes is necessary to enable such person to make the
statements or give the opinions contained or expressed therein.
7.10 EXPERTS, ADVISERS AND AGENTS. The Trustee may:
(a) in relation to these presents act and rely on the opinion or advice of
or information obtained from or prepared by any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert, whether retained
by the Trustee or by HCI and/or Homestake or otherwise, and may employ
such assistants as may be necessary to the proper determination and
discharge of its powers and duties and determination of its rights
hereunder and may pay proper and reasonable compensation for all such
legal and other advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably require for
the proper determination and discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services performed
for it (and shall be entitled to receive reasonable remuneration for all
services performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and expenses made or incurred
by it in the determination and discharge of its duties hereunder and in
the management of the Trust.
7.11 INVESTMENT OF MONEY HELD BY TRUSTEE. Unless otherwise provided in
this trust agreement, any money held by or on behalf of the Trustee which under
the terms of this trust agreement may or ought to be invested or which may be on
deposit with the Trustee or which may be in the hands of the Trustee may be
invested and reinvested in the name or under the control of the Trustee in
securities in which, under the laws of the Province of Ontario, trustees are
authorized to invest trust money, provided that such securities are stated to
mature within two years after their purchase by the Trustee, and the Trustee
shall so invest such money on the written direction of HCI. Pending the
investment of any money as hereinbefore provided, such money may be deposited in
the name of the Trustee in any chartered bank in Canada or, with the consent of
HCI, in the deposit department of the Trustee or any other loan or trust company
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<PAGE>
authorized to accept deposits under the laws of Canada or any province thereof
at the rate of interest then current on similar deposits.
7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be
required to give any bond or security in respect of the execution of the trusts,
rights, duties, powers and authorities of this trust agreement or otherwise in
respect of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON HCI'S REQUEST. Except as in this trust
agreement otherwise specifically provided, the Trustee shall not be bound to act
in accordance with any direction or request of HCI and/or Homestake or of the
directors thereof until a written copy of the instrument or resolution
containing such direction or request shall have been delivered to the Trustee,
and the Trustee shall be empowered to act and rely upon any such copy believed
by the Trustee to be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to HCI and
Homestake that at the date of execution and delivery by it of this trust
agreement it is authorized to carry on the business of a trust company in the
Province of Ontario but if, notwithstanding the provisions of this Section 7.14,
it ceases to be so authorized to carry on business, the validity and
enforceability of this trust agreement and the Voting Rights, the Exchange Right
and the other rights granted in or resulting from the Trustee being a party to
this trust agreement shall not be affected in any manner whatsoever by reason
only of such event but the Trustee shall, within 90 days after ceasing to be
authorized to carry on the business of a trust company in the Province of
Ontario, either become so authorized or resign in the manner and with the effect
specified in Article 10 hereof.
7.15 CONFLICTING CLAIMS. If conflicting claims or demands are made or
asserted with respect to any interest of any Non-Affiliated Holder in any
Exchangeable Shares, including any disagreement between the heirs,
representatives, successors or assigns succeeding to all or any part of the
interest of any Non-Affiliated Holder in any Exchangeable Shares resulting in
conflicting claims or demands being made in connection with such interest, then
the Trustee shall be entitled, at its sole discretion, to refuse to recognize or
to comply with any such claim or demand. In so refusing, the Trustee may elect
not to exercise any Voting Rights, the Exchange Right or other rights subject to
such conflicting claims or demands and, in so doing, the Trustee shall not be or
become liable to any person on account of such election or its failure or
refusal to comply with any such conflicting claims or demands. The Trustee shall
be entitled to continue to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting Rights,
Exchange Right or other rights subject to such conflicting claims or
demands have been adjudicated by a final judgment of a court of competent
jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right or
other rights subject to such conflicting claims or demands have been
conclusively settled by a valid written agreement binding on all such
adverse claimants, and the Trustee shall have been furnished with an
executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety, bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
7.16 ACCEPTANCE OF TRUST. The Trustee hereby accepts the Trust created and
provided for by and in this trust agreement and agrees to perform the same upon
the terms and conditions herein set forth and to hold all rights, privileges and
benefits conferred hereby and by law in trust for the various persons who shall
from time to time be Non-Affiliated Holders, subject to all the terms and
conditions herein set forth.
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ARTICLE 8
COMPENSATION
8.1 FEES AND EXPENSES OF THE TRUSTEE. Homestake and HCI jointly and
severally agree to pay to the Trustee reasonable compensation for all of the
services rendered by it under this trust agreement and will reimburse the
Trustee for all reasonable expenses (including but not limited to taxes,
compensation paid to experts, agents and advisors and travel expenses) and
disbursements, including the cost and expense of any suit or litigation of any
character and any proceedings before any governmental agency reasonably incurred
by the Trustee in connection with its rights and duties under this trust
agreement; provided that Homestake and HCI shall have no obligation to reimburse
the Trustee for any expenses or disbursements paid, incurred or suffered by the
Trustee in any suit or litigation in which the Trustee is determined to have
acted in bad faith or with negligence or wilful misconduct or for any matter in
respect of which the provisions of Section 7.6 entitle the Trustee to funding,
security and indemnity from any Non-Affiliated Holder.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE. Homestake and HCI jointly and
severally agree to indemnify and hold harmless the Trustee and each of its
directors, officers, employees and agents appointed and acting in accordance
with this trust agreement (collectively, the "Indemnified Parties") against all
claims, losses, damages, costs, penalties, fines and reasonable expenses
(including reasonable expenses of the Trustee's legal counsel) which, without
fraud, negligence, wilful misconduct or bad faith on the part of such
Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by
reason of or as a result of the Trustee's acceptance or administration of the
Trust, its compliance with its duties set forth in this trust agreement, or any
written or oral instructions delivered to the Trustee by Homestake or HCI
pursuant hereto. In no case shall Homestake or HCI be liable under this
indemnity for any claim against any of the Indemnified Parties if such claim is
incurred or suffered by reason of or as a result of the fraud, negligence,
wilful misconduct or bad faith of an Indemnified Party and unless Homestake and
HCI shall be notified by the Trustee of the written assertion of a claim or of
any action commenced against the Indemnified Parties, promptly after any of the
Indemnified Parties shall have received any such written assertion of a claim or
shall have been served with a summons or other first legal process giving
information as to the nature and basis of the claim. Subject to (ii), below,
Homestake and HCI shall be entitled to participate at their own expense in the
defense and, if Homestake or HCI so elect at any time after receipt of such
notice, any of them may assume the defense of any suit brought to enforce any
such claim. The Trustee shall have the right to employ separate counsel in any
such suit and participate in the defense thereof but the fees and expenses of
such counsel shall be at the expense of the Trustee unless: (i) the employment
of such counsel has been authorized by Homestake or HCI, such authorization not
to be unreasonably withheld; or (ii) the named parties to any such suit include
both the Trustee and Homestake or HCI and the Trustee shall have been advised by
counsel acceptable to Homestake or HCI that there may one or more legal defenses
available to the Trustee that are different from or in addition to those
available to Homestake or HCI and that an actual or potential conflict of
interest exists (in which case Homestake and HCI shall not have the right to
assume the defense of such suit on behalf of the Trustee but shall be liable to
pay the reasonable fees and expenses of one counsel for the Trustee). Such
indemnification shall survive the resignation or removal of the Trustee and the
termination of this trust agreement.
9.2 LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of funds pursuant to this
trust agreement, except to the extent that such loss is attributable to the
fraud, negligence, wilful misconduct or bad faith on the part of the Trustee.
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ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to Homestake and
HCI specifying the date on which it desires to resign, provided that such notice
shall never be given less than 60 days before such desired resignation date
unless Homestake and HCI otherwise agree and provided further that such
resignation shall not take effect until the date of the appointment of a
successor trustee and the acceptance of such appointment by the successor
trustee. Upon receiving such notice of resignation, Homestake and HCI shall
promptly appoint a successor trustee by written instrument in duplicate, one
copy of which shall be delivered to the resigning trustee and one copy to the
successor trustee. Failing acceptance by a successor trustee, a successor
trustee may be appointed by an order of the Ontario Court (General Division)
upon application of one or more of the parties hereto.
10.2 REMOVAL. The Trustee, or any trustee hereafter appointed, may be
removed with or without cause, at any time on 60 days' prior notice by written
instrument executed by Homestake and HCI, in duplicate, one copy of which shall
be delivered to the trustee so removed and one copy to the successor trustee.
10.3 SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under
this trust agreement shall execute, acknowledge and deliver to Homestake and HCI
and to its predecessor trustee an instrument accepting such appointment.
Thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor under this trust agreement, with like effect as
if originally named as trustee in this trust agreement. However, on the written
request of Homestake and HCI or of the successor trustee, the trustee ceasing to
act shall, upon payment of any amounts then due it pursuant to the provisions of
this trust agreement, execute and deliver an instrument transferring to such
successor trustee all the rights and powers of the trustee so ceasing to act.
Upon the request of any such successor trustee, Homestake and HCI and such
predecessor trustee shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers.
10.4 NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided herein, Homestake and HCI shall cause to be mailed
notice of the succession of such trustee hereunder to each Non-Affiliated Holder
specified in a List. If Homestake or HCI shall fail to cause such notice to be
mailed within 10 days after acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be mailed at the expense of
Homestake and HCI.
ARTICLE 11
HOMESTAKE SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. Homestake shall
not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other person or, in the case of a merger, of the
continuing corporation resulting therefrom unless, but may do so if:
(a) such other person or continuing corporation (the "Homestake Successor"),
by operation of law, becomes, without more, bound by the terms and
provisions of this trust agreement or, if not so bound, executes, prior
to or contemporaneously with the consummation of such transaction a trust
agreement supplemental hereto and such other instruments (if any) as are
satisfactory to the Trustee, acting reasonably, and in the opinion of
legal counsel to the Trustee, are reasonably necessary or advisable to
evidence the assumption by the Homestake Successor of liability for all
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money payable and property deliverable hereunder and the covenant of such
Homestake Successor to pay and deliver or cause to be delivered the same
and its agreement to observe and perform all the covenants and
obligations of Homestake under this trust agreement; and
(b) such transaction shall, to the satisfaction of the Trustee, acting
reasonably, and in the opinion of legal counsel to the Trustee, be upon
such terms as substantially to preserve and not to impair in any material
respect any of the rights, duties, powers and authorities of the Trustee
or of the Non-Affiliated Holders hereunder.
11.2 VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of Section
11.1 hereof have been duly observed and performed, if required by Section 11.1
hereof, the Trustee, the Homestake Successor and HCI shall execute and deliver
the supplemental trust agreement provided for in Article 12 hereof and thereupon
the Homestake Successor shall possess and from time to time may exercise each
and every right and power of Homestake under this trust agreement in the name of
Homestake or otherwise and any act or proceeding by any provision of this trust
agreement required to be done or performed by the Board of Directors of
Homestake or any officers of Homestake may be done and performed with like force
and effect by the directors or officers of such Homestake Successor.
11.3 WHOLLY-OWNED SUBSIDIARIES. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned Subsidiary of
Homestake with or into Homestake or the winding up, liquidation or dissolution
of any wholly-owned Subsidiary of Homestake. In addition, nothing herein shall
be construed as preventing the amalgamation or merger of Prime with, and or into
HCI, or the winding up, liquidation or dissolution of Prime.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS, ETC. This trust agreement may not be
amended or modified except by an agreement in writing executed by HCI, Homestake
and the Trustee and approved by the Non-Affiliated Holders in accordance with
Section 9.2 of the Exchangeable Share Provisions. This trust agreement shall
apply in respect of any issuance of additional Exchangeable Shares in one or
more transactions or financings which, for greater certainty, may be unrelated
to the Arrangement or the transactions contemplated thereby.
12.2 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of Section
12.1 hereof, the parties to this trust agreement may in writing, at any time and
from time to time, without the approval of the Non-Affiliated Holders, amend or
modify this trust agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the
protection of the Non-Affiliated Holders hereunder;
(b) making such amendments or modifications not inconsistent with this trust
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the Board of Directors and the Board
of Directors of Homestake and in the opinion of the Trustee, having in
mind the best interests of the Non-Affiliated Holders as a whole, it may
be expedient to make, provided that such boards of directors and the
Trustee shall be of the opinion that such amendments and modifications
will not be prejudicial to the interests of the Non-Affiliated Holders as
a whole; or
(c) making such changes or corrections which, on the advice of counsel to
HCI, Homestake and the Trustee, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error, provided that each of the Trustee,
the Board of Directors and the Board of Directors of Homestake shall be
of the opinion that such changes or corrections will not be prejudicial
to the interests of the Non-Affiliated Holders as a whole.
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12.3 MEETING TO CONSIDER AMENDMENTS. HCI, at the request of Homestake,
shall call a meeting or meetings of the Non-Affiliated Holders for the purpose
of considering any proposed amendment or modification requiring approval
pursuant hereto. Any such meeting or meetings shall be called and held in
accordance with the by-laws of HCI, the Exchangeable Share Provisions and all
applicable laws.
12.4 CHANGES IN CAPITAL OF HOMESTAKE AND HCI. At all times after the
occurrence of any event effected pursuant to Section 6.7 or Section 6.8 or
Section 11.1 of this trust agreement, as a result of which either Homestake
Common Stock or the Exchangeable Shares or both are in any way changed, this
trust agreement shall forthwith be amended and modified as necessary in order
that it shall apply with full force and effect, MUTATIS MUTANDIS, to all new
securities into which Homestake Common Stock or the Exchangeable Shares or both
are so changed and the parties hereto shall execute and deliver a supplemental
trust agreement giving effect to and evidencing such necessary amendments and
modifications.
12.5 EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS. No amendment to or
modification or waiver of any of the provisions of this trust agreement
otherwise permitted hereunder shall be effective unless made in writing and
signed by all of the parties hereto. From time to time HCI, Homestake and the
Trustee may, subject to the provisions of these presents, and they shall, when
so directed by these presents, execute and deliver by their proper officers,
trust agreements or other instruments supplemental hereto, which thereafter
shall form part hereof, for any one or more of the following purposes:
(a) evidencing the succession of Homestake Successors to Homestake and the
covenants of and obligations assumed by each such Homestake Successor in
accordance with the provisions of Article 11 and the successor of any
successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the provisions
of this trust agreement or the Voting Rights or the Exchange Right which,
in the opinion of the Trustee, will not be prejudicial to the interests
of the Non-Affiliated Holders as a whole or are, in the opinion of
counsel to the Trustee, necessary or advisable in order to incorporate,
reflect or comply with any legislation the provisions of which apply to
Homestake, HCI, the Trustee or this trust agreement; and
(c) for any other purposes not inconsistent with the provisions of this
trust agreement, including without limitation to make or evidence any
amendment or modification to this trust agreement as contemplated hereby,
provided that, in the opinion of the Trustee, the rights of the Trustee
and the Non-Affiliated Holders as a whole will not be prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 TERM. The Trust created by this trust agreement shall continue until
the earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by any Non-Affiliated
Holder;
(b) each of HCI and Homestake elects in writing to terminate the Trust and
such termination is approved by the Non-Affiliated Holders of the
Exchangeable Shares in accordance with Section 9.2 of the Exchangeable
Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of His
Majesty King George VI of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
13.2 SURVIVAL OF AGREEMENT. This trust agreement shall survive any
termination of the Trust and shall continue until there are no Exchangeable
Shares outstanding held by any Non-Affiliated Holder; provided, however, that
the provisions of Articles 8 and 9 hereof shall survive any such termination of
this trust agreement.
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ARTICLE 14
GENERAL
14.1 SEVERABILITY. If any provision of this trust agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this trust agreement shall not in any way be affected or
impaired thereby and this trust agreement shall be carried out as nearly as
possible in accordance with its original terms and conditions.
14.2 ENUREMENT. This trust agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and permitted
assigns and to the benefit of the Non-Affiliated Holders.
14.3 NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
if to Homestake at:
Homestake Mining Company
650 California Street
SAN FRANCISCO CA 94108
(a) if to HCI at:
c/o Homestake Mining Company
650 California Street
SAN FRANCISCO, CA 94108
if to the Trustee at:
Montreal Trust Company
510 Burrard Street
VANCOUVER BC V6C 3B9
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the next Business Day after the date
of receipt thereof unless such day is not a Business Day in which case it shall
be deemed to have been given and received upon the immediately following
Business Day.
14.4 NOTICE OF NON-AFFILIATED HOLDERS. Any and all notices to be given and
any documents to be sent to any Non-Affiliated Holder may be given or sent to
the address of such holder shown on the register of holders of Exchangeable
Shares in any manner permitted by the BUSINESS CORPORATIONS ACT (Ontario) from
time to time in force in respect of notices to shareholders and shall be deemed
to be received (if given or sent in such manner) at the time specified in such
Act, the provisions of which Act shall apply MUTATIS MUTANDIS to notices or
documents as aforesaid sent to such holders.
14.5 RISK OF PAYMENTS BY POST. Whenever payments are to be made or
documents are to be sent to any Non-Affiliated Holder by the Trustee or by HCI,
Homestake or by such Non-Affiliated Holder to the Trustee or to Homestake or
HCI, the making of such payment or sending of such document sent through the
post or by courier shall be at the risk of HCI, in the case of payments made or
documents sent by the Trustee or HCI or Homestake and the Non-Affiliated Holder,
in the case of payments made or documents sent by the Non-Affiliated Holder.
14.6 COUNTERPARTS. This trust agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
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14.7 JURISDICTION. This trust agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
14.8 ATTORNMENT. Homestake agrees that any action or proceeding arising
out of or relating to this trust agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to the venue of
any such action or proceeding, irrevocably submits to the jurisdiction of the
said courts in any such action or proceeding, agrees to be bound by any final
and unappealable judgment of the said courts and hereby appoints HCI at its
registered office in the Province of Ontario as its attorney for service of
process.
IN WITNESS WHEREOF, the parties hereto have caused this trust agreement to
be duly executed as of the date first above written.
HOMESTAKE MINING COMPANY
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
HOMESTAKE CANADA INC.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
MONTREAL TRUST COMPANY OF CANADA
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
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<PAGE>
APPENDIX F
ARRANGEMENT RESOLUTION
F-1
<PAGE>
ARRANGEMENT RESOLUTION
RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the Arrangement between Prime Resources Group Inc. ("Prime") and its members
on the terms and conditions set out in the Plan of Arrangement attached as
Schedule 1 to the Arrangement Agreement (the "Arrangement Agreement") by and
between Prime, Homestake Mining Company, Homestake Canada Inc. and Homestake
Canada Holdings Company, dated as of - , 1998, a copy of which
Arrangement Agreement is attached as Appendix B to the Management
Information Circular of Prime dated - , 1998, be and the same is hereby
approved and that the Arrangement Agreement be and the same is hereby
ratified, confirmed and approved;
2. the board of directors of Prime be and is hereby authorized to revoke this
resolution before it is acted upon without further approval of the members
of Prime; and
3. any officer or director of Prime is hereby authorized and directed for and
on behalf of Prime to execute, whether under the corporate seal of Prime or
otherwise, and deliver all such documents, and to perform and do all such
other acts and things, as in the opinion of such officer or director may be
necessary or desirable in order to implement the Arrangement or otherwise to
give effect to this resolution or the matters contemplated thereby or by the
Arrangement Agreement.
F-2
<PAGE>
APPENDIX G
INTERIM ORDER
AND
NOTICE OF APPLICATION FOR FINAL ORDER
G-1
<PAGE>
INTERIM ORDER
NO. -
VANCOUVER REGISTRY
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF SECTION 252 OF THE COMPANY ACT,
R.S.B.C. 1996, CHAPTER 62, AS AMENDED
AND
IN THE MATTER OF AN ARRANGEMENT
BETWEEN
PRIME RESOURCES GROUP INC.
AND
ITS MEMBERS
ORDER
BEFORE - ) - THE - DAY OF - , 1998
)
THE EX PARTE APPLICATION of the Petitioner, Prime Resources Group Inc., for
an interim order coming on for hearing on this date at Vancouver, British
Columbia and upon hearing S. Bradley Armstrong, counsel for the Petitioner;
AND UPON READING the Petition and the Affidavit of - sworn the - day
of - , 1998 and filed herein;
THIS COURT makes the following Order (the "Interim Order") pursuant to
Sections 203 and 252(2) of the COMPANY ACT and Rules 10, 12 and 13 of the Rules
of Court;
THIS COURT ORDERS that the Petitioner be at liberty to convene an
extraordinary general meeting (the "Meeting") of its members (the "Members") to
be held at - , Vancouver, British Columbia, on - , 1998 at - a.m.
(Vancouver time), to consider and, if deemed advisable, to pass, with or without
amendment, a resolution to approve an arrangement (the "Arrangement")
substantially in the form of Exhibit "A" to the Affidavit of - sworn the
- day of - , 1998 and filed herein, which Arrangement is proposed to be
made between the Petitioner and the Members, and to transact such other business
as may properly come before the Meeting;
THIS COURT FURTHER ORDERS that good and sufficient notice of the Meeting for
all purposes will be given by the Petitioner by mailing, by prepaid, ordinary
mail, at least 21 days prior to the date of the Meeting (excluding the date of
mailing and excluding the date of the Meeting), the following materials:
(a) the Notice of Extraordinary General Meeting;
(b) the Management Information Circular;
(c) the Letter of Transmittal; and
(d) the form of proxy
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<PAGE>
(collectively referred to as the "Meeting Materials"), in substantially the form
attached to the Affidavit of - filed in these proceedings, with such
amendments as counsel may advise are necessary or desirable (provided that such
amendments are not inconsistent with this Order), to the following persons:
(a) the Members at the registered addresses as they may appear on the
register of Members of the Petitioner as at the close of business on
- , 1998; and
(b) the directors and auditor of the Petitioner;
THIS COURT FURTHER ORDERS that the accidental omission to give notice of the
Meeting to or the non-receipt of such notice by one or more of the persons
specified in the previous paragraph shall not invalidate any resolution passed
or proceedings taken at the Meeting;
THIS COURT FURTHER ORDERS that the Petitioner shall include with the Meeting
Materials a copy of this Order and a Notice of Application for Final Order and
service of the Notice of Application for Final Order shall be deemed to be
effected on the fifth day following the day on which such notice is mailed to
the Members, whether those Members reside within the jurisdiction of British
Columbia or within another jurisdiction, and the Petitioner shall not be
required to serve copies of the Petition, any Affidavit filed in support, any
further order made in these proceedings, or any other documents filed by or on
behalf of the Petioners in these proceedings, except upon request as specified
in the Notice of Application for Final Order;
THIS COURT FURTHER ORDERS that the Meeting shall be called, held and
conducted in accordance with the provisions of this Order, the Articles of the
Petitioner and the COMPANY ACT;
THIS COURT FURTHER ORDERS that the Meeting may be adjourned for any reason
upon approval of the Chair of the Meeting and, if the Meeting is adjourned, it
shall be reconvened at a place and time to be designated by the Chair of the
Meeting on a date which is not more than 30 days thereafter;
THIS COURT FURTHER ORDERS that the Members of the Petitioner shall be
granted the rights of dissent in connection with the Arrangement as provided in
the Plan of Arrangement attached as Schedule 1 to the Arrangement Agreement
attached as Appendix E to the Management Information Circular;
THIS COURT FURTHER ORDERS that the only persons entitled to receive notice
of or to attend the Meeting shall be the holders of Common Shares of the
Petitioner as at - , 1998 and its directors and auditor and that the only
persons entitled to be represented and to vote at the Meeting shall be the
registered holders of Common Shares of the Petitioner as of - , 1998;
THIS COURT FURTHER ORDERS that the vote required to pass the resolution to
approve the Arrangement shall be the affirmative vote of:
(a) a majority of 75% of the votes of the holders of the Common Shares of
the Petitioner present and voting in person or by proxy at the Meeting;
and
(b) not less than two-thirds (66 2/3%) of the votes of the Prime Minority
Shareholders, as such term is defined in the Management Information
Circular, present and voting in person or by proxy at the Meeting;
THIS COURT FURTHER ORDERS that the application for the Final Order be set
for hearing at 9:45 a.m. on - , the - day of - , 1998 before the
presiding Judge in Chambers;
THIS COURT FURTHER ORDERS that any Member of the Petitioner has the right to
appear (either in person or by the Member's solicitor) and make submissions at
the hearing of the application for the Final Order provided that such Member
shall file an Appearance in the form prescribed by the Rules of Court of the
Supreme Court of British Columbia with this Court and deliver a copy of the
filed Appearance together with a copy of all materials upon which the Member
intends to rely on at the
G-3
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application for the Final Order, to the solicitors for the Petitioner at their
address for delivery set out in the Petition, on or before 4:00 p.m. on - ,
1998 or as the Court may otherwise direct;
THIS COURT FURTHER ORDERS that compliance with Rule 65 in relation to the
hearing of the application for a Final Order is not required;
THIS COURT FURTHER ORDERS that if the hearing of the application for the
Final Order is adjourned only those persons who have filed and delivered an
Appearance in accordance with this Order need be served and provided with notice
of the adjourned hearing date;
AND THIS COURT FURTHER ORDERS that the Petitioner and its Members shall, and
hereby do, have liberty to apply to vary this Order or for such further Order or
Orders as may be appropriate.
BY THE COURT
DISTRICT REGISTRAR
APPROVED AS TO FORM:
- --------------------------------------
Counsel for the Petitioners
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NOTICE OF APPLICATION FOR FINAL ORDER
NO. -
VANCOUVER REGISTRY
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF SECTION 252 OF THE COMPANY ACT,
R.S.B.C. 1996, CHAPTER 62, AS AMENDED
AND
IN THE MATTER OF AN ARRANGEMENT
BETWEEN
PRIME RESOURCES GROUP INC.
AND
ITS MEMBERS
NOTICE OF APPLICATION
NOTICE IS HEREBY GIVEN that a Petition has been filed by Prime Resources
Group Inc. in the Supreme Court of British Columbia for sanction and approval of
an Arrangement pursuant to an Arrangement Agreement by and between the
Petitioner, Homestake Mining Company, Homestake Canada Inc. and Homestake Canada
Holdings Company dated as of - , 1998, pursuant to section 252 of the Company
Act, R.S.B.C. 1996, c. 62, as amended;
AND NOTICE IS FURTHER GIVEN that the Supreme Court of British Columbia has
given directions by means of an Interim Order, dated the - day of - ,
1998, as to the calling of a meeting of the members of the Petitioner for the
purpose of considering and, if deemed advisable, passing a resolution to approve
the Arrangement;
AND NOTICE IS FURTHER GIVEN that pursuant to the Interim Order aforesaid,
the Petition is directed to be heard before a Justice of the Supreme Court of
British Columbia, at the Courthouse, 800 Smithe Street, in the City of
Vancouver, on - , the - day of - , 1998, at the hour of 9:45 o'clock in
the forenoon, or so soon thereafter as counsel may be heard, and that, at such
hearing of the Petition, the Court will consider, among other things, the
fairness of the terms and conditions of the Arrangement.
Any member of the Petitioner desiring to support or oppose the making of an
Order on the said Petition may file an Appearance at any time prior to the time
of such hearing, in person or by counsel.
IF YOU WISH TO BE HEARD AT THE HEARING OF THE PETITION OR WISH TO BE
NOTIFIED OF ANY FURTHER PROCEEDINGS, YOU MUST GIVE NOTICE OF YOUR INTENTION by
filing a form entitled "Appearance" at the Vancouver Registry of the Supreme
Court of British Columbia (the Registry) prior to the date of hearing and YOU
MUST ALSO DELIVER a copy of the "Appearance" to the Petitioner's address for
delivery, which is set out below.
YOU OR YOUR SOLICITOR may file the "Appearance". You may obtain a form of
"Appearance" at the Registry.
The address of the Registry is: 800 Smithe Street, Vancouver, British
Columbia V6Z 2E1.
IF YOU DO NOT FILE AN APPEARANCE and attend either in person or by counsel
at the time of such hearing, the Court may approve the Arrangement, as
presented, or may approve it subject to such
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terms and conditions as the Court shall deem fit, all without any further notice
to you. If the Arrangement is approved it will significantly affect the rights
of the members of the Petitioner.
A copy of the said Petition and other documents in the proceedings will be
furnished to any member of the Petitioner upon request in writing addressed to
the solicitors of the Petitioner at their address for delivery set out below.
The Petitioner's address for delivery is: c/o Lawson Lundell Lawson &
McIntosh, 1600-925 West Georgia Street, Vancouver, British Columbia V6C 3L2.
Attention: S. Bradley Armstrong.
DATED at the City of Vancouver, in the Province of British Columbia, this
- day of - , 1998.
--------------------------------------
Counsel for the Petitioner
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APPENDIX H
VALUATION AND FAIRNESS OPINION
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VALUATION AND FAIRNESS OPINION
September 4, 1998
The Special Committee of the Board of Directors
Prime Resources Group Inc.
Suite 1100, 1055 West Georgia Street
Vancouver, B.C.
V6E 3P3
RBC Dominion Securities Inc. ("RBCDS") understands that Homestake Mining
Company ("Homestake") has made a proposal (the "Proposal") to acquire the 49.4%
of Prime Resources Group Inc. ("Prime" or the "Company") not already owned by
Homestake Canada Inc. ("Homestake Canada"), a wholly owned subsidiary of
Homestake. The acquisition will be effected by means of an arrangement (the
"Arrangement") under the Company Act (British Columbia). If the Arrangement is
completed, holders of Prime common shares (the "Shares") other than Homestake
Canada will have the option of exchanging each of their Shares for either: (i)
0.74 of a share of Homestake common stock; or (ii) 0.74 of an exchangeable share
issued by Homestake Canada (the "Exchangeable Shares"). Each Exchangeable Share
will be exchangeable for one share of Homestake common stock at any time at the
option of the holder and will have essentially the same voting, dividend and
other rights as one share of Homestake common stock. We understand that an
application will be made to list the Exchangeable Shares on The Toronto Stock
Exchange and it is expected that the Exchangeable Shares will qualify as
Canadian property for investment purposes. The terms of the Arrangement and the
Exchangeable Shares will be more fully described in a management information
circular (the "Circular") to be prepared by the Company, which will to be sent
to all holders of Shares in connection with the Arrangement.
RBCDS also understands that a committee (the "Special Committee") of the
board of directors (the "Board") of the Company who are independent of Homestake
has been constituted to consider the Proposal and make recommendations thereon
to the Board. RBCDS was instructed by the Special Committee that the Arrangement
is a related party transaction within the meaning of the Ontario Securities
Commission Policy Statement 9.1 and Quebec Securities Commission Policy
Statement Q-27 (collectively, the "Policies"). The Special Committee has
retained RBCDS to provide advice and assistance to the Special Committee in
evaluating the Proposal, including the preparation and delivery to the Special
Committee of a formal valuation of the Shares (the "Valuation") in accordance
with the requirements of the Policies and its opinion (the "Fairness Opinion")
as to the fairness of the Proposal from a financial point of view to the holders
of Shares other than Homestake Canada and certain of its related parties who are
excluded from the definition of "minority security holders" in the Policies (the
"Minority Shareholders"). The Valuation and Fairness Opinion have been prepared
in accordance with the Policies and the guidelines of the Investment Dealers
Association of Canada.
ENGAGEMENT
The Special Committee initially contacted RBCDS regarding a potential
advisory assignment on May 29, 1998, and RBCDS was formally engaged by the
Special Committee through an agreement between the Company and RBCDS (the
"Engagement Agreement") dated as of June 23, 1998. The terms of the Engagement
Agreement provide that RBCDS is to be paid $440,000 for the Valuation and
Fairness Opinion. In addition, RBCDS is to be reimbursed for its reasonable
out-of-pocket expenses and to be indemnified by the Company in certain
circumstances. Subject to the Engagement Agreement, RBCDS
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consents to the inclusion of the Valuation and Fairness Opinion in their
entirety and a summary thereof in the Circular and a proxy statement to be
prepared by Homestake in connection with the Arrangement and to the filing
thereof, as necessary, by the Company and Homestake with the securities
commissions or similar regulatory authorities in each province of Canada and
with the U.S. Securities and Exchange Commission.
RELATIONSHIP WITH INTERESTED PARTIES
Neither RBCDS nor any of its affiliates is an insider, associate or
affiliate (as those terms are defined in the Securities Act (Ontario) (the
"Act")) of the Company, Homestake or any of their respective associates or
affiliates. RBCDS has not been engaged to provide any financial advisory
services, nor has it participated in any financing, involving the Company,
Homestake or any of their respective associates or affiliates within the past
two years. There are no understandings, agreements or commitments between RBCDS
and the Company, Homestake or any of their respective associates or affiliates
with respect to any future business dealings. RBCDS may, in the future, in the
ordinary course of its business, perform financial advisory or investment
banking services for the Company, Homestake or any of their respective
associates or affiliates. The compensation of RBCDS under the Engagement
Agreement does not depend in whole or in part on the conclusions reached in the
Valuation or the Fairness Opinion or the successful outcome of the Arrangement.
RBCDS acts as a trader and dealer, both as principal and agent, in major
financial markets and, as such, may have had and may in the future have
positions in the securities of the Company, Homestake or any of their respective
associates or affiliates and, from time to time, may have executed or may
execute transactions on behalf of such companies or clients for which it
received or may receive compensation. As an investment dealer, RBCDS conducts
research on securities and may, in the ordinary course of its business, provide
research reports and investment advice to its clients on investment matters,
including with respect to the Company, Homestake or the Arrangement.
CREDENTIALS OF RBC DOMINION SECURITIES
RBCDS is one of Canada's largest investment banking firms, with operations
in all facets of corporate and government finance, mergers and acquisitions,
equity and fixed income sales and trading and investment research. The Valuation
and the Fairness Opinion expressed herein represent the opinions of RBCDS and
the form and content herein have been approved for release by a committee of its
directors, each of whom is experienced in merger, acquisition, divestiture and
valuation matters.
SCOPE OF REVIEW
In connection with the Valuation and Fairness Opinion, we have reviewed and
relied upon or carried out, among other things, the following:
1. the latest draft of the Homestake proxy statement dated August 21, 1998
(the "Draft Proxy Statement"), including the draft Arrangement Agreement;
2. audited financial statements of the Company for the three years ended
December 31, 1997;
3. unaudited interim reports of the Company for the quarters ended March
31, 1998 and June 30, 1998;
4. annual reports of the Company for each of three years ended December 31,
1995, 1996 and 1997;
5. the Notice of Annual Meeting of Shareholders and Management Information
Circulars of the Company for each of the three years ended December 31,
1995, 1996 and 1997;
6. monthly management reports on the Eskay Creek and Snip mines for 1997
and the eight months ended August 31, 1998;
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7. the internal management budget for the Company and for the Eskay Creek
mine for the year ending December 31, 1998;
8. life of mine plans prepared by management of the Company for the Eskay
Creek mine for the years ending 1998 through 2008 and for the Snip mine
until planned closure in 1999;
9. discussions with senior management of the Company;
10. discussions with the Company's auditors and legal counsel;
11. site visits to the Eskay Creek and Snip mines including discussions with
mine management and the Company's regional exploration manager;
12. smelter contracts and discussions with management of the smelters;
13. public information, including research reports and press releases,
relating to the business, operations, financial performance and stock
trading history of the Company, Homestake and other selected gold and
precious metals companies considered by RBCDS to be relevant;
14. Roscoe Postle Associates Inc.'s ("Roscoe Postle") reports dated July 28,
1998 on the audit of the reserves and resources at the Eskay Creek mine
as well as the valuation of the exploration properties, other than at the
Eskay Creek mine, of Prime;
15. the Management and Administrative Services Agreement dated January 1,
1997 between the Company and Homestake Canada;
16. representations contained in certificates addressed to us, dated as of
the date hereof, from senior officers of the Company as to the
completeness and accuracy of the information upon which the Valuation and
Fairness Opinion are based;
17. representations contained in certificates addressed to us, dated as of
the date hereof, from senior officers of Homestake as to the completeness
and accuracy of the information relating to Homestake upon which we based
the valuation of the Consideration (as defined below) and Fairness
Opinion;
18. discussions with senior management of Homestake;
19. discussions with Homestake's auditors;
20. public information with respect to transactions of a comparable nature
considered by us to be relevant; and
21. such other corporate, industry and financial market information,
investigations and analyses as RBCDS considered necessary or appropriate
in the circumstances.
RBCDS has not, to the best of its knowledge, been denied access by the
Company or Homestake to any information requested by RBCDS.
PRIOR VALUATIONS
The Company has represented to RBCDS that there have not been any prior
valuations of the Company or its material assets or its securities in the past
twenty-four month period.
Management of Homestake prepared internal assessments of the value of Prime
in March and May 1997 for purposes of its consideration of various options for
its investment in Prime, and in May 1998 for the purpose of determining a value
of Prime when making an acquisition proposal to the Board of Prime. The
assessments were based solely on a Net Asset Value approach and did not consider
any market value approaches.
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In the assessments completed in March and May 1997, Homestake used a variety
of assumptions, including, among other things, a discount rate of 3%, long-term
gold prices and silver prices of US$400 and US$5.50 per ounce respectively,
foreign exchange rates of US$/C$ of $0.74 and a tax rate of 50%. Homestake did
not attribute any material value to Prime's exploration potential in these
assessments. Based on the assessments, Homestake's Net Asset Value of Prime was
approximately US$470 million or US$6.18 per share (C$8.35 per share). RBCDS
reviewed the assessments but did not rely on it for purposes of the Valuation as
they do not reflect current market conditions.
In the May 1998 assessment, Homestake used the following assumptions in its
calculation of Prime's Net Asset Value: long-term gold and silver prices of
US$350 and US$5.25 per ounce, respectively; a discount rate of 0%; a tax rate of
51% and a value for 100% of Prime's exploration potential of US$100 million.
Based on these assumptions, Homestake calculated a Net Asset Value of Prime of
US$8.33 per share. On May 25, 1998 Homestake proposed an exchange ratio of
0.675. Using Homestake's May 22, 1998 common stock trading price of US$12.06,
that results in an offer price per Share as of May 22, 1998 of US$8.14.
RBCDS reviewed the May 1998 assessment but did not rely on it for purposes
of the Valuation due to differences in assumptions and methodology between
Homestake's approach and our own. RBCDS believes its approach, which
incorporates market multiples and Net Asset Value, is a better approach to
deriving a fair market value for Prime.
ASSUMPTIONS AND LIMITATIONS
With the Special Committee's approval and as provided for in the Engagement
Agreement, RBCDS has relied upon the completeness, accuracy and fair
presentation of all of the financial and other information, data, advice,
opinions or representations obtained by it from public sources, senior
management of the Company and Homestake and their respective consultants and
advisors (collectively, the "Information"). The Valuation and Fairness Opinion
are conditional upon such completeness, accuracy and fair presentation of the
Information. Subject to the exercise of professional judgment and except as
expressly described herein, we have not attempted to verify independently the
completeness, accuracy or fair presentation of any of the Information.
Senior officers of the Company have represented to RBCDS in a representation
letter, among other things, that: (i) the Information (as defined above)
provided orally by, or in the presence of, an officer of the Company or in
writing by the Company or any of its subsidiaries or their respective agents to
RBCDS relating to the Company or any of its subsidiaries or to the Proposal, for
the purpose of preparing the Valuation and Fairness Opinion, taken as a whole,
was, at the date of preparation, true and accurate in all material respects, and
did not contain any untrue statement of a material fact in respect of the
Company, its subsidiaries or the Proposal, or omit to state a material fact in
respect of the Company, its subsidiaries or the Proposal necessary to make the
Information not misleading in light of the circumstances under which the
Information was made or provided; and (ii) since the dates on which the
Information was provided to RBCDS, except as disclosed in writing to RBCDS, or
as updated by more current Information, there has been no material change,
financial or otherwise, in the financial condition, assets, liabilities
(contingent or otherwise), business, operations or prospects of the Company or
any if its subsidiaries and no material change has occurred in the Information
or any part thereof which would have, or which would reasonably be expected to
have, a material effect on the Valuation or Fairness Opinion.
Senior officers of Homestake have represented to RBCDS in a representation
letter, among other things, that: (i) the information provided orally by, or in
the presence of, authorized representatives of Homestake or in writing by
Homestake or any of its subsidiaries or their respective agents to RBCDS
relating to Homestake or any of its subsidiaries or to the Proposal, for the
purpose of preparing RBCDS' valuation of the Consideration and Fairness Opinion
(the "Homestake Information"), taken as a whole, was, at the date of
preparation, true and accurate in all material respects, and did not contain any
untrue
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statement of a material fact in respect of Homestake and its subsidiaries or the
Proposal or omit to state a material fact in respect of Homestake and its
subsidiaries or the Proposal necessary to make the Homestake Information not
misleading in light of the circumstances under which the Homestake Information
was made or provided; and (ii) since the dates on which the Homestake
Information was provided to RBCDS, except as disclosed to RBCDS, or as updated
by more current Homestake Information there has been no material change,
financial or otherwise, in the financial condition, assets, liabilities
(contingent or otherwise), business, operations or prospects of Homestake and
its subsidiaries taken as a whole and no material change has occurred relating
to Homestake which has not been disclosed and which would reasonably be expected
to affect the value of the Homestake Common Shares in any material way.
In preparing the Valuation and Fairness Opinion, RBCDS has made several
assumptions, including that all of the conditions required to implement the
Arrangement will be met and that the disclosure provided or incorporated by
reference in the Draft Proxy Statement with respect to the Company, Homestake
and their respective subsidiaries and affiliates and the Arrangement is accurate
in all material respects.
The Valuation and Fairness Opinion are rendered on the basis of securities
markets, economic, financial and general business conditions prevailing as at
September 4, 1998 and the condition and prospects, financial and otherwise, of
the Company, Homestake and their respective subsidiaries and affiliates, as they
were reflected in the Information and the Homestake Information and as they have
been represented to RBCDS in discussions with management of the Company and
Homestake. In its analyses and in preparing the Valuation and Fairness Opinion,
RBCDS made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of RBCDS or any party involved in the Arrangement.
The Valuation and Fairness Opinion have been provided for the use of the
Special Committee and the Board and may not be used by any other person or
relied upon by any other person other than the Special Committee and the Board
without the express prior written consent of RBCDS. The Valuation and Fairness
Opinion are given as of the date hereof and RBCDS disclaims any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the Valuation or Fairness Opinion which may come or be brought to RBCDS'
attention after as of the date hereof. Without limiting the foregoing, in the
event that there is any material change in any fact or matter affecting the
Valuation or Fairness Opinion after the date hereof, RBCDS reserves the right to
change, modify or withdraw the Valuation or Fairness Opinion.
RBCDS believes that its analyses must be considered as a whole and that
selecting portions of the analyses or the factors considered by it, without
considering all factors and analyses together, could create a misleading view of
the process underlying the Valuation or Fairness Opinion. The preparation of a
valuation or fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Any attempt to do so
could lead to undue emphasis on any particular factor or analysis. Neither the
Valuation nor the Fairness Opinion is to be construed as a recommendation to any
holder of Shares as to whether to vote in favour of the Arrangement.
OVERVIEW OF THE COMPANY
Prime is a British Columbia based mining and exploration company with its
principal and registered office in Vancouver, British Columbia. Prime is
currently operating the 100% owned Eskay Creek gold and silver mine and the 100%
owned Snip gold mine. Both mines are underground operations, located in
northwestern British Columbia. In addition, Prime is engaged in exploration in
other areas of British Columbia as well as in the Yukon, Northwest Territories,
and Ontario primarily through a joint venture with Homestake Canada. Prime has
no full-time employees and contracts with Homestake Canada for all management
and administrative services. There are 76,073,913 Shares outstanding and
Homestake Canada is the largest shareholder with approximately 50.6% of the
Shares. Five of the eight members of Prime's
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Board of Directors are officers and directors of Homestake. Prime's shares are
listed on The Toronto Stock Exchange, the Vancouver Stock Exchange and the
American Stock Exchange under the symbol PRU.
ESKAY CREEK MINE
The Eskay Creek mine property consists primarily of five mining leases. The
property is located 83 kilometers north of Stewart, British Columbia and hosts a
number of mineralized zones, the most prominent being 21B. The ore is refractory
and is not generally amenable to conventional gold extraction technologies. As a
result, the majority of the ore is sent directly to smelters for processing.
Commercial production began in 1995 from the 21B zone at a rate of 250 tonnes
per day with ore shipped directly to smelters in eastern Canada and Japan (the
direct shipping ore or "DSO"). In January 1998, on-site milling commenced at the
rate of 150 tonnes per day to process material contained in other zones that is
amenable to concentration through a gravity and flotation circuit (the millable
ore).
As at January 1, 1998 according to the Company's 1997 annual report, proven
and probable ore reserves were 1,356,152 tonnes grading 58.06 grams/tonne gold
and 2,684 grams/tonne silver and resources were 336,661 tonnes grading 20.12
grams/tonne gold and 411 grams/tonne silver. Reserves, on an ounce basis, are
split approximately 85:15 between DSO and millable ore. For the year ended
December 31, 1997 the mine shipped 110,190 tonnes grading 67.10 grams/tonne gold
and 3,038 grams/tonne silver for payable gold and silver ounces of 244,722 and
11,765,902, respectively. This compares to 1996 shipments of 105,113 tonnes
grading 59.72 grams/tonne gold and 3,316 grams/tonne silver for payable gold and
silver ounces of 211,276 and 12,054,161, respectively. Total cash costs,
including smelter charges were US$157/ounce of gold equivalent in the year ended
December 31, 1997 versus US$170/ounce of gold equivalent in 1996. Eskay Creek is
one of the highest grade, lowest cost mines in the world. In 1998 the mine is
expected by the Company to produce 244,600 ounces of gold and 10,810,469 ounces
of silver at an estimated cash cost of US$161 per gold equivalent ounce.
SNIP MINE
Located approximately 90 kilometers north of Stewart, British Columbia, the
100% owned Snip mine produces gold in the form of dore and concentrate, the
latter shipped to a smelter in Japan. The mine commenced production in January
1991 and, based on the Company's estimate of proven and probable reserves as at
January 1, 1998, is expected to close in the first half of 1999. An intensive
exploration effort undertaken over the past few years failed to identify enough
reserves to continue production. The Company expects production in 1998 to be
100,000 ounces of gold at a cash cost of approximately US$225 per ounce.
Reclamation of the mine site and facilities will commence immediately on
cessation of production. Reclamation expenditures have been fully budgeted for
by management.
OVERVIEW OF HOMESTAKE
Homestake, a San Francisco based gold mining company, has been mining gold
since 1877. Homestake currently has operations in the United States, Canada,
Australia and Chile, consisting of ten underground mines and six open-pit mines.
Homestake also has extensive gold exploration programs in these countries as
well as in Brazil, Bulgaria and Hungary. After giving effect to the acquisition
of Plutonic Resources Limited, Homestake had as at January 1, 1998, 19.5 million
ounces of gold reserves. Homestake's share of production in 1997 was 2.3 million
ounces of gold at an operating cash cost of US$242 per ounce. In April 1998,
Homestake completed the acquisition of Plutonic Resources Limited of Australia
in exchange for Homestake Common Stock valued at approximately US$770 million.
The acquisition of Plutonic added five producing gold mines and doubled the
number of exploration programs in Homestake's portfolio.
Pro forma the acquisition of Plutonic Resources Limited, Homestake had
revenues of US$971 million in 1997 and a net loss of US$231 million after
writedowns and unusual charges of US$225 million, mostly
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related to a write-down of its Main Pass sulphur deposit in the Gulf of Mexico.
This compares with revenue of US$998 million and net income of US$46 million in
1996. In the first half of 1998 Homestake had revenues of US$412 million and a
net loss of US$38 million on gold production of 1.3 million ounces at a cash
cost US$207 per ounce. Cash flow from operations was US$64 million. This
compares to revenue of US$543 million on gold production of 1.2 million ounces
at a cash cost of US$256 per ounce in the first half of 1997. Cash flow from
operations was US$110 million in the first half of 1997.
Homestake's shares are listed on the New York Stock Exchange, Swiss Stock
Exchanges (Geneva, Zurich, Basel) and the Australian Stock Exchange. There are
211 million shares of Homestake common stock outstanding and the largest
reported shareholders are Mr. August Von Finck at 12.7% and Malaysia Mining
Corporation Berhad at 10.5%.
DEFINITION OF FAIR MARKET VALUE
For purposes of the Valuation, fair market value is defined as the highest
price, expressed in terms of money or money's worth, available in an open and
unrestricted market between informed and prudent parties, each acting at arm's
length, where neither party is under any compulsion to act. RBCDS has not made
any downward adjustment to the value of the Shares to reflect the liquidity of
the Shares, the effect of the Arrangement or the fact that the Shares held by
the Minority Shareholders do not form part of a controlling interest.
VALUATION OF THE SHARES
In the preparation of the Valuation of Prime, RBCDS used the following
methodologies:
1. net asset value ("NAV") analysis; and
2. an analysis of certain ratios of comparable publicly traded companies.
Each of the approaches is discussed in detail below.
RBCDS also reviewed precedent gold and precious metals company transactions,
but did not rely on them for the purposes of the Valuation since none of the
reviewed transactions were deemed to be truly comparable and the conditions of
the gold market at the time of the reviewed transactions were not comparable to
the current gold market.
NET ASSET VALUE METHOD
RBCDS primarily relied on NAV analysis in determining the fair market value
of Prime. The NAV approach allows for the separate assessment of all assets and
liabilities in the manner most appropriate to the nature of the particular asset
or liability. NAV analysis incorporates the use of discounted cash flow ("DCF")
analysis to determine the value of operating assets. Adjustments are made for
balance sheet items and the value of non-operating assets or investments. These
adjustments are either added to or subtracted from the value of the operating
assets to arrive at the NAV for the Company.
DISCOUNTED CASH FLOW ANALYSIS--OPERATING ASSETS
DCF analysis was used to value the Eskay Creek and Snip mines and takes into
account the amount, timing and relative certainty of projected unlevered free
cash flows expected to be generated by the two operations. The DCF approach
requires that certain assumptions be made regarding, among other things, future
cash flows and discount rates applied to those future cash flows. RBCDS
determined the discount rate applicable to the projected future cash flows from
Prime's operations based on assessment of risk, gold industry norms and other
financial and operational attributes specific to the operations.
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PRECIOUS METAL PRICES AND EXCHANGE RATE FORECASTS
The DCF analysis of Prime's operating assets incorporated gold and silver
price forecasts and exchange rate forecasts for the life of the mines. In
selecting the appropriate gold and silver prices, RBCDS relied upon price
forecasts provided by RBCDS' Global Mining Research department and then compared
those against consensus forecasts. Where RBCDS' forecasts were materially
inconsistent with consensus, the forecasts were adjusted appropriately. The DCF
analysis was based on a gold price of US$296 per ounce in 1998, US$330 per ounce
in 1999 and US$340 per ounce thereafter; a silver price of US$5.71 per ounce in
1998, US$6.22 per ounce in 1999 and US$6.29 per ounce thereafter; and a US$/C$
exchange rate of $0.69 in 1998 and $0.71 thereafter.
ESKAY CREEK MINE--DCF ANALYSIS
Future cash flows generated by the Eskay Creek mine were based on a life of
mine plan, which has been produced by Prime management. This life of mine plan
was used as the base case in the Valuation and also formed the basis for an
expanded or upside case. The audit of the ore reserves by Roscoe Postle
confirmed that the life of mine plan accurately reflects the reserves and
resources at Eskay Creek.
In addition to the metal prices and exchange rates outlined above, the
following major assumptions were used in performing a DCF analysis on the Eskay
Creek mine:
1. The life of mine plan assumes that 100% of the proven and probable ore
reserves and 60% of the resource as at January 1, 1998 are mined. For the
Valuation, 100% of the resource is assumed to be mined reflecting
historical conversion/addition of resources to reserves. Based on the
current mining rate of 145,200 tonnes per year, the reserves and
resources result in a mine life of approximately 11 years.
2. Production over the remaining life of the mine of 2.5 million ounces of
gold and 112.7 million ounces of silver at an operating cash cost of
US$154 per ounce gold equivalent.
3. An upside case was based on the life of mine plan but with marginally
higher production reflecting potential capacity increases for both the
DSO and millable ore. DSO production was increased by 20% and millable
ore production was increased by 10%. This upside case reflects
discussions with Prime management as to the suitability of the
assumptions as well as with management of the smelters to determine their
ability to accept increased shipments from the Eskay Creek mine.
4. The future cash flows from Eskay Creek in both the base and upside cases
were discounted at a real discount rate of 5.0%. This discount rate
reflects the relatively low risk inherent with the Eskay Creek operation
based on its three and a half year operating history, low cash costs and
that approximately 95% of the contained ounces are in the proven and
probable category. RBCDS also believes it is a rate representative of
that used by financial and industry participants in evaluating assets of
this nature.
Based on the above, RBCDS has assessed a pretax value for Eskay Creek at
C$849.4 to C$891.3 million.
RBCDS determined that Prime is fully taxable over the life of the Eskay
Creek mine and Homestake Canada's management have represented that there are no
material tax pools which may be applied against Prime's income upon completion
of the Arrangement. The present values of the cash taxes, at a 5% discount rate,
are C$451.8 to C$472.3 million under the life of mine plan and the higher
production case, respectively. This results in an after tax value for the Eskay
Creek mine of C$397.6 to C$419.0. A summary of the base case cash flow forecasts
used by RBCDS with respect to the Eskay Creek mine is included in Appendix A.
H-9
<PAGE>
SNIP MINE--DCF ANALYSIS
Based on the current reserves at the Snip mine, the operation is expected to
close in the first half of 1999. RBCDS has used management's operating forecasts
through to the end of the mine's life including forecast closure/reclamation
costs. The cash flows generated by the Snip mine are discounted at a 5.0% real
rate. RBCDS has assessed a pretax value for the Snip mine of C$6.3 million. A
range was not calculated given the modest impact of the value on the final NAV.
A summary of the base case cash flow forecasts used by RBCDS with respect to the
Snip mine is included in Appendix B.
EXPLORATION POTENTIAL--ESKAY CREEK MINE
In discussions with Eskay Creek mine staff, they have indicated that the
exploration potential at the mine site is good and they believe that up to
1,000,000 ounces of gold equivalent could be added to the existing reserve base
over the life of the mine. The record of reserve addition and replacement at the
Eskay Creek supports this expectation.
RBCDS has incorporated this potential into the Valuation by considering two
scenarios: a low case where only 50% of the 1,000,000 gold equivalent ounces are
added and a high case where the entire 1,000,000 gold equivalent ounces are
added. We have conservatively capitalized the additional ounces at US$50 per
ounce given the low operating costs at Eskay Creek (US$154 per ounce of gold
equivalent over the life of the mine) and hence the potential high profit margin
of these new ounces given stable gold prices. This results in a value for the
exploration potential at Eskay Creek of C$38.3 to C$76.5 million.
EXPLORATION PROPERTIES
Prime has a number of exploration properties outside of the Eskay Creek
mine. All but two of these properties are being explored on a joint venture
basis with Homestake Canada. All of these properties are at the preliminary
stage of exploration and do not contain gold reserves. For the purposes of the
Valuation, RBCDS relied on Roscoe Postle who were retained by the Special
Committee to value the exploration properties. Based on the Roscoe Postle
report, RBCDS has attributed a value to Prime's share of the exploration
properties of C$5.9 million. The Roscoe Postle report values the exploration
properties at C$6.7 million, however, its analysis includes the purchase by
Prime of Kenrich Mining Corporation shares related to Prime's obligations on the
Corey property. RBCDS has included the Kenrich Mining Corporation shares under
investments.
GENERAL AND ADMINISTRATIVE EXPENSES
Prime incurs general and administrative ("G&A") expenses of approximately
C$2.0 million per year to operate the Eskay Creek and Snip mines. The present
value of these G&A expenses over the life of Prime's operations at a 5% discount
rate is C$15.6 to C$16.7 million. This amount was deducted in the NAV
calculation.
CASH AND SHORT-TERM INVESTMENTS AND NON-CASH WORKING CAPITAL
As of June 30, 1998, Prime had cash and short-term investments of C$185.8
million. An additional C$361,000 was included assuming 20,000 options at C$9.55
and 20,000 options at C$8.50 were exercised. Other balance sheet items include
non-cash working capital of C$14.3 million and investments, marked to market, of
C$1.0 million. The aggregate value of C$201.5 million was added in the NAV
calculation.
HEDGING GAINS AND LOSSES
RBCDS has assessed Prime's silver and U.S. dollar hedging programs relative
to the forecast silver price (US$5.71 per ounce in 1998, US$6.22 per ounce in
1999 and US$6.29 per ounce thereafter) and foreign exchange rate (US$0.69 in
1998 and US$0.71 thereafter) used in the DCF analysis. The present
H-10
<PAGE>
value of the hedging programs is negative C$2.8 million. This amount was
deducted in the NAV calculation.
NET ASSET VALUE SUMMARY
<TABLE>
<CAPTION>
HIGH(1) LOW(2)
---------- ----------
<S> <C> <C>
(C$, THOUSANDS, EXCEPT
PER SHARE VALUES)
ASSETS
Eskay Creek mine(3,4)............................................... $ 418,965 $ 397,614
Snip mine(4)........................................................ 6,288 6,288
---------- ----------
Resource assets..................................................... 425,253 403,902
Exploration properties.............................................. 5,875 5,875
Investments......................................................... 975 975
Hedging gains (losses).............................................. (2,787) (2,787)
Cash(5)............................................................. 186,185 186,185
Non-cash working capital............................................ 14,315 14,315
---------- ----------
$ 629,816 $ 608,465
---------- ----------
LIABILITIES
Corporate G & A..................................................... $ 15,611 $ 16,662
---------- ----------
NET ASSET VALUE....................................................... $ 614,205 $ 591,803
---------- ----------
NAV PER SHARE(6)...................................................... $ 8.07 $ 7.78
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) High = expanded production scenario for Eskay Creek mine
(2) Low = life of mine plan for Eskay Creek mine
(3) Net of cash income and mining taxes
(4) Before corporate G&A
(5) Includes C$361,000 from the exercise of 20,000 options at C$9.55 and 20,000
options at C$8.50
(6) Based on fully-diluted Shares of 76,113,913
SENSITIVITY ANALYSIS
In completing our NAV calculation, RBCDS did not rely on any single series
of projected cash flows but performed sensitivity analyses on the NAV for both
the high and low cases by varying the long-term gold and silver price forecasts
and discount rate.
H-11
<PAGE>
SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
CHANGE
IN NAV PER SHARE
-----------------
<S> <C>
(C$)
LOW CASE
+US$20 per ounce gold from US$340 to US$360............................... $ 0.26
+US$0.50 per ounce silver from US$6.29 to US$6.79......................... $ 0.27
-2.5% in discount rate from 5% to 2.5%.................................... $ 0.59
-US$20 per ounce gold from US$340 to US$320............................... $ (0.27)
-US$0.50 per ounce silver from US$6.29 to US$5.79......................... $ (0.28)
+2.5% in discount rate from 5% to 7.5%.................................... $ (0.51)
HIGH CASE
+US$20 per ounce gold from US$340 to US$360............................... $ 0.26
+US$0.50 per ounce silver from US$6.29 to US$6.79......................... $ 0.27
-2.5% in discount rate from 5% to 2.5%.................................... $ 0.54
-US$20 per ounce gold from US$340 to US$320............................... $ (0.27)
-US$0.50 per ounce silver from US$6.29 to US$5.79......................... $ (0.28)
+2.5% in discount rate from 5% to 7.5%.................................... $ (0.47)
</TABLE>
MULTIPLE TO NAV
Public gold mining companies generally trade at a multiple to their NAV.
Therefore, in order to arrive at a fair market value for Prime, an appropriate
multiple must be applied to Prime's NAV. Prime is a unique company. Relative to
its size and its reliance on one mine for its cash flow, Prime is among the most
financially strong North American gold mining companies. Due to its uniqueness,
determining appropriate multiples for the Company's financial market statistics
is difficult as these multiples are based on comparable or similar companies.
RBCDS considered a number of factors when determining appropriate multiples
for Prime. RBCDS determined that a premium multiple should be used to value the
Shares. RBCDS determined that Prime should be assessed based on multiples of
senior North American gold producers. In determining the appropriateness of
premium multiples for Prime, RBCDS considered the following:
1. Prime's earnings and cash flow ratios are approximately equivalent to
senior North American gold producers;
2. Prime's market capitalization is approximately twice the largest market
capitalization of any of the intermediate North American gold producers;
3. Prime has significant exposure to silver (on a gold equivalent basis,
approximately 35% of reported 1997 production and 37% of reserves as at
January 1, 1998). The market is currently valuing primary silver
producers significantly higher than senior and intermediate North
American gold mining companies;
4. Prime's reserves and resources are of very high quality with 1997 cash
costs for production of US$169 per ounce of gold equivalent and 1998
forecast cash costs of US$161 per ounce. These cash costs are lower than
the senior North American gold mining companies and significantly lower
than the intermediate North American gold mining companies; and
5. Prime has historically traded at premium multiples to intermediate North
American gold producers, even given its constrained growth prospects.
H-12
<PAGE>
The comparable company analysis is presented in Appendix C. On average,
excluding outliers, senior North American gold mining companies are trading at a
multiple to NAV of 1.48 using a discount rate of 5%.
IMPLIED VALUE OF SHARES
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
IMPLIED VALUE PER SHARE
NAV per share..................................................... C$ 8.07 C$ 7.78
NAV Multiple(1)................................................... 1.48x 1.48x
---------- ----------
C$11.90 C$11.46
---------- ----------
ESKAY CREEK EXPLORATION POTENTIAL PER SHARE(2)
Ounces............................................................ 1,000,000 500,000
Capitalization (US$/ounce)........................................ $50 $50
---------- ----------
C$ 1.01 C$ 0.50
---------- ----------
IMPLIED VALUE PER SHARE............................................. C$12.91 C$11.96
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Based on the average price to NAV of senior North American gold producers
over the 30 days to September 4, 1998
(2) Reflects Eskay Creek mine staff's view on the exploration potential at the
mine site, as outlined under Exploration Potential--Eskay Creek Mine
Using the NAV approach with an appropriate market multiple and incorporating
the Eskay Creek exploration potential, RBCDS derived a per share value for Prime
of C$11.96 to C$12.91.
COMPARABLE PUBLICLY TRADED COMPANY METHOD
Due to Prime's aforementioned attributes, RBCDS selected senior publicly
traded North American gold mining companies as Prime's peers for the Valuation.
Although none of the companies chosen is identical to Prime, on a collective
basis they form a comparable group for the reasons outlined above. The companies
used in the comparable analysis are: Barrick Gold, Battle Mountain Gold, Kinross
Gold, Newmont Mining and Placer Dome.
The ratios analyzed to derive a value for Prime are:
1. Price-to-cash flow;
2. enterprise value-to-EBITDA;
3. adjusted market capitalization ("AMC") per ounce of annual production;
and
4. AMC per ounce of proven and probable reserves ("Reserves").
AMC is an estimate of the market value of a company's gold assets and is
calculated as follows: market capitalization plus long-term debt, less cash and
non-gold assets. A summary of the results (see Appendix C) is presented below.
H-13
<PAGE>
IMPLIED VALUE OF SHARES
<TABLE>
<CAPTION>
MULTIPLE RANGE VALUE PER SHARE RANGE
- -------------------------------------------- ------------------------- ---------------------
<S> <C> <C>
MULTIPLE (C$)
Price-to-Cash Flow........................ 8.0x to 9.3x $7.03 to $9.10
Enterprise Value-to-EBITDA................ 8.6x to 9.2x $14.75 to $15.62
AMC per Ounce of Annual Production........ US$1,086 to US$1,273 $13.28 to $16.09
AMC per Ounce of Reserves................. US$88 $9.91
Average(1).................................. $12.28
High........................................ $16.09
Low......................................... $7.03
</TABLE>
- ------------------------
(1) Average includes values not shown here; refer to Appendix C for complete
list
Based on the comparable publicly traded company multiples, RBCDS derived a
per Share value for Prime of C$7.03 to C$16.09.
BENEFITS TO HOMESTAKE OF ACQUIRING THE SHARES HELD BY MINORITY SHAREHOLDERS
In arriving at our Valuation, RBCDS reviewed and considered whether any
distinctive material value will accrue to Homestake through the acquisition of
the Shares held by the Minority Shareholders as contemplated in the Proposal.
Following discussions with Homestake Canada's auditors, RBCDS has concluded that
no material benefits would be realized from the earlier use of tax losses (as
none are available) or other tax synergies. Prime and Homestake management have
also represented that no material benefits would be realized from reduced
operating costs, increased revenues, higher asset utilization or other
operational or financial benefit. The elimination of public company costs may be
the only benefit, however the amount is not material and would in any event be
available to any third party purchaser of Prime.
VALUATION CONCLUSION
RBCDS placed the greatest emphasis on the NAV approach, with secondary
emphasis on the comparable publicly traded company approach. Based upon and
subject to the foregoing, RBCDS is of the opinion that, as at the date hereof,
the fair market value range of the Shares is C$11.00 to C$13.25 per Share.
VALUATION OF THE CONSIDERATION
Under the Proposal, the Minority Shareholders have the option to receive
either: (i) 0.74 of a share of Homestake common stock; or (ii) 0.74 of an
Exchangeable Share (see Exchangeable Shares below) (the "Consideration"). In
determining the fair market value of the Homestake common stock and the
Exchangeable Shares being offered by Homestake to the Minority Shareholders in
the Proposal, RBCDS has relied on the market value approach for the following
reasons:
1. Homestake has a substantial market capitalization of US$2.5 billion as
at September 4, 1998;
2. Homestake shares are highly liquid (see table LIQUIDITY OF PRIME AND
HOMESTAKE COMMON SHARES below);
3. Homestake is well known by the stock market and appears to trade on a
comparable basis in a manner consistent with other major mining
companies; and
H-14
<PAGE>
4. The number of shares offered as the Consideration (approximately 27.8
million or 11.6% of the pro forma Homestake common shares outstanding
following the Arrangement) would not be expected to cause a material
adverse effect on Homestake's share price.
RBCDS also believes that the market value of the Homestake common stock is
an appropriate indicator of the expected fair market value of the Exchangeable
Shares.
In addition, RBCDS is not aware of any material information which has not
been publicly disclosed which would reasonably be expected to affect the market
price of the Homestake common shares.
LIQUIDITY OF PRIME AND HOMESTAKE COMMON SHARES
<TABLE>
<CAPTION>
1998
1996 1997 (TO MAY 22)
--------- --------- -----------------
<S> <C> <C> <C>
PRIME
Annual Volume (million)(1).............................. 29.6 27.3 7.8
Percentage of Public Float(2)........................... 78.8% 72.6% 20.8%
Average Daily Volume (thousand)(3)...................... 118.4 109.2 31.2
HOMESTAKE
Annual Volume (million)(4).............................. 250.6 231.4 124.5
Percentage of Shares Outstanding(5)..................... 118.7% 109.6% 59.0%
Average Daily Volume (million)(3)....................... 1.0 0.93 1.2
Shares Received by Minority Shareholders (million)........ 27.8 27.8 27.8
Days Required to Trade Position........................... 28 30 23
</TABLE>
- ------------------------
(1) Toronto, Vancouver and American Stock Exchanges
(2) Public float: 37.6 million shares
(3) Assuming 250 trading days per year
(4) New York Stock Exchange
(5) Shares outstanding: 211.2 million
Based on the September 4, 1998 closing and the 30 day period to September 4,
1998, RBCDS used a value of US$12.00 and US$10.56, respectively, per Homestake
common share in determining the fair market value of the Consideration as shown
in the table below.
IMPLIED VALUE OF THE CONSIDERATION
<TABLE>
<CAPTION>
IMPLIED VALUE OF
AVERAGE HOMESTAKE AVERAGE AVERAGE HOMESTAKE THE
CLOSING PRICE EXCHANGE RATE(1) CLOSING PRICE CONSIDERATION(2)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
PERIOD (US$ ) (C$)
September 4,
1998............. $ 12.00 1.52 $18.24 $ 13.50
20 Days(1)....... $ 10.55 1.54 $16.24 $ 12.02
30 Days(1)....... $ 10.56 1.53 $16.16 $ 11.96
60 Days(1)....... $ 10.46 1.50 $15.73 $ 11.64
90 Days(1)....... $ 10.74 1.49 $15.95 $ 11.80
120 Days(1)...... $ 10.85 1.47 $15.95 $ 11.81
180 Days(1)...... $ 10.35 1.46 $15.10 $ 11.17
</TABLE>
- ------------------------
(1) Ending September 4, 1998
(2) Based on 0.74 Homestake common shares per Share
H-15
<PAGE>
EXCHANGEABLE SHARES
In order to defer Canadian capital gains tax arising from the receipt of
Homestake common stock (a non-Canadian entity) by Canadian holders of the
Shares, Homestake Canada (a Canadian entity) will issue Exchangeable Shares. The
Exchangeable Shares will have voting and dividend rights equivalent to the
rights attached to Homestake common stock. The Exchangeable Shares will be
exchangeable into a Homestake common share on a one-for-one basis at any time
and are subject to modification or adjustment based on changes in Homestake's
capitalization in order to maintain the one-for-one exchange ratio.
The Exchangeable Shares will remain outstanding until December 31, 2008
after which time they may be redeemed by Homestake or one of its subsidiaries
for Homestake common stock. The Exchangeable Shares can also be redeemed by
Homestake or one its subsidiaries if there ceases to be greater than
approximately 1.4 million Exchangeable Shares outstanding. The Exchangeable
Shares will be listed on The Toronto Stock Exchange.
FAIRNESS CONSIDERATIONS
In assessing the fairness of the Proposal, from a financial point of view,
to the Minority Shareholders, RBCDS principally considered and relied upon the
following:
1. a comparison of the Valuation to the value of the Consideration, and
2. a comparison of the premium over recent trading levels of the Shares
represented by the value of the Consideration to premiums paid in other
transactions in the Canadian market where controlling shareholders
successfully acquired publicly traded minority interests.
COMPARISON OF THE FAIR MARKET VALUE OF PRIME AND THE CONSIDERATION
The fair market value of the Shares was determined to be in the range of
C$11.00 to C$13.25 per Share as described above. The fair market value of the
Consideration to be received by the Minority Shareholders under the Proposal of
C$13.50 as at September 4, 1998 is above this range but based on the average
closing price for the Homestake common shares for the 30 trading days ended
September 4, 1998 of C$11.96, it is within this range.
COMPARABLE RELATED PARTY TRANSACTION PREMIUMS
Our review of other transactions in the Canadian equity markets where
related parties successfully acquired publicly traded minority interests
identified 53 such transactions with a value over $10 million over the past five
years. Success was defined as acquiring at least one-half of the minority shares
outstanding at the time of the transaction. Defining the premium for this
purpose as the amount by which the value per share offered under the relevant
transaction exceeded the closing price of the shares on their principal trading
exchange on the day prior to announcement of the transaction, resulted in
premiums as follows:
PREMIUMS PAID IN CANADIAN GOING PRIVATE TRANSACTIONS: 1993--1998
<TABLE>
<CAPTION>
HIGHEST LOWEST MEAN MEDIAN
- --------- --------- --------- ---------
<S> <C> <C> <C>
100% 11% 34% 29%
</TABLE>
The range of premiums paid in the above transactions is very wide. Although
every transaction has its own particular circumstances and direct comparison of
any single transaction to the Proposal is difficult, RBCDS believes the 53
transactions reviewed, in the aggregate, provide a useful comparison benchmark.
H-16
<PAGE>
The implied premiums over the closing price of the Shares on May 22, 1998
(the last trading day prior to the announcement of the Proposal) represented by
various implied values of the Consideration under the Proposal are shown in the
table below and are within the range of comparable related party transaction
premiums.
IMPLIED PREMIUMS OF THE PROPOSAL
<TABLE>
<CAPTION>
AVERAGE IMPLIED VALUE
HOMESTAKE AVERAGE OF THE
CLOSING EXCHANGE PROPOSAL(2) PREMIUM OVER MAY 22,
PRICE RATE (C$) 1998 PRIME CLOSING PRICE(3)
------------ ----------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
PERIOD/DATE
September 4, 1998......................... US$12.00 $ 1.52 $ 13.54 28.9%
30 Days(1)................................ US$10.56 $ 1.53 $ 11.96 13.9%
</TABLE>
- ------------------------
(1) Ending September 4, 1998 for Homestake and C$/US$ exchange rates.
(2) At 0.74 Homestake common shares per Share.
(3) The May 22, 1998 closing price for the Shares was C$10.50.
H-17
<PAGE>
The chart below illustrates that a 0.74 exchange ratio is above the
historical Prime-Homestake exchange ratio.
[GRAPH]
FAIRNESS CONCLUSION
Based upon and subject to the foregoing, RBCDS is of the opinion that, as at
the date hereof, the Proposal is fair from a financial point of view to the
Minority Shareholders.
Yours very truly,
RBC DOMINION SECURITIES INC.
H-18
<PAGE>
APPENDIX A: ESKAY CREEK MINE--BASE CASE CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Payable Metal
(ozs)
Gold............... 244,600 243,974 244,250 243,422 243,422 240,846 238,242 238,242 237,172 223,105
Silver............. 10,810,469 10,606,312 10,598,101 10,589,889 10,609,049 10,889,108 11,065,093 11,056,882 11,063,209 9,940,674
Gold Equivalent.... 453,140 443,887 440,315 439,335 439,690 442,295 442,946 442,794 441,841 407,008
(C$ 000)
Gross Revenue........ $ 194,301 $ 206,314 $ 210,855 $ 210,386 $ 210,556 $ 211,803 $ 212,115 $ 212,042 $ 211,586 $ 194,905
Net Smelter Return... $ 151,821 $ 164,023 $ 167,983 $ 167,211 $ 167,035 $ 167,804 $ 167,694 $ 167,258 $ 166,458 $ 150,041
Operating Costs...... $ 53,562 $ 51,855 $ 52,049 $ 52,199 $ 51,859 $ 52,030 $ 52,197 $ 52,364 $ 52,030 $ 51,049
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating Income..... $ 98,259 $ 112,167 $ 115,935 $ 115,012 $ 115,176 $ 115,774 $ 115,497 $ 114,895 $ 114,428 $ 98,993
Noncash Expenses..... $ 17,893 $ 17,845 $ 17,865 $ 17,806 $ 17,806 $ 17,611 $ 17,416 $ 17,416 $ 17,327 $ 17,089
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income Before Tax.... $ 80,367 $ 94,322 $ 98,069 $ 97,206 $ 97,370 $ 98,163 $ 98,081 $ 97,479 $ 97,100 $ 81,904
Depreciation......... $ 17,392 $ 17,328 $ 17,348 $ 17,290 $ 17,290 $ 17,100 $ 16,911 $ 16,911 $ 16,825 $ 16,593
Reclamation
Accrual............ $ 501 $ 517 $ 518 $ 516 $ 516 $ 510 $ 505 $ 505 $ 502 $ 495
Working Capital (Inc)
Dec................ $ 9,608 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Capital
Expenditures....... $ (3,268) $ (1,000) $ (1,000) $ (1,000) $ (1,000) $ (1,000) $ (1,000) $ (1,000) $ (1,000) $ (1,000)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Pre-tax Free Cash
Flow............... $ 104,599 $ 111,167 $ 114,935 $ 114,012 $ 114,176 $ 114,774 $ 114,497 $ 113,895 $ 113,428 $ 97,993
Income and Mining
Tax Expense(1)..... $ 48,475 $ 52,563 $ 56,035 $ 56,862 $ 59,103 $ 60,655 $ 63,398 $ 64,270 $ 65,178 $ 58,767
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Free Cash Flow....... $ 56,125 $ 58,604 $ 58,900 $ 57,150 $ 55,073 $ 54,119 $ 51,099 $ 49,625 $ 48,250 $ 39,226
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
2008 2009
--------- ---------
<S> <C> <C>
Total Payable Metal
(ozs)
Gold............... 124,407 29,610
Silver............. 4,858,936 657,057
Gold Equivalent.... 214,297 41,765
(C$ 000)
Gross Revenue........ $ 102,621 $ 20,000
Net Smelter Return... $ 74,057 $ 16,488
Operating Costs...... $ 38,583 $ 16,246
--------- ---------
Operating Income..... $ 35,474 $ 242
Noncash Expenses..... $ 10,451 $ 2,858
--------- ---------
Income Before Tax.... $ 25,023 $ (2,616)
Depreciation......... $ 10,148 $ 2,775
Reclamation
Accrual............ $ 303 $ (6,017)
Working Capital (Inc)
Dec................ $ 3,565 $ 0
Capital
Expenditures....... $ (1,000) $ (1,000)
--------- ---------
Pre-tax Free Cash
Flow............... $ 38,039 $ (6,858)
Income and Mining
Tax Expense(1)..... $ 28,715 $ 5
--------- ---------
Free Cash Flow....... $ 9,324 $ (6,863)
--------- ---------
--------- ---------
</TABLE>
- ------------------------------
(1) 100% of all taxes
A-1
<PAGE>
APPENDIX B: SNIP MINE--BASE CASE CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
1998 1999 2000 2001
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total Payable Metal (ozs)
Gold................................................................. 106,953 35,488 -- --
(C$ 000)
Gross Revenue.......................................................... $ 45,860 $ 16,494 -- --
Net Smelter Return..................................................... $ 44,301 $ 15,967 -- --
Operating Costs........................................................ $ 30,285 $ 12,579 -- --
--------- --------- --------- ---------
Operating Income....................................................... $ 14,016 $ 3,388 -- --
Other Expenses......................................................... $ 19,595 -- -- --
--------- --------- --------- ---------
Income Before Tax...................................................... $ (5,579) $ 3,388 -- --
Depreciation........................................................... $ 18,958 -- -- --
Reclamation accrual.................................................... $ 305 -- -- --
Reclamation expense.................................................... -- $ (4,614) $ (1,300) $ (1,300)
Working Capital (Inc) Dec.............................................. $ (626) $ 3,816 $ (276) --
Capital Expenditures................................................... -- -- -- --
--------- --------- --------- ---------
Pre-tax Free Cash Flow................................................. $ 13,058 $ 2,590 $ (1,576) $ (1,300)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
B-1
<PAGE>
APPENDIX C: COMPARABLE COMPANY ANALYSIS
(C$ UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
CASH FLOW PER
SHARE(1) EBITDA(1) PRODUCTION(2)
SHARES ---------------------- ---------------------- ---------------------------------
O/S LTM 1998E 1999E LTM 1998E 1999E 1997 1998E 1999E P+P RESERVES(2)
------- ----- ------ ------ ------ ------ ------ --------- --------- --------- -----------------
(MM) ($) ($) ($) ($ MM) ($ MM) ($ MM) (000 OZS) (000 OZS) (000 OZS) (000 OZS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIME STATISTICS
Prime
Resources...... 76.1 $1.00 $0.79 $0.88 $116.7 $101.8 $110.4 533 560 479 4,208
</TABLE>
<TABLE>
<CAPTION>
PRICE/CASH FLOW ENT. VALUE/EBITDA AMC/OZ PRODUCTION
---------------------- ---------------------- ---------------------------------
LTM 1998E 1999E LTM 1998E 1999E 1997 1998E 1999E
----- ------ ------ ------ ------ ------ --------- --------- ---------
(US$) (US$) (US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIME MULTIPLES(3)
Prime Resources........ 10.9 x 13.9x 12.5x 5.5 x 6.4 x 5.9 x $ 793 $ 754 $ 881
COMPARABLE
MULTIPLES(3,4)
Average Senior North
American Golds....... 9.9 x 10.0x 8.8x 9.5 x 11.2 x 9.7 x $1,357 $1,187 $1,148
Average (exc.
outliers)............ 9.1 x 9.3x 8.0x 8.6 x 9.2 x 8.7 x $1,273 $1,086 $1,125
IMPLIED VALUES (C$
MM)(5)............... $692 $ 554 $ 535 $1,003 $ 937 $ 958 $1,038 $ 930 $ 825
Less: Net Debt (Net
Cash).............. n/a n/a n/a $(186 ) $(186 ) $(186 ) $ (186) $ (186) $ (186)
Less: Non-Gold
Assets............. n/a n/a n/a n/a n/a n/a n/a n/a n/a
----- ------ ------ ------ ------ ------ --------- --------- ---------
IMPLIED EQUITY VALUE... $692 $ 554 $ 535 $1,118 $1,122 $1,144 $1,224 $1,116 $1,011
----- ------ ------ ------ ------ ------ --------- --------- ---------
----- ------ ------ ------ ------ ------ --------- --------- ---------
Per Share............ $9.10 $7.28 $7.03 $15.62 $14.75 $15.03 $16.09 $14.67 $13.28
----- ------ ------ ------ ------ ------ --------- --------- ---------
----- ------ ------ ------ ------ ------ --------- --------- ---------
Average.............................................................................................................
High................................................................................................................
Low.................................................................................................................
<CAPTION>
AMC/OZ
---------------
P+P RESERVES
---------------
(US$)
<S> <C>
PRIME MULTIPLES(3)
Prime Resources........ $ 100
COMPARABLE
MULTIPLES(3,4)
Average Senior North
American Golds....... $ 92
Average (exc.
outliers)............ $ 88
IMPLIED VALUES (C$
MM)(5)............... $ 568
Less: Net Debt (Net
Cash).............. $ (186)
Less: Non-Gold
Assets............. n/a
------
IMPLIED EQUITY VALUE... $ 754
------
------
Per Share............ $ 9.91
------
------
Average................ $12.28
High................... $16.09
Low.................... $ 7.03
</TABLE>
- ------------------------------
(1) RBCDS estimates at US$296/oz gold for 1998, US$330/oz for 1999 and US$340/oz
long-term
(2) Gold equivalent
(3) Based on 30 days average share prices and exchange rate to September 4, 1998
(4) Sources: Cash flow and EBITDA estimates from I/B/E/S; production estimates
from RBCDS; P+P reserves as reported
(5) C$/US$ exchange rate: $1.530
C-1
<PAGE>
(C$ UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
PRICE/EARNINGS PRICE/CASH FLOW
------------------------- -------------------------
SHARES MARKET PRICE/
SHARE PRICE OUTSTANDING CAP(1) LTM 1998E(2) 1999E(2) LTM 1998E(2) 1999E(2) NAV(3,4)
----------- ----------- -------- ---- -------- -------- ---- -------- -------- --------
30 DAY AVE. (MM) (US$ MM)
TO SEPT. 4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Resources.......... C$10.94 76.1 $ 544.0 24.0x 34.3x 18.5x 10.9x 13.9x 12.5x 1.4x
Homestake Mining......... $10.56 211.2 $2,230.0 nmf nmf nmf 58.8x 17.6x 14.3x 1.3x
SENIOR NORTH AMERICAN
GOLDS
Barrick Gold............. $15.89 375.8 $5,973.3 24.1x 21.2x 18.9x 12.4x 12.1x 9.3x 1.6x
Battle Mountain Gold..... $4.54 229.8 $1,043.7 nmf nmf nmf 15.6x 15.1x 12.6x 3.3x
Kinross Gold............. $2.41 292.2 $ 703.8 nmf nmf nmf 6.9 x 8.0x 7.3x 1.8x
Newmont Mining........... $17.44 156.5 $2,729.3 12.9x 28.1x 26.0x 6.8 x 7.3x 7.4x 1.1x
Placer Dome.............. $10.10 250.0 $2.524.2 nmf 42.1x 31.6x 7.9 x 7.6x 7.4x 1.3x
AVERAGE SENIOR NORTH
AMERICAN GOLDS......... 18.5X 30.5X 25.5X 9.9 X 10.0X 8.8X 1.8X
AVERAGE (EXC.
OUTLIERS).............. NMF 28.1X 26.0X 9.1 X 9.3X 8.0X 1.48X
INTERMEDIATE NORTH
AMERICAN GOLDS
Cambior.................. C$7.18 70.4 $ 330.2 25.1x 33.5x 156.4x 3.6 x 4.2x 4.9x 1.0x
Echo Bay Mines........... C$2.91 140.6 $ 267.8 nmf nmf nmf 19.1x 11.2x 9.1x nmf
Getchell Gold............ $12.30 30.8 $ 378.8 nmf nmf 25.6x nmf 45.6x 9.8x nmf
Meridian Gold............ $3.53 73.6 $ 259.9 nmf nmf nmf nmf 58.9x 16.1x 1.1x
Royal Oak Mines.......... C$0.85 140.9 $ 78.3 nmf nmf nmf nmf nmf 10.6x nmf
TVX Gold................. $1.88 158.4 $ 297.7 nmf nmf nmf 3.6 x 5.9x 5.7x nmf
AVERAGE INTERMEDIATE NORTH AMERICAN GOLDS..................... 25.1X 33.5X 91.0X 8.8 X 25.1X 9.4X 1.0X
AVERAGE (EXC. OUTLIERS)....................................... NMF NMF NMF 3.6 X 20.9X 8.8X NMF
AVERAGE....................................................... 20.7X 31.2X 51.7X 9.5 X 17.6X 9.1X 1.6X
AVERAGE (EXC. OUTLIERS)....................................... 24.1X 30.8X 27.7X 8.9 X 14.1X 8.8X 1.4X
<CAPTION>
PRICE/
BOOK
------
<S> <C>
Prime Resources.......... 2.5x
Homestake Mining......... 3.7x
SENIOR NORTH AMERICAN
GOLDS
Barrick Gold............. 1.7x
Battle Mountain Gold..... 2.1x
Kinross Gold............. 0.8x
Newmont Mining........... 1.7x
Placer Dome.............. 1.5x
AVERAGE SENIOR NORTH
AMERICAN GOLDS......... 1.6X
AVERAGE (EXC.
OUTLIERS).............. 1.6X
INTERMEDIATE NORTH
AMERICAN GOLDS
Cambior.................. 0.6x
Echo Bay Mines........... 1.8x
Getchell Gold............ 1.6x
Meridian Gold............ 2.5x
Royal Oak Mines.......... 0.4x
TVX Gold................. 0.6x
AVERAGE INTERMEDIATE NORT 1.2X
AVERAGE (EXC. OUTLIERS).. 1.1X
AVERAGE.................. 1.4X
AVERAGE (EXC. OUTLIERS).. 1.4X
</TABLE>
- ------------------------------
(1) C$/US$ exchange: $1.530
(2) I/B/E/S estimated, except Prime which are RBCDS projections
(3) RBCDS estimates at a 5% discount rate and US$296/oz gold for 1998, US$330/oz
for 1999 and US$340/oz long-term
(4) Average excluding high Senior multiple only
C-2
<PAGE>
(US$ UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
ENT. VALUE/EBITDA ENT.VALUE/PRE-EXPL'N CF
MARKET NET ENT.VALUE/ ------------------------- ------------------------- NET DEBT/
CAP.(1) DEBT(1)(2) LTM REVENUE LTM 1998E(3) 1999E(3) LTM 1998E(4) 1999E(4) TOTAL CAP.
-------- ---------- ------------ ---- -------- -------- ---- -------- -------- ----------
(US$ MM) (US$ MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Resources........ $ 544.0 $ (121.5) 3.0x 5.5 x 6.4x 5.9x 8.0 x 10.5x 9.5x 0.0%
Homestake Mining....... $2,230.0 $ 184.4 2.9x 19.5x 19.8x 14.6x 26.7x 13.5x 11.6x 7.6%
SENIOR NORTH AMERICAN
GOLDS
Barrick Gold........... $5,973.3 $ 141.0 4.8x 10.9x 11.1x 10.2x 11.7x 11.4x 8.9x 2.3%
Battle Mountain Gold... $1,043.7 $ 192.1 3.6x 14.9x 21.7x 16.6x 14.9x 14.6x 12.6x 14.3%
Kinross Gold........... $ 703.8 $ 84.6 1.8x 6.9 x 6.5x 5.8x 7.2 x 8.1x 7.4x 9.6%
Newmont Mining......... $2,729.3 $1,286.9 2.5x 6.8 x 9.5x 9.4x 8.2 x 8.6x 8.7x 32.0%
Placer Dome............ $2,524.2 $ 275.0 2.3x 8.0 x 7.0x 6.4x 7.3 x 7.0x 6.8x 8.9%
AVERAGE SENIOR NORTH
AMERICAN GOLDS....... 3.0X 9.5 X 11.2X 9.7X 9.9 X 9.9X 8.9X 13.4%
AVERAGE (EXC.
OUTLIERS)............ 2.8X 8.6 X 9.2X 8.7X 9.1 X 9.4X 8.3X 10.9%
INTERMEDIATE NORTH
AMERICAN GOLDS
Cambior................ $ 330.2 $ 133.9 1.3x 5.2 x 5.7x 6.7x 5.1 x 5.5x 6.3x 28.8%
Echo Bay Mines......... $ 267.8 $ 34.8 1.1x 6.5 x 9.1x 6.8x 7.9 x 6.3x 5.6x 11.5%
Getchell Gold.......... $ 378.8 $ (18.5) 6.7x nmf 310.3x 15.4x nmf 37.5x 9.1x 0.0%
Meridian Gold.......... $ 259.9 $ (51.5) 3.1x nmf 37.4x 13.8x 9.4 x 7.5x 5.3x 0.0%
Royal Oak Mines........ $ 78.3 $ 221.5 2.8x 98.5x nmf 55.4x nmf 792.4x 22.6x 73.9%
TVX Gold............... $ 297.7 $ 108.3 2.5x 15.0x 12.6x 11.5x 4.2 x 6.4x 6.2x 26.7%
AVERAGE INTERMEDIATE
NORTH AMERICAN
GOLDS................ 2.9X 31.3X 75.0X 18.3X 6.7 X 142.6X 9.2X 23.5%
AVERAGE (EXC.
OUTLIERS)............ 2.4X 10.7X 19.7X 11.9X 6.5 X 14.4X 6.8X 16.8%
AVERAGE................ 3.0X 19.2X 43.1X 14.4X 8.4 X 82.3X 9.0X 18.9%
AVERAGE (EXC.
OUTLIERS)............ 2.7X 9.9 X 14.4X 10.8X 8.1 X 11.9X 8.0X 14.9%
</TABLE>
- ------------------------------
(1) C$/US$ exchange rate: $1.530
(2) Total debt (long-term debt, leases, bank debt and convertible debentures)
less cash plus minority interest
(3) Earnings estimates (pretax) plus last 12 months interest and depreciation
and amortization expenses
(4) I/B/E/S cash flow estimates (except Prime which are RBCDS projections) plus
last 12 months exploration expense after tax
C-3
<PAGE>
(US$ UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
AMC/OZ PRODUCTION
PRODUCTION(3)
ADJUSTED --------------------------------- P+P ----------------------
MC(1)(2) 1997(4) 1998E(5) 1999E(5) RESERVES(3) RESOURCE(3) 1997 1998E 1999E
-------- --------- --------- --------- ----------- ------------ ------ ------ ------
(US$ MM) (000 OZS) (000 OZS) (000 OZS) (000 OZS) (000 OZS) (US$) (US$) (US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Resources........ $ 422.6 533 560 479 4,208 4,503 $ 793 $ 754 $ 881
Homestake Mining....... $2,298.3 2,266 2,048 2,169 20,233 41,122 $1,014 $1,122 $1,060
SENIOR NORTH AMERICAN
GOLDS
Barrick Gold........... $6,114.3 3,048 3,036 3,554 50,318 70,524 $2,006 $2,014 $1,720
Battle Mountain Gold... $1,127.7 894 876 879 10,458 14,563 $1,262 $1,287 $1,283
Kinross Gold........... $ 788.3 499 1,188 1,225 10,062 26,831 $1,581 $ 663 $ 643
Newmont Mining......... $3,863.3 3,957 3,918 3,782 52,700 71,425 $ 976 $ 986 $1,021
Placer Dome............ $2,546.2 2,647 2,587 2,380 32,470 53,684 $ 962 $ 984 $1,070
AVERAGE SENIOR NORTH
AMERICAN GOLDS....... $1,357 $1,187 $1,148
AVERAGE (EXC.
OUTLIERS)............ $1,273 $1,086 $1,125
INTERMEDIATE NORTH
AMERICAN GOLDS
Cambior................ $ 176.0 520 612 649 7,419 15,279 $ 339 $ 288 $ 271
Echo Bay Mines......... $ 302.6 883 600 595 8,083 10,106 $ 343 $ 504 $ 508
Getchell Gold.......... $ 360.2 180 279 500 6,178 12,800 $2,005 $1,291 $ 720
Meridian Gold.......... $ 208.4 203 200 209 2,096 5,337 $1,028 $1,042 $ 997
Royal Oak Mines........ $ 92.1 352 306 438 7,016 19,516 $ 262 $ 301 $ 210
TVX Gold............... $ 406.0 395 510 483 6,163 25,023 $1,027 $ 797 $ 841
AVERAGE INTERMEDIATE
NORTH AMERICAN
GOLDS................ $ 834 $ 704 $ 591
AVERAGE (EXC.
OUTLIERS)............ $ 684 $ 661 $ 585
AVERAGE................ $1,072 $ 923 $ 844
AVERAGE (EXC.
OUTLIERS)............ $1,058 $ 873 $ 817
<CAPTION>
AMC/OZ
------------------------
P+P
RESERVES RESOURCE
------------ ---------
(US$) (US$)
<S> <C> <C>
Prime Resources........ $100 $94
Homestake Mining....... $114 $56
SENIOR NORTH AMERICAN
GOLDS
Barrick Gold........... $122 $87
Battle Mountain Gold... $108 $77
Kinross Gold........... $ 78 $29
Newmont Mining......... $ 73 $54
Placer Dome............ $ 78 $47
AVERAGE SENIOR NORTH
AMERICAN GOLDS....... $ 92 $59
AVERAGE (EXC.
OUTLIERS)............ $ 88 $60
INTERMEDIATE NORTH
AMERICAN GOLDS
Cambior................ $ 24 $12
Echo Bay Mines......... $ 37 $30
Getchell Gold.......... $ 58 $28
Meridian Gold.......... $ 99 $39
Royal Oak Mines........ $ 13 $ 5
TVX Gold............... $ 66 $16
AVERAGE INTERMEDIATE
NORTH AMERICAN
GOLDS................ $ 50 $22
AVERAGE (EXC.
OUTLIERS)............ $ 46 $21
AVERAGE................ $ 69 $39
AVERAGE (EXC.
OUTLIERS)............ $ 69 $37
</TABLE>
- ------------------------------
(1) C$/US$ exchange rate: $1.530
(2) Market capitalization plus net debt (not including minority interest) less
non-gold assets
(3) Gold equivalent for Prime, Homestake, Battle Mountain, Kinross, Placer Dome,
Echo Bay, Meridian and TVX
Production--silver: gold=68:1 (Source: 1997 Prime Annual report)
Reserves, resource--silver: gold=77:1 (Source: 1997 Prime Annual report)
(4) Homestake restated to include Plutonic
(5) RBCDS estimates
C-4
<PAGE>
APPENDIX I
PRIME RESOURCES GROUP INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
For the Six Months Ended June 30, 1998:
Management's Discussion and Analysis..................................................................... I-2
Condensed Balance Sheets as of June 30, 1998 and December 31, 1997 (Unaudited)........................... I-8
Condensed Statements of Income for the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited)..... I-9
Condensed Statements of Cash Flows for the Three and Six Months Ended June 30, 1998 and 1997
(Unaudited)............................................................................................ I-10
Notes to Condensed Financial Statements (Unaudited)...................................................... I-11
For the Years Ended December 31, 1997, 1996 and 1995:
Management's Discussion and Analysis..................................................................... I-14
Independent Auditors' Report............................................................................. I-21
Balance Sheets as of December 31, 1997 and 1996.......................................................... I-22
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995................................ I-23
Statements of Deficit for the Years Ended December 31, 1997, 1996 and 1995............................... I-23
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............................ I-24
Notes to Financial Statements............................................................................ I-25
Selected Financial Data.................................................................................. I-34
Selected Five-Year Financial Information................................................................. I-35
Selected Financial Information for the Last Eight Quarters............................................... I-35
</TABLE>
I-1
<PAGE>
PRIME RESOURCES GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNLESS OTHERWISE NOTED, ALL AMOUNTS IN CANADIAN DOLLARS)
(UNLESS SPECIFICALLY STATED OTHERWISE, THE FOLLOWING INFORMATION RELATES TO
AMOUNTS INCLUDED IN THE FINANCIAL STATEMENTS. PRIME RESOURCES GROUP INC.
("PRIME") REPORTS PER OUNCE PRODUCTION COSTS IN ACCORDANCE WITH THE "GOLD
INSTITUTE PRODUCTION COST STANDARD.")
OVERVIEW
Prime's financial and operating results are derived primarily from precious
metal mining and related activities at Prime's Eskay Creek and Snip mines. Both
mines continued to be low-cost producers and generated significant cash flows
during 1998.
Prime recorded net income of $8.5 million or $0.11 per share for the second
quarter of 1998 compared to $7.6 million or $0.10 per share for the second
quarter of 1997.
Six month 1998 net income of $19.8 million or $0.26 per share compares to
six month 1997 net income of $16.6 million or $0.22 per share in the prior year.
Prime's total production of gold and gold equivalent contained in ore, dore
and concentrates increased by 19% to 156,760 ounces in the second quarter of
1998 compared with 132,212 ounces in the second quarter of 1997. Cash costs,
which include third-party smelter costs, declined 15% to US$145 per gold
equivalent ounce compared with US$171 per ounce in the second quarter of 1997.
For the first six months, Prime's production of gold and gold equivalent
contained in ore, dore and concentrates increased by 26% to 321,620 ounces in
1998 compared with 255,039 ounces in 1997. Cash costs, which include third-party
smelter costs, declined 19% to US$141 per gold equivalent ounce compared with
US$173 per ounce in 1997.
In February 1998, Prime adopted a gold and silver hedging policy which
provides for the use of forward sales contracts for up to 40% of each of the
following five year's expected annual gold and silver production at prices in
excess of certain targeted prices. At June 30, 1998, Prime had made forward
sales of approximately 7.2 million ounces of silver to be delivered during the
period 1999 to 2001 at an average price of US$6.28 per ounce.
At June 30, 1998, Prime had working capital of $200.1 million, including
cash and short-term investments of $185.8 million. With no debt, Prime's
financial position is strong.
RESULTS OF OPERATIONS
OPERATIONS
ESKAY CREEK:
During the second quarter of 1998, the Eskay Creek mine produced ore and
concentrates containing 69,978 payable ounces of gold and 3.12 million payable
ounces of silver, equal to 129,916 ounces of gold equivalent compared to 56,527
payable ounces of gold and 3.2 million payable ounces of silver, equal to
100,937 gold equivalent ounces in the second quarter of 1997. This increase was
due to initial production from the new gravity/flotation mill and 11% higher
gold grades in direct ore sales, partially offset by a planned 18% reduction in
direct ore shipments. Cash costs, including third-party smelter costs, decreased
15% to US$134 per ounce compared to US$157 per ounce in 1997.
For the first six months of 1998, the Eskay Creek mine produced ore and
concentrates containing 143,418 ounces of gold and 6.3 million payable ounces of
silver, equal to 271,084 ounces of gold equivalent
I-2
<PAGE>
compared to 110,864 payable ounces of gold and 6 million payable ounces of
silver equal to 195,516 gold equivalent ounces in the first half of 1997. Cash
costs, including third-party smelter costs, decreased 21% to US$127 per gold
equivalent ounce at Eskay Creek in the first half of 1998 compared to US$161 per
gold equivalent ounce in the first half of 1997.
Increased production, a favorable gold to silver equivalency ratio and a
weaker Canadian dollar in relation to the US dollar were the primary reasons for
the decline in cash costs during 1998.
Commercial production from the new 165 ton per day gravity/flotation mill
commenced on January 1, 1998. This new facility is performing in accordance with
design specifications with slightly better than expected concentration ratios
achieved to date. Concentrate sales from this new facility contributed 32,400
ounces of gold and 1 million ounces of silver to reported production during the
first half of 1998.
During the second quarter of 1998, $0.7 million was spent on in-mine
exploration at the Eskay Creek mine increasing the year-to-date total in-mine
exploration expenditures to $1.1 million. The exploration program consisted of a
total of 34,000 feet of diamond drilling, primarily from the extension of the
No.5 ramp to test the mineralized material at the north end of the mine.
SNIP:
During the second quarter of 1998 the Snip mine produced 26,844 ounces of
gold, compared to 31,275 ounces in the second quarter of 1997. This decrease
primarily was due to 11% lower ore grade in 1998. Cash costs per ounce were
lower by 6% at US$203 in 1998 second quarter compared to US$216 in the second
quarter of 1997. The primary reasons for the decrease in cash costs in 1998 were
lower concentrate transportation costs (which were abnormally high in 1997 due
to a campaign to reduce on-site inventories) and a more favorable exchange rate
in 1998.
For the first six months, the Snip mine produced concentrates and ore
containing 50,536 ounces of gold in 1998, compared to 59,523 ounces in 1997.
Cash costs per ounce were US$213 in 1998 compared to US$210 in 1997.
Based on January 1, 1998 proven and probable reserves, which were calculated
assuming a US$325 gold price, the Snip mine is scheduled to cease production on
or about April 1, 1999. Gold prices were below US$325 during the first half of
1998 and if prices do not improve, some of the remaining reserves may not be
economic. In light of this, the amortization and depreciation of the remaining
capital costs were accelerated during the first half of 1998 such that all these
costs will be completely recovered by the end of 1998.
At Snip, a total of 31,000 feet of diamond drilling was completed and the
majority of the planned 1998 exploration program has been concluded. Exploration
expenditures were $0.3 million during the first half of 1998. However, no
significant mineralization was encountered.
REVENUES
PRODUCT SALES from dore, concentrate and ore sales in the three and six
months ended June 30, 1998 were $53.8 million and $110.5 million, respectively,
compared to $52.7 million and $100 million for the three and six months ended
June 30, 1997, respectively. Increased gold production and higher silver prices
more than offset the decline in the gold prices. Prime's average realized gold
price in the first half of 1998 decreased US$52 per ounce to US$295, while the
average realized silver price increased US$0.97 per ounce to US$5.87 per ounce
compared to the first half of 1997.
Approximately 38% of Prime's sales revenue in the second quarter of 1998 was
attributable to Eskay Creek silver production. The mine produced 3.1 million
ounces of silver during the second quarter of 1998 compared to 3.2 million
ounces in the second quarter of 1997.
I-3
<PAGE>
INTEREST AND OTHER INCOME increased to $2.3 million in the second quarter of
1998 compared to $1.1 million in the second quarter of 1997. In the first six
months, interest income was $4.1 million in 1998, compared to $2.1 million in
1997, reflecting higher cash balances and higher interest rates. The average
bank prime interest rate in the first half of 1998 was 6.3% compared to 4.8% for
the first half of 1997.
COSTS AND EXPENSES
PRODUCTION COSTS for the first six months were $39.7 million in 1998,
compared to $39.5 million in 1997. Total cash costs were US$141 per gold
equivalent ounce in the first half of 1998, a decrease of US$32 per ounce from
the first half of 1997, reflecting the higher production at the Eskay Creek mine
and a weaker Canadian dollar relative to the US dollar.
DEPRECIATION AND AMORTIZATION amounted to $10.2 million and $19.8 million
during the three and six month periods ended June 30, 1998, respectively,
compared to $8.6 million and $17 million, respectively, during the same periods
in 1997, reflecting higher production and the acceleration of depreciation
charges at the Snip mine.
ADMINISTRATIVE AND GENERAL expenses were $1.1 million and $2.5 million
during the three and six month periods ended June 30, 1998, respectively,
compared to $1 million and $2 million, respectively, during the corresponding
periods in 1997. Legal expenses for litigation arising out of the termination of
the agreement with Inmet for the Troilus mine were partly responsible for the
1998 increase in administrative and general expenses.
EXPLORATION expenses for the three and six month periods ended June 30, 1998
were $1.6 million and $2.7 million, respectively, compared to expenses for the
same periods in 1997 of $2.6 million and $3.0 million, respectively. The lower
expenditures reflect reduced activity at the Snip mine and by the HCI/ Prime
exploration joint venture, partially offset by increased drilling in the Eskay
Creek region.
FOREIGN EXCHANGE loss for the second quarter of 1998 amounted to $2.1
million compared to a loss of $0.6 million during the second quarter of 1997. In
the first six months, the 1998 loss was $3.7 million compared to a loss of $0.5
million in 1997. The 1998 loss reflects a significantly weaker Canadian dollar
in relation to the United States dollar.
Prime's product sales are generated from the sale of gold and silver and are
settled in United States dollars. However, Prime incurs the majority of its
operating costs and expenses in Canadian dollars. Recognizing this exposure,
Prime has implemented a foreign currency protection program to minimize the
effects of a strengthening Canadian dollar. Prime's currency exposure is managed
through the use of combination puts and call option contracts which establish
minimum and maximum exchange rate ranges, within which United States dollars may
be exchanged for Canadian dollars.
INCOME AND MINING TAXES for the three and six month periods ended June 30,
1998 were $11.5 million and $25.7 million, respectively, compared to $11 million
and $23.3 million, respectively, for the same periods in 1997. In the first six
months, the 1998 taxes are slightly higher due to higher pretax income, offset
by a slightly lower tax rate, 56% during the first half of 1998 compared to 58%
during the first half of 1997.
CASH FLOW AND LIQUIDITY
Prime's cash and short-term investments during the three and six month
periods ended June 30, 1998 increased by $25.6 million and $37.6 million,
respectively. Cash of $41.6 million was provided by operating activities during
the first half of 1998 compares to $5 million for the corresponding period in
1997. Prime paid cash income and mining taxes of $22.2 million during the first
half of 1998 (including $4.7 million for the 1997 tax year), compared to $59.4
million during the first half of 1997 (including $35.6 million for the 1996 tax
year).
I-4
<PAGE>
SOURCES OF FUNDS
Cash flow from operations was $35.9 million in the first half of 1998
compared to $32.5 million for the corresponding period in 1997, reflecting
increased production and higher realized silver prices, partially offset by
lower gold prices.
USES OF FUNDS
Additions to resource assets amounted to $1 million during the first half of
1998 compared to $4.1 million in the first half of 1997. In both the 1998 and
1997 period, capital additions primarily were for sustaining capital at the
Eskay Creek mine.
CAPITAL RESOURCES
Prime has no debt, $200.1 million in working capital, including cash and
short-term investments of $185.8 million, and a $15 million line of credit with
a major Canadian bank. Prime believes that its current working capital balance
and cash flows from continuing operations will be more than sufficient to meet
Prime's expected future cash requirements.
OTHER MATTERS
After Prime and HCI terminated an agreement to purchase the Troilus mine
from Inmet in December 1997, Inmet commenced litigation in February, 1998. Prime
believes the agreement was terminated properly and that the legal action by
Inmet is without merit.
Effective April 13, 1998, Walter T. Segsworth was appointed President and
Chief Executive Officer of Prime replacing Ronald D. Parker who resigned in
February.
On September 11, 1998 Prime and Homestake announced that Homestake and the
Board of Directors of Prime had reached an agreement (the "Arrangement") for
Homestake's acquisition of the 49.4% of Prime held by the public. Under the
terms of the Arrangement, Prime shareholders will have the choice of receiving
0.74 Homestake common shares or 0.74 Homestake Canada Inc. ("HCI") exchangeable
shares for each Prime share held by them. Each HCI exchangeable share would be
exchangeable for one Homestake common share at any time at the option of the
holder, and will have dividend and voting rights essentially equivalent to those
of one Homestake common share.
The transaction is to be structured as an arrangement under the British
Columbia Companies Act. Completion of the Arrangement is subject to approval by
the British Columbia Supreme Court and by Prime shareholders, and the Homestake
shareholders must vote to adopt a Restated Certificate of Incorporation that,
among other things, authorizes the Homestake common shares necessary to effect
the Arrangement. A total of 75% of all Prime shares represented at its
shareholders' meeting, including the Prime shares owned by HCI, must approve the
transaction. In addition, the Arrangement must be approved by two-thirds of the
Prime shares present and voting on the Arrangement, excluding shares voted by
HCI and certain affiliates. If all necessary approvals are obtained, completion
of the Arrangement is expected in mid-December, 1998.
The Arrangement would result in the issuance of a total of 27.8 million
Homestake common and HCI exchangeable shares in exchange for the 37.6 million
Prime shares held by the minority shareholders of Prime.
In December 1997, the Supreme Court of Canada reaffirmed the existence of
aboriginal tribal rights in land in British Columbia used or occupied by their
ancestors in 1846. Those rights may vary from limited rights of use up to
aboriginal title over land occupied by their ancestors in 1846. The decision did
not address how aboriginal rights or title is to be reconciled with property and
tenure rights previously sold or granted by the government. The Court did
confirm that the extent of the aboriginal rights (including
I-5
<PAGE>
whether the rights rise to the level of "aboriginal title") will depend on,
among other things, the extent of prior aboriginal use and occupation. The Court
also confirmed that, depending on the nature of the aboriginal rights,
consultation with and compensation to (and possibly consent of) aboriginal
groups may be required in connection with sales of government land or granting
of mining, forestry and other rights to use government owned land. In the
future, it can be expected that the granting of mining claims and mining leases
may be subject to the determination of aboriginal rights in the affected
property, and may involve negotiation of training and employment, community
improvement, compensation and other agreements with aboriginal groups having
rights in the property. The law in this area is new and developing.
OUTLOOK
Operating performance for the first six months of 1998 has been better than
expected. As a result, Prime is increasing its production target for 1998 to
360,000 ounces of gold and 11.5 million ounces of silver at an average total
cash cost of US$150 per gold equivalent ounce.
Although Prime plans to explore across Canada in 1998, particular emphasis
is being placed on the region around Eskay Creek mine, where Prime continued to
acquire land through option agreements and staking. The 1998 exploration budget
has been set at $6.9 million.
ENVIRONMENTAL
Prime regularly evaluates its accruals for reclamation and future closing
and restoration costs. Prime is providing for these expenses over the lives of
its individual operations, using the units-of-production method. Prime has
increased the estimate of the aggregate amount of these future costs, plus
remediation liabilities, to $12.8 million. At June 30, 1998 Prime had accrued
$7.4 million for estimated reclamation, related closure and restoration costs
and remediation liabilities.
RISKS
FINANCIAL RISK
Gold and silver prices are influenced by numerous factors beyond Prime's
control, including the rate of inflation, the relative strength of the US dollar
versus the Canadian dollar, interest rates, global or regional political or
economic crisis, and sales by holders and producers of gold and silver in
response to such factors. This supply of gold and silver consists of a
combination of mine production and existing stocks of bullion and investment
gold and silver held by governments, public and private financial institutions,
and individuals. Prime's policy through 1997 had been to sell its production at
current prices, and not enter into arrangements which would establish a price
for the sale of its future gold and silver production. In early 1998, Prime
adopted a gold and silver hedging policy under which Prime, in the appropriate
circumstances, may enter into forward sales transactions for approximately 40%
of its gold or silver production in each of the subsequent five years at prices
in excess of certain target prices. However, given the limited nature of the
hedging policy that Prime has implemented to date, Prime's profitability remains
subject to fluctuations in the spot prices of gold and silver.
OPERATIONAL RISK
Mining operations involve risk, including risk associated with the
variability of product sales prices, mining conditions, the estimation of ore
body volume and content, government regulations, and in some cases, claims of
aboriginal land title.
Prime continually assesses the mining risks encountered at each of its
operations. It reduces both the likelihood and the potential severity of such
risks through its high operational standards, emphasis on
I-6
<PAGE>
employee training and the risk management and loss control programs at both the
Eskay Creek and Snip mines. Prime also maintains insurance to cover normal
business risks.
YEAR 2000
Prime is in the process of completing a review of its computer-based
information and financial systems and has developed a plan designed to ensure
that all of these systems will be Year 2000 compliant. Prime's core financial
systems will be upgraded and therefore compliant by the end of 1998.
Prime is in the process of identifying all microprocessor-controlled
devices, including process-monitoring and control systems, in use at the Eskay
Creek mine to determine whether they are Year 2000 compliant. While designed to
identify all non-compliant systems, this review will focus primarily on those
areas where significant business or safety risks exist. Plans to ensure Year
2000 compliance in the higher risk areas will result from the review.
The Eskay Creek facilities were constructed during 1994 and, as a result,
management does not expect to encounter significant concerns. However, a Year
2000 related microprocessor problem that is not identified or remedied at the
mine potentially could result in a short-term production disruption.
Total expenditures for these Year 2000 activities are expected to be less
than $0.5 million.
In addition, Prime will survey all its major suppliers and customers by
December 31, 1998 to assess their Year 2000 compliance and, where practical,
will make specific contingency plans based on the results of the survey.
I-7
<PAGE>
PRIME RESOURCES GROUP INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
CURRENT
Cash and short-term investments...................................................... $ 185,824 $ 148,236
Accounts receivable.................................................................. 19,675 21,375
Product inventories.................................................................. 8,638 6,247
Supplies and prepaid expenses........................................................ 3,247 3,020
Investments.......................................................................... 159 159
Advances............................................................................. 607 771
---------- ------------
218,150 179,808
Investments............................................................................ 1,586 1,586
Resource assets........................................................................ 175,776 195,699
---------- ------------
$ 395,512 $ 377,093
---------- ------------
---------- ------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities............................................. $ 8,674 $ 12,148
Taxes payable........................................................................ 7,926 3,188
Due to affiliated company............................................................ 1,411 711
---------- ------------
18,011 16,047
Reclamation and mine closure liabilities............................................... 7,435 6,942
Deferred taxes......................................................................... 39,774 40,569
---------- ------------
65,220 63,558
---------- ------------
SHAREHOLDERS' EQUITY
Capital stock.......................................................................... 346,532 346,532
Deficit................................................................................ (16,240) (32,997)
---------- ------------
330,292 313,535
---------- ------------
$ 395,512 $ 377,093
---------- ------------
---------- ------------
</TABLE>
I-8
<PAGE>
PRIME RESOURCES GROUP INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Product sales............................................... $ 53,806 $ 52,695 $ 110,463 $ 99,984
Interest and other.......................................... 2,265 1,056 4,068 2,115
---------- ---------- ---------- ----------
56,071 53,751 114,531 102,099
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Production.................................................. 20,739 22,226 39,722 39,545
Depreciation and amortization............................... 10,154 8,616 19,825 16,988
Administrative and general.................................. 1,113 987 2,500 1,957
Exploration................................................. 1,640 2,568 2,708 2,980
Foreign exchange loss....................................... 2,057 570 3,736 478
Interest.................................................... 320 135 551 266
---------- ---------- ---------- ----------
36,023 35,102 69,042 62,214
---------- ---------- ---------- ----------
Income before taxes........................................... 20,048 18,649 45,489 39,885
Income and mining taxes
Current..................................................... (13,877) (11,829) (29,953) (25,068)
Deferred.................................................... 2,331 786 4,264 1,785
---------- ---------- ---------- ----------
NET INCOME FOR THE PERIOD..................................... $ 8,502 $ 7,606 $ 19,800 $ 16,602
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER SHARE.......................................... $ 0.11 $ 0.10 $ 0.26 $ 0.22
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average Shares Used in the Computation (thousands)............ 76,074 76,074 76,074 76,074
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
I-9
<PAGE>
PRIME RESOURCES GROUP INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 8,502 $ 7,606 $ 19,800 $ 16,602
Adjust for non cash items:
Depreciation and amortization............................ 10,154 8,616 19,825 16,988
Reclamation and mine closure............................. 196 350 493 655
Deferred taxes........................................... (2,331) (786) (4,264) (1,785)
---------- ---------- ---------- ----------
Cash flows from operations................................. 16,521 15,786 35,854 32,460
Net decrease (increase) in noncash working capital:
Accounts receivable...................................... 8,513 7,735 1,700 2,791
Product inventories...................................... (379) 2,212 (1,342) 1,100
Supplies and prepaid expenses............................ 272 183 (227) (66)
Accounts payable and accrued liabilities................. (569) 170 (3,474) (354)
Taxes payable............................................ 3,448 (1,145) 8,207 (33,957)
Due to affiliated company................................ 1,034 915 700 570
Advances (net)........................................... 84 1,177 164 2,462
---------- ---------- ---------- ----------
Cash provided by operating activities........................ 28,924 27,033 41,582 5,006
---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Additions to resource assets (net)......................... (282) (3,102) (951) (4,045)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Dividend paid on common shares............................. (3,043) (3,043) (3,043) (3,043)
---------- ---------- ---------- ----------
Increase (decrease) in cash and short-term investments....... 25,599 20,888 37,588 (2,082)
Cash and short-term investments, beginning of period......... 160,225 102,515 148,236 125,485
---------- ---------- ---------- ----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD............... $ 185,824 $ 123,403 $ 185,824 $ 123,403
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
I-10
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT PER SHARE AMOUNTS OR AS NOTED OTHERWISE)
1. The condensed financial statements should be read in conjunction with the
Company's financial statements and notes thereto for the year ended December
31, 1997, which include information as to significant accounting policies.
The information furnished in these condensed financial statements reflects
all adjustments which, in the opinion of management, are necessary for a
fair statement of the results for the interim periods. Such adjustments
consist of items of a normal recurring nature. Results of operations for
interim periods are not necessarily indicative of results for the full year.
2. Under the Company's foreign currency protection program, the Company has
entered into a series of foreign currency option contracts which established
trading ranges within which the United States dollar may be exchanged for
Canadian dollars by setting minimum and maximum exchange rates.
At June 30, 1998 the Company had Canadian contracts outstanding as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE EXCHANGE RATES
AMOUNT COVERED TO CANADIAN DOLLARS
(U.S. DOLLARS IN -------------------------------- EXPIRATION
THOUSANDS) PUT OPTIONS CALL OPTIONS DATES
- ------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
$ 63,710 1.40 1.34 1998
69,830 1.43 1.37 1999
48,270 1.45 1.39 2000
9,500 1.47 1.41 2001
--------
$ 191,310
--------
--------
</TABLE>
3. In February 1998, the Company adopted a gold and silver hedging policy which
provides for the use of forward sales contracts for up to 40% of each of the
following five year's expected annual gold and silver production at prices
in excess of certain targeted prices. At June 30, 1998 the Company had made
forward sales of approximately 7.2 million ounces of silver to be delivered
during 1999 through 2001 at an average price of US$6.28 per ounce.
4. Differences between Canadian and United States generally accepted accounting
principles.
Reconciliation of income determined in accordance with generally accepted
accounting principles (GAAP) in Canada to income determined under United
States GAAP is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income based on Canadian GAAP.............. $ 8,502 $ 7,606 $ 19,800 $ 16,602
Foreign exchange gain (loss)(a)................ (6,104) 148 (3,172) (723)
Deferred income and mining taxes(b)............ 4,052 1,505 3,895 3,259
--------- --------- --------- ---------
Net income based on US GAAP.................... $ 6,450 $ 9,259 $ 20,523 $ 19,138
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share based on US GAAP (basic
and diluted)................................. $ 0.08 $ 0.12 $ 0.27 $ 0.25
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
I-11
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT PER SHARE AMOUNTS OR AS NOTED OTHERWISE) (CONTINUED)
The cumulative effect of these adjustments on shareholders' equity is as
follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Shareholder's equity based on Canadian GAAP......................... $ 330,292 $ 302,491
Foreign exchange loss(a)............................................ (8,164) (723)
Deferred income and mining taxes(b)................................. (24,549) (32,350)
Cumulative investment holding losses(c)............................. (151) (46)
---------- ----------
Shareholders' equity based on US GAAP............................... $ 297,428 $ 269,372
---------- ----------
---------- ----------
</TABLE>
- ------------------------
a) Foreign Exchange
Under Canadian GAAP, the options entered into under the Company's foreign
currency program meet the criteria for hedge accounting and as a result any
gain or loss is deferred and recorded in income over the term of the
originally designated hedge arrangement. US GAAP requires foreign currency
options that are not hedges of existing assets or firm commitments to be
marked to market and the resulting changes in market value to be included in
income in the periods in which they arise.
b) Deferred Income and Mining Taxes
Canadian GAAP requires the use of the deferral method of accounting for
income taxes. The annual tax provision is computed on pretax accounting
income adjusted for certain permanent differences. The deferred tax charge
or credit is the difference between the total tax provision and the taxes
actually payable for the current year. The current year deferred tax
provision is measured using current year tax rates and is not adjusted for
subsequent changes in rates.
US GAAP requires the use of the liability method of accounting for income
taxes. Deferred income taxes are recognized for the tax consequences of
temporary differences by applying statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and
the tax bases of certain assets and liabilities. Changes in deferred tax
assets and liabilities include the impact of any tax changes during the
year.
c) Investments
Under Canadian GAAP, investments are recorded at cost and are written down
when there has been a decline in value which is other than temporary. Under
US GAAP, Prime's investments would be classified as available-for-sale
investments and would be carried at market value. Unrealized gains and
losses on these investments are recorded as a separate component of
shareholders' equity except that declines in market value judged to be other
than temporary are recognized in determining income.
I-12
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT PER SHARE AMOUNTS OR AS NOTED OTHERWISE) (CONTINUED)
d) Supplementary United States GAAP disclosures:
(i) Interest and Income and Mining Taxes Paid
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest paid.................................. $ 320 $ 135 $ 551 $ 266
Income and mining taxes paid................... 10,666 13,136 22,222 59,409
</TABLE>
(ii) Cash and Short-term Investments
Under US GAAP, only investments with maturities of three months or less
qualify as cash equivalents. Based on this definition, $142.5 million and
$82.4 million of investments at June 30, 1998 and 1997, respectively,
which are included in cash and short-term investments would be reported
separately as short-term investments.
5. On September 11, 1998 Prime and Homestake announced that Homestake and the
Board of Directors of Prime had reached an agreement (the "Arrangement") for
Homestake's acquisition of the 49.4% of Prime held by the public. Under the
terms of the Arrangement, Prime shareholders will have the choice of
receiving 0.74 Homestake common shares or 0.74 Homestake Canada Inc. ("HCI")
exchangeable shares for each Prime share held by them. Each HCI exchangeable
share would be exchangeable for one Homestake common share at any time at
the option of the holder, and will have dividend and voting rights
essentially equivalent to those of one Homestake common share.
The transaction is to be structured as an arrangement under the British
Columbia Companies Act. Completion of the Arrangement is subject to approval
by the British Columbia Supreme Court and by Prime shareholders, and the
Homestake shareholders must vote to adopt a Restated Certificate of
Incorporation that, among other things, authorizes the Homestake common
shares necessary to effect the Arrangement. A total of 75% of all Prime
shares represented at its shareholders' meeting, including the Prime shares
owned by HCI, must approve the transaction. In addition, the Arrangement
must be approved by two-thirds of the Prime shares present and voting on the
Arrangement, excluding shares voted by HCI and certain affiliates. If all
necessary approvals are obtained, completion of the Arrangement is expected
in mid-December, 1998.
The Arrangement would result in the issuance of a total of 27.8 million
Homestake common and HCI exchangeable shares in exchange for the 37.6
million Prime shares held by the minority shareholders of Prime.
I-13
<PAGE>
PRIME RESOURCES GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 1997
(UNLESS OTHERWISE NOTED, ALL AMOUNTS IN CANADIAN DOLLARS)
OVERVIEW
(UNLESS SPECIFICALLY STATED OTHERWISE, THE FOLLOWING INFORMATION RELATES TO
AMOUNTS INCLUDED IN THE FINANCIAL STATEMENTS. PRIME RESOURCES GROUP INC.
("PRIME") REPORTS PER OUNCE PRODUCTION COSTS IN ACCORDANCE WITH THE "GOLD
INSTITUTE PRODUCTION COST STANDARD.")
Prime's financial and operating results are derived primarily from precious
metal mining and related activities at Prime's Eskay Creek and Snip mines. Both
mines continued to be low cost producers and generated significant cash flows
during 1997, despite significant declines in average realized gold and silver
prices.
Prime's total production of gold and gold equivalent contained in ore, dore
and concentrates sold increased to 532,947 ounces during 1997 compared with
474,106 ounces in 1996 and 382,610 ounces in 1995. Total cash costs, which
include third-party smelter costs, declined to US$169 per gold equivalent ounce
compared with US$174 per ounce in 1996 and 5% US$184 per ounce in 1995.
Net income in 1997 decreased to $30.7 million or $0.40 per share from net
income of $42.1 million or $0.55 per share in 1996 and $36.5 million or $0.48
per share in 1995. The lower 1997 earnings primarily reflect lower realized gold
and silver prices, partially offset by increased production and lower per ounce
cash production costs. The increase in income in 1996 from 1995 primarily was
due to higher production and lower per ounce operating costs, partially offset
by increased depreciation and exploration expenses. On April 30, 1996 Prime
purchased the 60% interest of the Snip mine that it did not already own.
Cash flow from operations amounted to $71.6 million in 1997 compared to
$84.9 million in 1996 and $92.5 million in 1995.
RESULTS OF OPERATIONS
ESKAY CREEK MINE
During 1997, the Eskay Creek mine sold 121,465 tons of ore containing
244,700 payable ounces of gold and 11.8 million payable ounces of silver,
equivalent to 417,303 ounces of gold, compared to 211,300 ounces of gold and
12.1 million ounces of silver, equivalent to 372,279 ounces of gold in 1996, and
196,500 ounces of gold and 9.9 million ounces of silver, equivalent to 331,300
ounces of gold in 1995. A 12% increase in the gold grade and a decrease in the
silver to gold equivalency ratio were the principal factors accounting for the
45,024 ounce increase in production in 1997. A higher silver grade and an
increase in shipments were the primary reasons for the increase in production
during 1996. During 1997, the majority of the ore continued to be sold under two
long-term agreements to smelters in Japan and Canada, augmented by a spot sale
to a smelter in the United States. In 1996, two spot sales were made to smelters
in the United States and Mexico and in 1995 one spot sale was made to a smelter
in Mexico.
Total cash costs, including third-party smelter costs, decreased to US$157
per gold equivalent ounce compared to US$170 per ounce in 1996 and US$185 per
ounce in 1995. Increased production, mining productivity gains, and a planned
reduction in underground development were the primary reasons for the decline in
cash costs.
Prime conducted an extensive $4.5 million exploration program at Eskay Creek
in 1997. A total of 52,000 feet of surface and underground diamond drilling was
completed, and the No. 5 ramp and associated hanging wall exploration drift were
extended 2,400 feet to the northeast of the main 21B ore zone towards the NEX
and HW zones. The exploration program successfully added 375,500 ounces of gold
I-14
<PAGE>
and 18.1 million ounces of silver to Eskay Creek proven and probable ore
reserves before taking into account 1997 production.
Important to Prime's long-term operating plan for Eskay Creek was the
construction of the new gravity/flotation mill. Construction of the mill was
completed in November 1997 at a cost of $17 million. The mill, which is expected
to increase annual production over the mine's remaining life, will improve the
profitability of certain Eskay Creek ore that otherwise would be shipped
directly to third-party smelters and upgrade other ore that previously was not
economic. As of January 1, 1998 the mill had commenced commercial production and
was performing in accordance with design specifications.
In 1998, direct ore sales are expected to decline to approximately 100,000
tons at gold and silver grades similar to 1997. Supplementing the 1998 direct
ship production will be gold and silver concentrates produced from the mill.
During 1998, Eskay Creek is targeted to produce ore and concentrates containing
245,000 ounces of gold and 11 million ounces of silver at a total cash cost of
US$161 per ounce of gold equivalent. In addition, Prime expects to continue its
aggressive exploration efforts in and around the Eskay Creek mine where a $4.9
million program is planned for 1998.
There are aboriginal claims relating to areas of British Columbia, including
a claim by the Tahltan Nation ("Tahltan") to the area that includes the Eskay
Creek mine. The nature, extent and validity of such claims have not been
determined. (See "Other Business" for further information.) The mine has entered
into several service contracts with the Tahltan Nation Development Corporation,
and approximately 39% of the employees at the mine are members of the Tahltan.
Prime believes that its relations with aboriginal groups, including the Tahltan,
are excellent and mutually beneficial. Prime believes that aboriginal claims at
Eskay Creek will not have material adverse effect on Prime's operations.
SNIP MINE
Prime's share of Snip mine gold production, comprised of gold contained in
dore and concentrates, was 115,644 ounces in 1997 compared to 101,827 ounces in
1996 and 51,310 ounces in 1995. The 1997 and 1996 increases in production
reflect the purchase of the additional 60% interest in the Snip mine in April
1996. On a 100% basis, Snip mine production declined 6% in 1997 compared to 1996
and declined 4% in 1996 compared to 1995.
As anticipated, total cash costs increased to US$213 per ounce of gold
during 1997 compared to US$190 per ounce in 1996 and US$175 per ounce in 1995.
By the end of 1997, almost 80% of the ore processed was extracted using more
labor-intensive conventional mining methods as compared to 70% at the end of
1996 and 30% at the end of 1995. Amortization and depreciation charges at Snip
decreased to US $115 per ounce in 1997 from US $151 in 1996 as a result of the
January 1, 1997 upgrade of almost all of Snip's mineralized material to proven
and probable reserves. Amortization charges increased to US$151 in 1996 from
US$56 in 1995, primarily due to the additional amortization charges resulting
from the purchase of the additional interest in the Snip mine.
During 1997, Prime's $2.5 million surface and underground exploration
program failed to intersect additional ore grade mineralization at the Snip
mine. A limited underground-drilling program scheduled for the first quarter of
1998 will test the remaining exploration targets. If the program is unsuccessful
in identifying additional ore grade material, all exploration efforts will
cease.
Based on January 1, 1998 proven and probable reserves, the Snip mine will
cease production on or about April 1, 1999. Gold production is expected to
decline to 100,000 ounces in 1998. However, total cash costs are expected to
remain near current levels of approximately US$225 per ounce.
I-15
<PAGE>
REVENUES
PRODUCT SALES
Revenues from the sale of dore, concentrate and crushed ore in 1997
increased to $207.4 million from $198.7 million in 1996 and $155.9 million in
1995. In 1997, higher gold equivalent production and the draw down and sale of
Snip gold concentrate inventory helped offset the decline in gold and silver
prices. In 1996, increased gold equivalent production at the Eskay Creek mine
and the acquisition of the additional interest in the Snip mine were the primary
reasons for the increase in revenue from 1995.
Gold equivalent ounces sold in 1997 increased to 556,549 compared to 470,189
in 1996 and 382,610 in 1995. During 1997, Prime's average realized gold price
decreased by US$57 per ounce to US$331 per ounce, compared with US$388 per ounce
in 1996 and US$385 per ounce in 1995, while the average realized silver price
decreased by US$0.29 per ounce to US$4.89 per ounce, compared with US $5.18 per
ounce in 1996 and US$5.16 per ounce in 1995.
Approximately one-third of Prime's 1997 revenue was attributable to Eskay
Creek silver production. The mine produced 11.8 million ounces of silver in
1997, compared to 12 million ounces produced in 1996 and 10 million ounces
produced in 1995. Prime is one of the largest silver producers in the world.
INTEREST AND OTHER
Prime's cash balance increased to $148.2 million at the end of 1997 from
$125.5 million and $69.1 million at the end of 1996 and 1995, respectively.
However, interest income declined to $4.8 million in 1997 compared with $5.8
million in 1996. The lower interest income reflects lower interest rates, which
declined to 3.5% during 1997 from 4.5 % during 1996 as the Bank of Canada
continued to lower the prime rate during much of the year. During 1995, Prime
recorded interest income of $2.3 million and the average interest rate was 6.3%.
COSTS AND EXPENSES
PRODUCTION COSTS
Production costs increased to $86.1 million in 1997 compared to $65.5
million in 1996 and $58.0 million in 1995. The increase in production costs in
1997 was due to the higher production at the Eskay Creek mine, the draw down and
sale of Snip mine concentrate inventory, and a full year's ownership of the Snip
mine. Excluding the effects of the purchase of the additional interest in the
Snip mine, production costs in 1996 were relatively unchanged from 1995.
On a per equivalent ounce of production basis, total cash costs declined to
US$169 in 1997 from US$174 and US$184 per ounce in 1996 and 1995, respectively.
The decreases in unit cash costs are due to the production increases at the
Eskay Creek mine and weakening of the Canadian dollar in relation to the United
States dollar.
DEPRECIATION
Depreciation and amortization charges increased to $40.6 million in 1997
from $34.5 million in 1996 and $20.6 million in 1995. Higher sales volumes and
amortization of the Snip mine purchase price are the primary reasons for the
year over year increases in depreciation charges. However, on a per ounce basis,
depreciation and amortization charges decreased to US$51 per equivalent ounce in
1997 from US$64 per equivalent ounce in 1996, reflecting the reserve expansions
at both the Eskay Creek and Snip mines at December 31, 1996. In 1995, noncash
costs were US$42 per equivalent ounce. The increase in the 1996 noncash costs
was primarily a result of the Snip mine purchase in April 1996.
I-16
<PAGE>
Noncash costs per equivalent ounce in 1998 should be similar to 1997, as
additions to proven and probable reserves at Eskay Creek at January 1, 1998 will
be offset by depreciation charges associated with the new mill.
ADMINISTRATIVE AND GENERAL
Administrative and general expenses, which include corporate office and
expenses related to the overall management of the business, were $4 million in
1997 compared with $3.1 million in 1996 and $2.4 million in 1995. Costs incurred
in connection with the termination of the agreement to purchase the Troilus mine
(See "Other Business" for further information) and higher fees associated with
Prime's continued participation in World Gold Council and the Silver Institute
are the primary reasons for the increased 1997 administrative and general
expenses. On a per-equivalent-ounce basis administrative and general expenses
were US$5 in 1997 and 1996, remaining significantly lower than the industry
average for precious metal mining companies. The increase in the 1996 costs
primarily is due to Prime's participation in the World Gold Council and the
Silver Institute and increased management costs associated with operating the
Snip mine.
Homestake Canada Inc. ("HCI"), a wholly-owned subsidiary of Homestake Mining
Company ("Homestake"), provides all management services under contract. This
relationship has allowed Prime to expand its operations and increase its
exploration efforts without incurring a significant increase in administrative
costs. See note 10 to the financial statements for additional information
relating to the services provided by HCI.
EXPLORATION
Exploration expenditures were $8.7 million in 1997 compared to $8.9 million
in 1996 and $2.1 million in 1995. Approximately 53% or $4.5 million of the 1997
exploration expenditures were for programs at and around the Eskay Creek mine,
and $2.5 million were for programs at the Snip mine. The balance of the 1997
exploration spending was for Prime's share of joint exploration programs
conducted in Ontario, Quebec, Yukon and south central British Columbia with HCI.
Prime intends to continue to explore in Canada in 1998. Particular emphasis
will be placed on the region around the Eskay Creek mine, where Prime continued
to expanded its land position during 1997 through agreements (see Cash Flow and
Liquidity for information regarding Prime's equity investment in Kenrich Mining
Corporation "Kenrich") and staking. Prime's 1998 exploration budget is $6.9
million although additional funds will be made available if success warrants.
FOREIGN EXCHANGE
Prime's product sales are generated from the sale of gold and silver, which
are settled in United States dollars. However, Prime incurs the majority of its
operating costs and expenses in Canadian dollars. Recognizing this exposure,
Prime has implemented a foreign currency protection program to minimize the
effects of a strengthening Canadian dollar. Prime's currency exposure is managed
through the use of combinations of put and call option contracts which establish
minimum and maximum exchange rate ranges, within which United States dollars may
be exchanged for Canadian dollars.
During 1997, the Canadian dollar weakened significantly in relation to the
United States dollar and, as a result, Prime recorded net foreign exchange
losses of $2 million in 1997 compared to gains of $67,000 in 1996 and $81,000 in
1995. See note 11a to the financial statements for additional information
regarding this program.
I-17
<PAGE>
WRITE-DOWN OF INVESTMENTS
Prime reduced the combined carrying value of its investments in Teuton
Resources Ltd. and Minvita Enterprises Ltd. by $0.2 million and by $1 million in
1997 and 1996, respectively. These investments had been acquired in 1995. The
write-downs reflect the aggregate market values of these investments at December
31 of each year. See note 4 to the financial statements for additional
information regarding these investments.
INCOME AND MINING TAXES
Income and mining taxes were $39.4 million in 1997 compared with $49 million
in 1996 and $37.7 million in 1995. The decrease in 1997 income and mining taxes
was due to lower earnings, partially offset by an increase in Prime's effective
tax rate to 56%. The higher tax rate in 1997 reflects the full utilization in
1996 of prior years' losses, which previously had not been tax benefited. The
increase in income and mining taxes in 1996 from 1995 primarily was due to
higher pretax earnings. See note 9 to the financial statements for a detailed
schedule of income and mining taxes.
As expected, the amount of income and mining taxes which were paid currently
increased in 1997 and 1996 reflecting the exhaustion of the majority of Prime's
resource tax pools by the end of 1995.
Prime anticipates that it will continue to pay cash taxes in 1998 albeit at
a slightly lower rate than in 1997.
CASH FLOW AND LIQUIDITY
During 1997, Prime's cash and short-term investments increased by $22.8
million to $148.2 million. Cash provided by operating activities decreased by
approximately $69 million during 1997, reflecting higher cash tax payments.
Prime paid cash taxes of $73.9 million in 1997 compared to $8.8 million in 1996.
The 1997 tax payments included $36.2 million of payments for the 1996 tax year
and the balance was for installments with respect to the estimated liability for
the 1997 tax year. Investing activities include additions to resource assets of
$21.3 million primarily for the construction of the mill and the purchase of
underground equipment at Eskay Creek mine. Financing activities include dividend
payments of $6.1 million.
SOURCES OF FUNDS
Cash flow from operations of $71.6 million in 1997 compares with $84.9
million in 1996 and $92.5 million in 1995. The decrease in 1997 primarily was a
result of lower gold and silver prices. The decrease in 1996 primarily was due
to an increase in current tax expense.
Other sources of cash in 1997 include the repayment by a Canadian smelter of
$2.3 million of advances, $6.8 million reduction of Snip mine concentrate
inventories, and the sale of the Snip mine hovercraft for $1.5 million (net). In
1996 and 1995, the Canadian smelter repaid $5.3 million and $4.4 million,
respectively, of the advances made by Prime in 1994 (see note 5 to the financial
statements for details on this advance).
USES OF FUNDS
Additions to resource assets were $21.3 million in 1997 compared to $4.5
million in 1996 and $4.4 million in 1995. The majority additions in 1997 were
for the construction of a new $17 million 165-ton per day gravity and flotation
mill facility at the Eskay Creek mine to produce high-grade gold and silver
concentrates. The balance of 1997 expenditures of $4.3 million was for
sustaining capital at the Eskay Creek mine.
I-18
<PAGE>
In July 1997, Prime acquired 300,000 common and 1.2 million flow-through
shares and 1.5 million share purchase warrants of Kenrich Mining Corporation
("Kenrich") for a total cost of $1.5 million. Kenrich has committed to use a
minimum of $1.2 million of these proceeds on exploration and development of a
16,400 acre portion ("Prime Block") of its 100%-owned Corey property located 40
miles south of the Eskay Creek mine. The shares and share purchase warrants were
acquired pursuant to a private placement which was the first stage of an option
program which gives Prime the exclusive right to earn up to a 70% direct
interest in the Prime Block. See note 4 in the financial statements for further
information.
Prime maintained its dividend rate in 1997 and paid semi-annual dividends in
June and December of $0.04 per share.
Effective April 30, 1996, Prime purchased Cominco Ltd.'s (Cominco) 60%
interest in the Snip mine for $53.5 million. The purchase price included $7.4
million of working capital and the assumption of $2.3 million of estimated
reclamation liabilities. The remaining $48.4 million of the purchase price was
allocated to the property and the mineral inventory.
CAPITAL RESOURCES
Prime has no debt, $163.8 million in working capital, including $148.2
million of cash and short-term investments, and a $15 million line of credit
with a major Canadian bank. Prime believes that its current working capital
balance and cash flows from continuing operations will be more than sufficient
to meet its expected future cash requirements.
OTHER MATTERS
In October 1997, Prime (49% interest) and HCI (51% interest) entered into an
agreement with Inmet Mining Corporation ("Inmet") to purchase the Troilus mine
in Quebec for US$110 million plus working capital. In December 1997, Prime and
HCI terminated the agreement after determining that, on the basis of due
diligence studies, conditions to closing the arrangement would not be satisfied.
Inmet has advised Prime and HCI that it disputes the termination of the purchase
agreement and has commenced litigation in the court of British Columbia with
respect to the termination. Prime believes that the agreement with Inmet was
terminated properly and that the action by Inmet is without merit.
In December 1997, the Supreme Court of Canada reaffirmed the existence of
aboriginal tribal rights in land in British Columbia. Those rights may vary from
limited rights of use up to aboriginal title over land occupied by their
ancestors in 1846. The decision did not address how aboriginal rights or title
is to be reconciled with property and tenure rights previously sold or granted
by the government. The Court did confirm that the extent of the aboriginal
rights (including whether the rights rise to the level of "aboriginal title")
will depend on, among other things, the extent of prior aboriginal use and
occupation. The Court also confirmed that, depending on the nature of the
aboriginal rights, consultation with and compensation to (and possibly consent
of) aboriginal groups may be required in connection with sales of government
land or granting of mining, forestry and other rights to use government owned
land. In the future, it can be expected that the granting of mining claims and
mining leases may be subject to the determination of aboriginal rights in the
affected property, and may involve negotiation of training and employment,
community improvement, compensation and other agreements with aboriginal groups
having rights in the property. The law in this area is new and developing.
ENVIRONMENTAL
Prime regularly evaluates its accruals for reclamation and future costs.
Prime is providing for these expenses over the lives of its individual
operations, using the units-of-production method. Prime has estimated that the
aggregate amount of these future costs, plus remediation liabilities, will be
$12.2 million. At December 31, 1997 Prime had accrued $6.9 million for estimated
reclamation, related closure and restoration costs and remediation liabilities.
I-19
<PAGE>
RISKS
FINANCIAL RISK
Gold and silver prices are influenced by numerous factors beyond Prime's
control, including the rate of inflation, the relative strength of the US dollar
versus the Canadian dollar, interest rates, global or regional political or
economic crisis, and sales by holders and producers of gold and silver in
response to such factors. This supply of gold and silver consists of a
combination of mine production and existing stocks of bullion and investment
gold and silver held by governments, public and private financial institutions,
and individuals. Prime's policy through 1997 had been to sell its production at
current prices, and not enter into arrangements which would establish a price
for the sale of its future gold and silver production. In early 1998, Prime
adopted a gold and silver hedging policy under which Prime, in the appropriate
circumstances, may enter into forward sales arrangements for approximately 40%
of its gold or silver production in each of the subsequent five years at prices
in excess of certain target prices. However, given the limited nature of the
hedging policy that Prime has implemented to date, Prime's profitability remains
subject to fluctuations in the market prices of gold and silver.
OPERATIONAL RISK
Mining operations involve risk, including risk associated with the
variability of product sales prices, mining conditions, the estimation of ore
body volume and content, government regulations, and in some cases, claims of
aboriginal land title.
Prime continually assesses the mining risks encountered at each of its
operations. It reduces both the likelihood and the potential severity of such
risks through its high operational standards, emphasis on employee training and
the risk management and loss control programs at both the Snip and Eskay Creek
mines. Prime also maintains insurance to cover normal business risks.
YEAR 2000
Prime is in the process of completing a review of its computer-based
information and financial systems and has developed a plan designed to ensure
that all of these systems will be Year 2000 compliant. Prime's core financial
systems will be upgraded and therefore compliant by the end of 1998.
Prime is in the process of identifying all microprocessor-controlled
devices, including process-monitoring and control systems, in use at the Eskay
Creek mine to determine whether they are Year 2000 compliant. While designed to
identify all non-compliant systems, this review will focus primarily on those
areas where significant business or safety risks exist. Plans to ensure Year
2000 compliance in the higher risk areas will result from the review.
The Eskay Creek facilities were constructed during 1994 and, as a result,
management does not expect to encounter significant concerns. However, a Year
2000 related microprocessor problem that is not identified or remedied at the
mine potentially could result in a short-term production disruption.
Total expenditures for these Year 2000 activities are expected to be less
than $0.5 million.
In addition, Prime will survey all its major suppliers and customers by
December 31, 1998 to assess their Year 2000 compliance and, where practical,
will make specific contingency plans based on the results of the survey.
I-20
<PAGE>
PRIME RESOURCES GROUP INC.
INDEPENDENT AUDITORS' REPORT
To the Directors of Prime Resources Group Inc.
We have audited the balance sheets of Prime Resources Group Inc. as at
December 31, 1997 and 1996 and the statements of income, deficit and cash flows
for the three years ended December 31, 1997, 1996 and 1995. 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 Canadian 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 financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1997, 1996
and 1995 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
<TABLE>
<S> <C>
Vancouver, British Columbia /s/ COOPERS & LYBRAND
February 19, 1998 ------------------------
Chartered Accountants
</TABLE>
I-21
<PAGE>
PRIME RESOURCES GROUP INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current
Cash and short-term investments......................................................... $ 148,236 $ 125,485
Accounts receivable..................................................................... 21,375 21,314
Product inventories (note 3)............................................................ 6,247 17,638
Supplies and prepaid expenses........................................................... 3,020 2,787
Investments (note 4).................................................................... 159 306
Advances (note 5)....................................................................... 771 3,339
---------- ----------
179,808 170,869
Investments (note 4)...................................................................... 1,586 --
Resource assets (note 6).................................................................. 195,699 210,417
---------- ----------
$ 377,093 $ 381,286
---------- ----------
---------- ----------
LIABILITIES
Current
Accounts payable and accrued liabilities................................................ $ 12,148 $ 8,374
Taxes payable (note 9).................................................................. 3,188 35,913
Due to affiliated company............................................................... 711 730
---------- ----------
16,047 45,017
Reclamation and mine closure liabilities.................................................. 6,942 5,710
Deferred taxes (note 9)................................................................... 40,569 41,627
---------- ----------
63,558 92,354
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock (note 8).................................................................... 346,532 346,532
Deficit................................................................................... (32,997) (57,600)
---------- ----------
313,535 288,932
---------- ----------
$ 377,093 $ 381,286
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements
Commitments and Contingencies--Notes 11 and 12
Approved on behalf of the Board
G.J. Leathley, Director M.N. Anderson, Director
I-22
<PAGE>
PRIME RESOURCES GROUP INC.
STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Product sales (note 13).................................................... $ 207,373 $ 198,744 $ 155,856
Interest and other......................................................... 4,773 5,843 2,292
---------- ---------- ----------
212,146 204,587 158,148
---------- ---------- ----------
COSTS AND EXPENSES
Production................................................................. 86,073 65,508 57,949
Depreciation and amortization.............................................. 40,586 34,450 20,647
Administrative and general................................................. 3,996 3,101 2,475
Exploration................................................................ 8,692 8,852 2,142
Foreign exchange loss (gain)............................................... 1,961 (67) (81)
Interest................................................................... 629 634 798
Write-down of investments (note 4)......................................... 147 1,043 --
---------- ---------- ----------
142,084 113,521 83,930
---------- ---------- ----------
Income before taxes.......................................................... 70,062 91,066 74,218
Income and mining taxes (note 9)
Current.................................................................... (40,431) (43,286) (3,236)
Deferred................................................................... 1,058 (5,728) (34,468)
---------- ---------- ----------
Net Income................................................................... $ 30,689 $ 42,052 $ 36,514
---------- ---------- ----------
---------- ---------- ----------
Net Income Per Share......................................................... $ 0.40 $ 0.55 $ 0.48
---------- ---------- ----------
---------- ---------- ----------
Average Shares Used in the Computation (thousands)........................... 76,074 76,074 76,074
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
STATEMENTS OF DEFICIT
(EXPRESSED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Deficit, January 1........................................................... $ (57,600) $ (93,566) $ (130,080)
Net income................................................................... 30,689 42,052 36,514
Dividends paid (note 8)...................................................... (6,086) (6,086) --
---------- ---------- -----------
Deficit, December 31 $ (32,997) $ (57,600) $ (93,566)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements
I-23
<PAGE>
PRIME RESOURCES GROUP INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................................. $ 30,689 $ 42,052 $ 36,514
Adjust for noncash items:
Depreciation and amortization............................................. 40,586 34,450 20,647
Reclamation and mine closure.............................................. 1,232 1,620 883
Deferred taxes............................................................ (1,058) 5,728 34,468
Write-down of investments................................................. 147 1,043 --
---------- ---------- ----------
Cash flows from operations.................................................. 71,596 84,893 92,512
Net decrease (increase) in noncash working capital:
Accounts receivable....................................................... (61) (235) (12,726)
Product inventories....................................................... 6,810 (3,032) (909)
Supplies and prepaid expenses............................................. (233) (247) 155
Accounts payable and accrued liabilities.................................. 3,774 (363) (24)
Taxes payable............................................................. (32,725) 35,092 636
Due to affiliated company................................................. (19) 200 (8,267)
Advances--net............................................................. 2,568 4,301 2,661
---------- ---------- ----------
Cash provided by operating activities......................................... 51,710 120,609 74,038
---------- ---------- ----------
INVESTMENT ACTIVITIES
Additions to resource assets (net).......................................... (21,287) (4,570) (4,376)
Investments................................................................. (1,586) (49) (1,300)
Purchase of interest in Snip mine........................................... -- (53,474) --
---------- ---------- ----------
Cash used in investment activities............................................ (22,873) (58,093) (5,676)
---------- ---------- ----------
FINANCING ACTIVITIES
Dividends paid.............................................................. (6,086) (6,086) --
---------- ---------- ----------
Increase in cash and short-term investments................................... 22,751 56,430 68,362
Cash and short-term investments, January 1.................................... 125,485 69,055 693
---------- ---------- ----------
CASH AND SHORT-TERM INVESTMENTS, DECEMBER 31.................................. $ 148,236 $ 125,485 $ 69,055
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements
I-24
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
1. DESCRIPTION OF BUSINESS
Prime Resources Group Inc. ("Prime" or the "Company") is engaged in precious
metals mining and related activities including exploration, extraction,
processing and reclamation. Gold and silver dore, concentrate and ore are
produced in Canada and are sold in Canada, Japan and the United States. The
Company's principal assets are the Eskay Creek mine located 51 miles north of
Stewart, British Columbia and the Snip mine located 56 miles northwest of
Stewart, British Columbia.
As at December 31, 1997, Homestake Canada Inc. ("HCI") owned approximately
50.6% of the common shares of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada and are stated in Canadian dollars
unless otherwise noted. As described in note 14, accounting principles generally
accepted in Canada differ in certain material respects from those that the
Company would have followed had these financial statements been prepared in
accordance with accounting principles generally accepted in the United States.
The significant accounting policies used in the preparation of these financial
statements are as follows:
A) BASIS OF PREPARATION
These financial statements include the Company, and the Company's
proportionate share of the assets, liabilities and expenses of its undivided
interest in the Snip mine joint venture up to April 29, 1996. Effective April
30, 1996 the Company acquired the remaining 60% of the Snip mine joint venture
it did not already own and the joint venture was dissolved (note 7).
B) CASH AND SHORT-TERM INVESTMENTS
The Company invests its cash and short-term investments in government and
corporate securities through major Canadian chartered banks and high quality
financial institutions. All short-term investments are highly liquid with a
maturity of twelve months or less at the date of purchase. The Company believes
that no concentration of credit risk exists with respect to cash and short-term
investments.
C) INVENTORIES
Product inventories, including gold dore, gold and silver in concentrate,
crushed gold and silver ore in transit, stockpiled crushed ore and supplies
inventories, are stated at the lower of average cost and net realizable value.
D) INVESTMENTS
Investments in resource companies, whose principal business is gold
exploration, are carried at cost, except that declines in market value judged to
be other than temporary are recognized in determining net income.
E) RESOURCE ASSETS
Mining assets are recorded at cost less amounts amortized. Following
completion of a favorable feasibility study, development and costs incurred to
place new mines in production and to complete major development projects at
operating mines are capitalized. If a project is subsequently determined to be
I-25
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
uneconomic, a provision for impairment is provided in the period in which the
determination is made. Ongoing development costs to maintain current production
are expensed as incurred.
Depreciation and amortization of resource assets is provided by the
units-of-production method based on estimated proven and probable ore reserves
of the individual mines. Proven and probable ore reserves reflect estimated
quantities of economically recoverable ore which can be recovered in the future
from known mineral deposits. Such estimates are based on projected costs and
prices and are reviewed regularly by the Company. Mobile and other equipment are
depreciated by straight-line methods over estimated useful lives of three to ten
years.
Exploration costs are expensed as incurred.
F) PRODUCT SALES
Product sales include the sale of ore and concentrates to smelters, net of
smelter charges, and the sale of gold dore in the financial markets. Sales are
recorded when title passes to the customers.
The Company records the sale of ore and concentrates based on estimated
weights, assays, commodity prices, treatment and penalty charges and foreign
exchange rates prevailing at the date when title of a shipment passes. These
shipments are subject to final settlement at a future date. Adjustments to these
estimates for final quantities and prices are recorded to product sales as
determined.
G) RECLAMATION AND MINE CLOSURE COSTS
The Company provides for all costs of reclamation and mine closure including
employee severance, long-term care and monitoring and maintenance costs
principally by the units-of-production method based on estimated proven and
probable ore reserves. Reclamation costs and related accrued liabilities, which
are estimated based on the Company's interpretation of current environmental and
regulatory requirements are regularly updated using undiscounted current costs.
However, the Company's estimates of its ultimate reclamation liabilities could
change as a result of changes in regulations or cost estimates.
H) FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated at the rate of exchange at the balance sheet date. Revenues and
expenses are translated at the average rate of exchange in effect during the
period.
I) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenditures during the
reporting period. Differences in actual results from prior estimates are taken
into account at the time the differences are determined.
J) FINANCIAL INSTRUMENTS
The carrying amounts for cash and short-term investments, accounts
receivable and accounts payable on the balance sheets approximate fair value.
I-26
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
3. PRODUCT INVENTORIES
Product inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Gold and silver concentrate and dore............................................ $ 4,139 $ 15,420
Crushed gold and silver ore..................................................... 2,108 2,218
--------- ---------
$ 6,247 $ 17,638
--------- ---------
--------- ---------
</TABLE>
4. INVESTMENTS
In 1997, the Company acquired 300,000 common shares and share purchase
warrants and 1.2 million flowthrough common shares and 1.5 million share
purchase warrants of Kenrich Mining Corporation ("Kenrich") at a cost of $0.99
per share and $0.01 per warrant. Each warrant entitles the Company to purchase
one-half of a common share of Kenrich exercisable in multiples of two, on or
before July 31, 1999 at an aggregate price of $1.34 per share. The shares and
share purchase warrants were acquired pursuant to a private placement which
requires Kenrich to spend $1.2 million on exploration and development of a
certain property (the "Corey" property) before July 31, 1999. As a condition of
the private placement, Kenrich granted the Company an exclusive option to
acquire a direct 51% interest in the Corey property by exercising the warrants,
spending $7.3 million on exploration and development work on the property and
satisfying other predetermined obligations. The Company may earn up to an
additional 19% interest for a maximum 70% interest by incurring an additional
$10 million on exploration and development of the Corey property prior to July
31, 2005. At December 31, 1997, $450,000 had been spent on exploration of the
Corey property. The market value of the Kenrich shares at December 31, 1997 was
$1.0 million.
In 1995, the Company acquired 245,000 common shares of Teuton Resources
Corp. ("Teuton") at $2.64 per share and 171,500 common shares of Minvita
Enterprises Ltd. ("Minvita") at $3.79 per share. Of these amounts, 220,500
Teuton shares and 154,350 Minvita shares qualified as flowthrough shares for
income tax purposes. These flowthrough shares were acquired pursuant to a
private placement; Teuton and Minvita were required to spend 100% of the
proceeds of the flowthrough shares on the exploration and development of a
certain mineral property. During 1996, the Company acquired an additional 26,950
flowthrough common shares in Teuton for $1.80 per share. On December 31, 1997
the Company wrote down its investments in Teuton and Minvita to an aggregate
market value of $0.2 million (market value at December 31, 1996--$0.3 million
and December 31, 1995--$0.7 million).
5. ADVANCES
In 1994, the Company provided a $12.0 million credit facility to a Canadian
smelter. Funds advanced under this agreement were used exclusively for the
upgrading of the smelter's plant for processing Eskay Creek ore. Repayment of
the advances plus accrued interest was based on Eskay Creek ore shipments. The
smelter repaid the remaining balance of $2.3 million during 1997 ($5.3 million
repaid during 1996 and $4.4 million repaid during 1995).
The Company has provided a collateralized demand loan to the Tahltan Nation
Development Corporation ("TNDC"). The yearly repayment of this loan plus accrued
interest is based on the higher of
I-27
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
5. ADVANCES (CONTINUED)
$0.2 million or 15% of the value of the work performed by TNDC under contract to
the Eskay Creek mine. TNDC repaid $0.2 million during 1997.
6. RESOURCE ASSETS
Resource assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Eskay Creek mine
Mining properties and development costs.................................. $ 179,174 $ 178,265
Plant and equipment...................................................... 53,772 33,396
Snip mine
Mining properties and development costs.................................. 57,401 57,401
Plant and equipment...................................................... 21,307 22,986
----------- -----------
311,654 292,048
Accumulated depreciation and amortization.................................. (115,955) (81,631)
----------- -----------
$ 195,699 $ 210,417
----------- -----------
----------- -----------
</TABLE>
7. ACQUISITION OF SNIP MINE JOINT VENTURE INTEREST
Effective April 30, 1996, the Company acquired from Cominco Ltd. the
remaining 60% interest in the Snip mine it did not already own. The arrangement
was accounted for by the purchase method. Consideration for the acquisition was
comprised of a payment of $53.5 million and a net smelter return royalty payable
under certain circumstances (note 11e). The consideration was allocated as
follows:
<TABLE>
<S> <C>
Cash............................................................................... $ 1,456
Working capital (net).............................................................. 5,896
Reclamation and mine closure liabilities........................................... (2,337)
Mining properties and development costs............................................ 36,426
Plant and equipment................................................................ 12,033
---------
$ 53,474
---------
---------
</TABLE>
8. CAPITAL STOCK
a) Authorized:
400,000,000 common shares without par value
300,000,000 preference shares without par value
I-28
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
8. CAPITAL STOCK (CONTINUED)
b) Issued and outstanding:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common shares.............. 76,074 $ 346,532 76,074 $ 346,532 76,074 $ 346,532
----------- ---------- ----------- ---------- ----------- ----------
----------- ---------- ----------- ---------- ----------- ----------
</TABLE>
c) There were 40,000 common share purchase options outstanding at December
31, 1997 (1996-- 20,000 and 1995--nil). The exercise price of the options is
equal to the market price of the Company's common shares on the date of the
grant and an option's maximum term is ten years. Options vest over a one-year
period.
<TABLE>
<CAPTION>
EXERCISE PRICE PER
NUMBER OF SHARES SHARE EXPIRY DATES
- -------------------- ----------------------- ---------------
<S> <C> <C>
20 $ 9.55 2006
20 $ 8.50 2007
</TABLE>
d) In 1997, the Company declared and paid dividends totaling $0.08 per
common share (1996--$0.08 per share and 1995--$nil).
9. INCOME AND MINING TAXES
Income and mining tax expense (benefit) differed from the amount which would
result from applying the combined Canadian federal and provincial statutory tax
rate to income before taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income before taxes.............................................................. $ 70,062 $ 91,066 $ 74,218
--------- --------- ---------
Canadian statutory income tax rate............................................... 46% 46% 46%
--------- --------- ---------
Income tax based on statutory rates.............................................. 32,229 41,890 34,140
Resource allowance............................................................... (5,619) (7,499) (6,148)
Deductible mining taxes.......................................................... (2,002) (2,315) (1,800)
Nontaxable income and nondeductible expenses..................................... 4,187 7,706 5,353
Tax benefit of prior years' losses............................................... -- (3,826) (6,066)
Other............................................................................ (563) (346) (284)
--------- --------- ---------
Income taxes..................................................................... 28,232 35,610 25,195
Mining taxes..................................................................... 11,141 13,404 11,879
Capital taxes.................................................................... 630
--------- --------- ---------
$ 39,373 $ 49,014 $ 37,704
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1997, the carrying value of the resource assets totaled
$195.7 million, with respect to which the Company has a tax basis of
approximately $51.2 million.
The Company fully utilized its ordinary loss carryforwards during 1996.
I-29
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
10. RELATED PARTY ARRANGEMENTS
a) Prime has no employees, and contracts with HCI to provide all managerial,
technical, operating and administrative services. Under terms of this contract,
the Company incurred the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Managerial and administrative fees................................................ $ 2,414 $ 2,243 $ 1,791
Technical services................................................................ 503 535 372
Direct operation by HCI personnel
Eskay Creek mine................................................................ 5,746 5,148 4,010
Snip mine....................................................................... 15,819 7,041 --
--------- --------- ---------
$ 24,482 $ 14,967 $ 6,173
--------- --------- ---------
--------- --------- ---------
</TABLE>
b) Effective January 1, 1995, the Company and HCI agreed to conduct a joint
Canadian exploration program. The Company's interest in the program is 49% and
HCI's interest is 51%. During the year, the Company's share of expenditures on
this program amounted to $1.7 million ($1.9 million during 1996 and $0.7 million
during 1995).
11. FOREIGN CURRENCY AND OTHER COMMITMENTS
a) Under the Company's foreign currency protection program, the Company has
entered into a series of foreign currency option contracts which establish
trading ranges within which the United States dollar may be exchanged for the
Canadian dollar by setting minimum and maximum rates. The Company does not
require or place collateral for these contracts. However, the Company minimizes
its credit risk by dealing with only major international banks and financial
institutions. At December 31, 1997, the Company had United States dollar
contracts outstanding as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXCHANGE RATES TO
AMOUNT COVERED CANADIAN DOLLARS
UNITED STATES ------------------------
DOLLARS MINIMUM MAXIMUM EXPIRATION DATES
- ------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
127,840 1.3250 1.3893 1998
38,240 1.3481 1.4047 1999
25,000 1.3714 1.4335 2000
</TABLE>
b) The Company has entered into various commitments in the ordinary course
of business, which include commitments to perform assessment work and other
obligations necessary to maintain and protect its mining properties and
commitments under federal and provincial environmental health and safety
permits.
c) At December 31, 1997, the Company had a $15 million line of credit with a
major Canadian bank which bears interest at the bank's prime rate. Letters of
credit for $5.2 million have been issued against this line of credit as
collateral for the necessary reclamation permits to operate the Eskay Creek and
Snip mines.
I-30
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
11. FOREIGN CURRENCY AND OTHER COMMITMENTS (CONTINUED)
d) The majority of the properties comprising the Eskay Creek mine are
subject to a 1% net smelter return royalty. In 1997 the Company paid $1.5
million in royalties (1996--$1.5 million and 1995--$1.3 million).
e) Under the terms of the April 30, 1996 acquisition of the remaining 60%
interest in the Snip mine, the Company is committed to a 5% net smelter royalty
on the ounces of gold recovered that are in excess of the known proven and
probable reserves and geological resources at the time of acquisition. No amount
was payable for the commitment during the year.
12. CONTINGENCIES
In October 1997, the Company (49% interest) and HCI (51% interest) entered
into a letter agreement with Inmet Mining Corporation ("Inmet") to purchase the
Troilus mine in Quebec for US $110 million plus working capital. In December
1997, Prime and HCI terminated the agreement after determining that, on the
basis of due diligence studies, conditions to closing the arrangement would not
be satisfied. Inmet has advised the Company and HCI that it is disputing the
termination of the purchase agreement, and has commenced legal action with
respect to the termination.
The Company believes that this legal action is without merit and the
ultimate resolution will not have a material adverse effect on its financial
position or results of operations.
13. EXPORT SALES
The Company sells dore, gold and silver ore and concentrate to smelters in
Canada, Japan and the United States. Sales to these markets were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Japan.................................................... $ 89,680 $ 62,824 $ 49,466
United States............................................ 34,815 29,948 10,308
Other.................................................... -- 4,912 2,418
---------- ---------- ----------
Total export sales....................................... 124,495 97,684 62,192
Canada................................................... 82,878 101,060 93,664
---------- ---------- ----------
$ 207,373 $ 198,744 $ 155,856
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
I-31
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Reconciliation of income determined in accordance with generally accepted
accounting principles (GAAP) in Canada to income determined under United States
GAAP is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income based on Canadian GAAP............................ $ 30,689 $ 42,052 $ 36,514
Foreign exchange loss(a)..................................... (4,992) (128) 128
Deferred income and mining taxes(b).......................... 7,165 6,366 6,106
--------- --------- ---------
Net income based on US GAAP.................................. $ 32,862 $ 48,290 $ 42,748
--------- --------- ---------
--------- --------- ---------
Net income per share based on US GAAP (basic and diluted).... $ 0.43 $ 0.63 $ 0.56
--------- --------- ---------
--------- --------- ---------
</TABLE>
The cumulative effect of these adjustments on Shareholders' Equity are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Shareholders' equity based on Canadian GAAP............ $ 313,535 $ 288,932 $ 252,966
Foreign exchange gain (loss) (a)....................... (4,992) -- 128
Deferred income and mining taxes (b)................... (28,444) (35,609) (41,975)
Cumulative investment holding gain (loss).............. (786) 24 5
---------- ---------- ----------
Shareholders' equity based on US GAAP.................. $ 279,313 $ 253,347 $ 211,124
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
A) FOREIGN EXCHANGE
Under Canadian GAAP, the options entered into under the Company's foreign
currency program meet the criteria for hedge accounting and as a result any gain
or loss is deferred and recorded in income over the term of the originally
designated hedge arrangement. US GAAP requires that foreign currency options
which are not hedges of existing assets or firm commitments be marked to market
and the resulting changes in market value be included in income in the period
they arise.
B) DEFERRED INCOME AND MINING TAXES
Canadian GAAP requires the use of the deferral method of accounting for
income taxes. The annual tax provision is computed on pretax accounting income
adjusted for certain permanent differences. The deferred tax charge or credit is
the difference between the total tax provision and the taxes actually payable
for the current year. The current year deferred tax provision is measured using
current year tax rates and is not adjusted for subsequent changes in rates.
US GAAP requires the use of the liability method of accounting for income
taxes. Deferred income taxes are recognized for the tax consequences of
temporary differences by applying statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of certain assets and liabilities. Changes in deferred tax assets and
liabilities include the impact of any tax changes during the year.
I-32
<PAGE>
PRIME RESOURCES GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS
AND DOLLAR AMOUNTS ARE CANADIAN)
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
C) INVESTMENTS
Under Canadian GAAP, investments are recorded at cost and are written down
when there has been a decline in value which is other than temporary. Under US
GAAP, Prime's investments would be classified as available-for-sale investments
and would be carried at market value. Unrealized gains and losses on these
investments are recorded as a separate component of shareholders' equity except
that declines in market value judged to be other than temporary are recognized
in determining income.
D) SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES:
(I) INTEREST AND TAXES PAID
Interest and income and mining taxes paid were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest paid................................................... $ 612 $ 634 $ 798
Income and mining taxes paid.................................... $ 73,900 $ 8,800 $ 3,400
--------- --------- ---------
--------- --------- ---------
</TABLE>
(II) CASH AND SHORT-TERM INVESTMENTS
Under US GAAP, only investments with maturities of three months or less
qualify as cash equivalents. Based on this definition, $128.8 million, $93
million and $16 million at December 31, 1997, 1996 and 1995, respectively, which
are included in cash and short-term investments, would be reported separately as
short-term investments.
I-33
<PAGE>
PRIME RESOURCES GROUP INC.
SELECTED FINANCIAL DATA
SHARE PRICES
(CANADIAN DOLLARS PER SHARE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
High........................................................... $ 12.50 $ 15.125 $ 11.375 $ 11.375 $ 9.25
Low............................................................ 6.85 8.75 7.00 8.625 2.00
End............................................................ 9.50 9.70 9.375 10.125 9.25
</TABLE>
GOLD PRICES(1)
(UNITED STATES DOLLARS PER OUNCE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
High...................................................................... $ 367 $ 415 $ 396 $ 395 $ 406
Low....................................................................... 283 367 372 378 326
Average................................................................... 331 388 385 384 360
</TABLE>
- ------------------------
(1) Quoted on the London Metals Exchange.
SILVER PRICES(1)
(UNITED STATES DOLLARS PER OUNCE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
High................................................................... $ 6.21 $ 5.79 $ 6.01 $ 5.31 $ 5.13
Low.................................................................... 4.21 4.67 4.25 4.95 4.56
Average................................................................ 4.89 5.18 5.16 5.28 4.96
</TABLE>
- ------------------------
(1) Quoted by Handy & Harman.
EXCHANGE RATES
(EXPRESSED IN CANADIAN DOLLARS FOR US $1.00)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
High....................................................... $ 1.4398 $ 1.3860 $ 1.4235 $ 1.4078 $ 1.3443
Low........................................................ 1.3357 1.3306 1.3282 1.3103 1.2428
Average.................................................... 1.3849 1.3581 1.3723 1.3699 1.2939
End of Year................................................ 1.4291 1.3696 1.3652 1.4030 1.3255
</TABLE>
I-34
<PAGE>
PRIME RESOURCES GROUP INC.
SELECTED FIVE-YEAR FINANCIAL INFORMATION(1)
(DOLLAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................................... $ 212,146 $ 204,587 $ 158,148 $ 28,626 $ 32,792
Net income............................................. 30,689 42,052 36,514 7,136 4,571
Net income per share................................... 0.40 0.55 0.48 0.10 0.06
Total assets........................................... 377,093 381,286 298,994 234,784 170,215
Dividends.............................................. 6,086 6,086
</TABLE>
- ------------------------
(1) The above selected financial information is presented on the basis of a
consolidation of the accounts of Prime with predecessor companies and, prior
to May 1, 1996, includes Prime's 40% share of assets, liabilities, income
and expenses of the Snip mine operations. Inter-company arrangements have
been eliminated.
SELECTED FINANCIAL INFORMATION FOR THE LAST EIGHT QUARTERS
(DOLLAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
--------------------------------------------------------------------
DECEMBER 31, 1997 SEPTEMBER 30, 1997 JUNE 30, 1997 MARCH 31, 1997
----------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C>
Revenues................................... $ 54,756 $ 55,291 $ 53,751 $ 48,348
Net income................................. 8,744 5,343 7,606 8,996
Net income per share....................... 0.11 0.07 0.10 0.12
<CAPTION>
FOR THE QUARTERS ENDED
--------------------------------------------------------------------
DECEMBER 31, 1996 SEPTEMBER 30, 1996 JUNE 30, 1996 MARCH 31, 1996
----------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C>
Revenues................................... $ 49,700 $ 52,059 $ 53,284 $ 49,544
Net income................................. 9,637 9,010 10,202 13,203
Net income per share....................... 0.13 0.12 0.13 0.17
</TABLE>
I-35
<PAGE>
APPENDIX J
HOMESTAKE MINING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
For the Six Months Ended June 30, 1998:
Management's Discussion and Analysis.................................................................... J-2
Condensed Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 (Unaudited)............. J-12
Condensed Statements of Consolidated Operations for the Three and Six Months Ended June 30, 1998 and
1997 (Unaudited)...................................................................................... J-13
Condensed Statements of Consolidated Cash Flows for the Six Months Ended June 30, 1998 and 1997
(Unaudited)........................................................................................... J-14
Notes to Condensed Consolidated Financial Statements (Unaudited)........................................ J-15
For the Years Ended December 31, 1997, 1996 and 1995:
Management's Discussion and Analysis.................................................................... J-23
Statements of Consolidated Operations for the Years Ended December 31, 1997, 1996 and 1995.............. J-35
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................ J-36
Statements of Consolidated Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.............. J-37
Statements of Consolidated Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995.... J-38
Notes to Consolidated Financial Statements.............................................................. J-39
Report of Independent Auditors.......................................................................... J-69
Quarterly Selected Data................................................................................. J-70
Five-Year Selected Data................................................................................. J-71
</TABLE>
J-1
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(ALL AMOUNTS IN US DOLLARS UNLESS OTHERWISE INDICATED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNLESS SPECIFICALLY STATED OTHERWISE, THE FOLLOWING INFORMATION RELATES TO
AMOUNTS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS WITHOUT REDUCTION FOR
MINORITY INTERESTS. INFORMATION FOR PRIOR PERIODS HAS BEEN RESTATED TO INCLUDE
PLUTONIC WHICH WAS ACQUIRED ON APRIL 30, 1998. HOMESTAKE REPORTS PER OUNCE
PRODUCTION COSTS IN ACCORDANCE WITH THE "GOLD INSTITUTE PRODUCTION COST
STANDARD.")
On April 30, 1998 Homestake completed the acquisition of Plutonic Resources
Limited ("Plutonic"), an Australian gold producer, by issuing 64.4 million
shares with a market value of approximately $770 million. Homestake issued 63.9
million shares in exchange for all Plutonic fully paid ordinary shares
outstanding based on an exchange ratio of 0.34 Homestake common shares for each
Plutonic fully paid ordinary share, and 0.5 million Homestake common shares for
the Plutonic partly paid shares and options outstanding. The business
combination has been accounted for as a pooling of interests, and accordingly,
Homestake's consolidated financial statements have been restated to include
Plutonic for all prior periods.
RESULTS OF OPERATIONS
Homestake recorded a net loss of $30.9 million or $0.15 per share during the
second quarter of 1998 compared to a net loss of $64.9 million or $0.31 per
share during the second quarter of 1997. The 1998 second quarter loss includes
charges of $15 million ($17.9 million pretax) or $0.07 per share for business
combination and integration costs related to the Plutonic acquisition and $2.6
million ($2.9 million pretax) or $0.02 per share for write-downs of exploration
properties. Results for the 1997 second quarter include write-downs of $50
million ($65.1 million pretax) or $0.24 per share taken primarily at the Mt
Morgans mine and the Meekatharra exploration property.
Excluding the effect of nonrecurring items, Homestake incurred a net loss of
$13.3 million or $0.06 per share in the 1998 second quarter compared to a net
loss of $14.9 million or $0.07 per share in the 1997 second quarter. The
improved results reflect a substantial decline in cash costs, higher production
and reduced exploration expenditures. These factors were offset in part by a
significant decline in the gold price, higher mark-to-market losses on foreign
currency exchange contracts, and increased depreciation, depletion and
amortization expenses primarily due to higher sales volumes.
Gold production in the second quarter of 1998 was 656,600 ounces compared to
626,700 ounces produced in the second quarter of 1997. During the second quarter
of 1998, sales of equivalent ounces of gold increased by 14% to 693,800 ounces
compared to 610,900 ounces in the second quarter of 1997. However, gold and ore
sales revenue decreased to $210.7 million during the three months ended June 30,
1998 from $214.4 million in the corresponding prior year period due to a decline
in the average price of gold. Homestake's average realized price declined to
$316 per equivalent ounce of gold in the second quarter of 1998 from $362 per
equivalent ounce realized in the comparative 1997 period.
In January 1998, Homestake began a major restructuring of operations at the
Homestake mine in order to reduce operating costs. Homestake suspended
underground mining for approximately 60 days while it completed the final
details of the new operating plan and readied the underground mine to begin
operating on the restructured basis. Open Cut ore stockpiles continued to be
processed through the mill at an accelerated rate while the underground
operations were suspended. The new mine plan specifically is designed to improve
the grade of ore recovered through the increased use of mechanized cut-and-fill
mining methods. When fully implemented, the plan will reflect a reorganization
of underground activities and a significant reduction in work force that will
generate considerable cost savings and will increase the mine's future total
earnings and cash flow. Homestake expects to invest up to $30 million by the end
of 1999 in the restructuring process to purchase equipment, and upgrade
facilities and infrastructure. Once the new operating plan is fully implemented
by the end of 1999, annual gold production is expected to be
J-2
<PAGE>
between 150,000 and 180,000 ounces. Total cash costs for the underground
operations are projected to decline to $280 per ounce from the 1997 levels of
approximately $335 per ounce. Underground crews returned to work on a limited
basis on March 26, 1998, and the remaining underground work force, about
one-half of the size of the pre-shutdown force, returned on a phased basis
through April 1998. Substantial development work is ongoing to prepare the mine
to operate under the new operating plan, and production is increasing each
month.
Domestic gold production increased slightly to 182,600 ounces during the
second quarter of 1998 from 174,600 ounces during the second quarter of 1997.
The increase primarily is due to the commencement of production at the new Ruby
Hill mine in Nevada, offset by the temporary suspension of mining in the
underground operations at the Homestake mine. The Ruby Hill mine, which
commenced commercial production effective January 1, 1998, produced 30,400
ounces of gold at a cash cost $123 per ounce during the second quarter of 1998.
The mine continues to exceed initial projections due to processing 12% more tons
than planned and to a higher gold recovery rate. At the HOMESTAKE MINE, gold
production during the second quarter of 1998 declined by 28% to 70,400 ounces
compared to 97,900 ounces during the second quarter of 1997. During the
temporary shut down, the mill processed an increased volume of lower-grade ore
from the lower-cost Open Cut operations. The increased volume of Open Cut ore
reduced the mine's average cash costs to $256 per ounce during the 1998 second
quarter from $330 per ounce in the 1997 second quarter. At the MCLAUGHLIN MINE,
production increased to 34,800 ounces during the second quarter of 1998 from
30,900 ounces during the prior year's second quarter due to a combination of
higher ore grades and an increase in mill throughput. These factors together
with lower unit operating and maintenance costs resulted in a significant
reduction in cash costs to $201 per ounce in 1998 from $254 per ounce in the
second quarter of 1997. Homestake's share of production at the ROUND MOUNTAIN
MINE increased by 4,000 ounces to 36,500 ounces during the second quarter of
1998 from 32,500 ounces produced during the second quarter of 1997. The higher
production primarily is due to production from the new 8,000 tons-per-day mill
which was commissioned in late 1997. The new mill, which was constructed to
process higher-grade ores, produced 6,200 ounces (Homestake's share) during the
quarter. Cash costs at Round Mountain declined to $194 per ounce in the 1998
second quarter from $204 per ounce in the 1997 second quarter due to cost
savings associated with the new mining plan instituted in 1997. The new pit
design has led to a lower stripping ratio that has reduced unit costs and
capital requirements, substantially improving earnings and cash flow over the
life of the operation.
Total foreign gold production during the three months ended June 30, 1998
increased 21,900 ounces or 5% to 474,000 equivalent ounces over the comparable
period for the prior year. This increase in production primarily is due to a
significant increase in production at the Eskay Creek and Williams mines in
Canada and at the Lawlers mine in Australia.
Production at the ESKAY CREEK MINE increased to 130,000 gold equivalent
ounces during the second quarter of 1998 from 100,900 gold equivalent ounces
during the second quarter of 1997. Although the gold grade has been consistently
above projections this year, most of the production increase can be attributed
to a lower silver/gold equivalency ratio and the excellent performance from the
gravity/flotation mill installed in December 1997 to process lower-grade ore.
Cash costs (including third-party smelter costs) were $134 per equivalent ounce
in the 1998 second quarter compared to $157 per equivalent ounce in the 1997
second quarter. The WILLIAMS MINE produced 50,900 ounces of gold at a cash cost
of $209 per ounce during the second quarter of 1998 compared to 42,800 ounces
produced at a cash cost of $272 per ounce during the second quarter of 1997. The
higher production was attributable to an increase in tons milled and an increase
in the ore grade. The significant decline in cash cost resulted from increased
production, improved ground conditions and lower underground development costs.
The DAVID BELL MINE produced 22,900 ounces at a cash cost of $180 per ounce
during the second quarter of 1998 compared to 20,800 ounces produced at a cash
cost of $213 per ounce during the second quarter of 1997 due to an increase in
tons milled. Homestake's share of production at the SNIP MINE decreased to
26,800 ounces in the 1998 second quarter from 31,300 ounces in the 1997 second
quarter. The decline in production reflect the mining of lower-grade ore.
However, costs still declined as the impact of the lower ore grade was more
J-3
<PAGE>
than offset by lower mining and service costs. Overall Canadian operations cash
cost also benefited from a four percent decline in the average Canadian/U.S.
dollar exchange rate between the second quarters of 1998 and 1997.
HGAL's share of production at the Kalgoorlie operations in Western Australia
totaled 104,800 ounces in the second quarter of 1998 compared to 107,000 ounces
in the second quarter of 1997. A small decline in mill throughput due to a
planned relining of the SAG mill and an unscheduled shutdown to inspect and
repair damage to the mill girth gear was offset by the mining of higher-grade
ore from the Super Pit. Cash costs in 1998 declined to $219 per ounce from $279
per ounce in 1997, attributable to lower costs and the decline in value of the
Australian dollar in relation to the U.S. dollar.
In the second quarter of 1998, gold production at the PLUTONIC mine dropped
to 55,700 ounces at a cash cost of $247 per ounce compared to 73,900 ounces at a
cash cost of $218 per ounce in the prior year's second quarter. Plutonic is
mainly an underground operation as the open pit was mined out in 1997. Mill feed
from underground operations was somewhat below expectations in the last quarter
as lode structures in the NW Extension were flatter and less continuous than
anticipated, making mining more difficult. However, current drilling already has
succeeded in defining higher-grade lode structures in areas where production
will commence in the third quarter.
Gold production for the latest quarter at the DARLOT/CENTENARY mine declined
to 14,700 ounces in 1998 from 16,100 ounces in the 1997 quarter as ore was
sourced predominantly from the lower-grade Darlot orebody. Consequently, cash
costs increased to $289 per ounce in 1998 from $271 per ounce in 1997.
Development of the low-cost, high-grade Centenary deposit has been delayed
somewhat as a result of a change in mining contractors. Initial production from
the Centenary deposit is expected to take place by the end of the third quarter.
For the second quarter of 1998, production from the LAWLERS mine increased
to 30,800 ounces compared to 18,500 ounces in the comparable period of the
previous year. Ore grades, particularly from the New Holland South underground
zone, and the recovery rate from the gravity circuit both have been higher than
anticipated. As a result, cash costs declined to $203 per ounce compared to $232
per ounce in 1997. Work has commenced on a second decline to access the deeper
lode structures of the New Holland South zone.
Homestake's 80% share of gold production from the MT MORGANS mine was 15,100
ounces in the latest quarter at a cash cost of $222 per ounce compared to 16,500
ounces at a cost of $411 per ounce in the comparable 1997 quarter. Cash costs
declined substantially despite the drop in production due to higher than
expected ore grades and recoveries from stockpiled ore. The Mt Morgans mine is
scheduled to cease operations in September 1998. However, recent exploration
results have been very promising, and could result in extending the life of the
mine if additional ore is located.
Overall Australian operations cash costs per ounce also benefited from an
eighteen percent decline in the average Australian/U.S. dollar exchange rate
between the second quarters of 1998 and 1997.
At the LA FALDA mine in Chile, second quarter 1998 gold production increased
to 12,700 ounces compared to 8,300 ounces in 1997 primarily due to higher
recoveries. Cash costs declined to $191 per ounce from $203 per ounce. At
present, oxide ore is being mined and heap leached while metallurgical work
continues on the much larger, predominantly unoxidized Jeronimo orebody. Recent
tests of bio-oxidation techniques have been encouraging and testing to determine
the best method for extracting gold from the ore will continue. A decline is
being developed to access the deeper sulfide ore so that a large sample of this
ore can be obtained for metallurgical testing.
Homestake's consolidated total cash costs per ounce decreased 26 percent to
$201 in the 1998 second quarter compared to $254 in the 1997 second quarter.
Approximately $21 per ounce of this decline is attributable to the lower
Australian and Canadian dollar exchange rates.
J-4
<PAGE>
For the six months ended June 30, 1998, Homestake recorded a net loss of
$37.5 million or $0.18 per share compared to a net loss of $16.6 million or
$0.08 per share in 1997. The net loss for the first half of the 1998 includes
$17.7 million ($20.7 million pretax) or $0.08 per share for business combination
and integration costs related to the acquisition of Plutonic, $5.9 million ($8.9
million pretax) or $0.03 per share in restructuring costs relating to the
Homestake mine, and $2.6 million ($2.9 million pretax) or $0.02 per share for
write-downs of exploration properties. The net loss for the first six months of
1997 includes gains of $47.2 million ($62.9 million pretax) or $0.22 per share
from the break-up fee received from Santa Fe Pacific Gold Corporation ("Santa
Fe") upon termination of Homestake's merger agreement with Santa Fe and $8.1
million ($13.5 million pretax) or $0.04 per share from the sale of joint venture
interests in two mining properties in the Northwest Territories of Canada, and
an after-tax loss of $50 million ($65.1 million pretax) or $0.24 per share
primarily related to the write-downs at the Mt Morgans mine and the Meekatharra
exploration property.
Year-to-date revenues from gold and ore sales totaled $405 million during
the first six months of 1998 compared to $442.2 million during the first six
months of 1997, reflecting significantly lower average realized prices partially
offset by increased sales volumes. During the first half of 1998, 1,332,500
equivalent ounces of gold were sold at an average realized price of $316 per
ounce compared to sales of 1,231,900 equivalent ounces of gold sold at an
average realized price of $364 per ounce during the first half of 1997. The
increased sales volumes primarily are due to increases in production.
Homestake's share of revenues from the MAIN PASS 299 OPERATION in the Gulf
of Mexico declined to $5.7 million during the second quarter of 1998 from $6.8
million in the second quarter of 1997, and operating losses were $1 million
during the second quarter compared to losses of $0.4 million during the 1997
second quarter. Sulfur sales increased to 77,900 long tons during the 1998
second quarter from 76,700 long tons during the 1997 second quarter. However,
the average realized sulfur price declined to $58 per ton during the 1998 second
quarter compared to $60 per ton during the second quarter of the previous year.
Oil sales also declined due to a 29% decrease in production and a 31% decrease
in the average oil price per barrel. Year-to-date 1998 revenues from the Main
Pass 299 operations decreased to $11.8 million compared to year-to-date 1997
revenues of $13.8 million, and year-to-date 1998 operating losses were $1.7
million compared to losses of $1 million for the year-to-date 1997 period. The
1998 results reflect lower oil prices and sales volumes, offset by lower
depreciation charges following the write down of the sulfur assets at September
30, 1997.
Homestake's gold hedging policy provides for the use of forward sales
contracts for up to 30% of each of the following ten year's expected annual gold
production at prices in excess of certain targeted prices, and the use of
combinations of put and call option contracts to establish minimum floor prices
while allowing participation in future increases in the price of gold. In 1997,
Homestake entered into a series of put and call options which provide a floor
price of $325 per ounce for 900,000 ounces of 1998 production while allowing for
full participation in any increase in the price of gold above $336 per ounce.
Gold sales for the three and six months ended June 30, 1998 includes 225,000 and
450,000 ounces, respectively, at an average price of $325 per ounce under this
program. At June 30, 1998 Homestake owned put options for 450,000 ounces of gold
exercisable during 1998 at a price of $325 per ounce. Homestake also had written
call options outstanding for 450,000 ounces of gold exercisable during 1998 at a
price of $325 per ounce and owned call options for 450,000 ounces of gold
exercisable during 1998 at a price of $336 per ounce.
During the three and six months ended June 30, 1998 Homestake delivered or
financially settled 55,900 and 178,900 ounces of its Australian gold production
into Australian dollar denominated forward gold contracts at average prices of
$372 and $339 per ounce, respectively. During the three and six months ended
June 30, 1997 Homestake delivered 124,300 and 265,150 ounces of its Australian
gold production into Australian dollar denominated forward gold contracts at
average prices for both periods of $429 per ounce. During June 1998, Homestake
closed out and financially settled one million ounces of its Australian
dollar-denominated forward gold contracts. The gain of $5 million realized on
this arrangement was deferred and will be recorded in income as the originally
designated production is delivered. At June 30,
J-5
<PAGE>
1998 Homestake had remaining commitments for 210,000 ounces of its future
Australian dollar denominated forward gold contracts at an average price of $320
(A$526) per ounce.
During the three and six months ended June 30, 1998 Homestake delivered or
financially settled 30,000 and 60,000 ounces of its North American gold
production at average prices of $398 and $396 per ounce, respectively, and
during the three and six months ended June 30, 1997 Homestake delivered or
financially settled 30,000 and 60,000 ounces of its North American gold
production at average prices of $383 and $381 per ounce, respectively. At June
30, 1998 Homestake had committed 520,000 ounces of its future North American
gold production for sale through the year 2003 at an average price of $438 per
ounce under forward sales contracts. Homestake also owned put options for 30,000
ounces of gold exercisable during 2000 at a price of $350 per ounce and had
written call options outstanding for 15,000 ounces of gold exercisable during
2000 at an average price of $395 per ounce.
Homestake's hedging activities increased revenues by approximately $13
million and $27 million in the three and six months ended June 30, 1998,
respectively, and by approximately $14 million and $29 million in the three and
six months ended June 30, 1997, respectively. The estimated liquidation value of
Homestake's hedging position at June 30, 1998 was approximately $56.9 million.
In February 1998, Prime adopted a gold and silver hedging policy which
provides for the use of forward sales contracts for up to 40% of each of the
following five year's expected annual gold and silver production at prices in
excess of certain targeted prices. At June 30, 1998 Prime had forward sales
outstanding for approximately 7.2 million ounces of silver during the period
1999 through 2001 at an average price of $6.28 per ounce.
A significant portion of Homestake's operating expenses is incurred in
Australian and Canadian currencies. Homestake's profitability is impacted by
fluctuations in these currencies' exchange rates relative to the United States
dollar. Under Homestake's foreign currency protection program, Homestake has
entered into a series of foreign currency option contracts which establish
trading ranges within which the United States dollar may be exchanged for
Australian and Canadian dollars. At June 30, 1998 Homestake had a recorded net
unrealized loss of $28.9 million on open contracts under this program.
OTHER INCOME for the six months ended June 30, 1998 includes foreign
currency exchange losses of $25.4 million and gains on sales of Rabbi Trust
investments of $4.3 million. Other income in 1997 includes a $13.5 million gain
on sale of the George Lake/Back River joint venture interests and a net foreign
currency exchange losses of $6.9 million.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE increased to $37.4 million
in the second quarter of 1998 compared to $34 million during the 1997 second
quarter reflecting the higher gold production, offset by reduced depreciation
charges following the asset write-downs during 1997.
EXPLORATION EXPENSE for the three and six months ended June 30, 1998 was
$11.5 million and $21.8 million, respectively, compared to $18.1 million and
$30.1 million of the respective three and six months periods ended June 30,
1997. Homestake expects to spend approximately $58 million during 1998 on
exploration projects, of which 50% is expected to be spent in Australia and 30%
in North America.
INCOME AND MINING TAX EXPENSE for the six months ended June 30, 1998 was
$2.3 million compared to $31 million for the six months ended June 30, 1997. The
decrease in tax expense primarily reflects taxes of $15.7 million provided
during 1997 on the break-up fee received from Santa Fe upon termination of
Homestake's merger agreement with Santa Fe. For the first half of 1998, the
consolidated effective tax rate was a negative 8%, reflecting the geographic mix
of pretax income and losses. The tax benefits related to losses incurred in the
United States and Australia were more than offset by a tax expense recorded with
respect to the Canadian earnings. Homestake's consolidated effective income and
mining tax rate will fluctuate depending on the geographical mix of pretax
income.
MINORITY INTERESTS in the income of consolidated subsidiaries increased
during the first six months of 1998 to $5.6 million from $4.9 million during the
first six months of 1997. The increase in minority interests
J-6
<PAGE>
primarily is attributable to higher earnings at the Eskay Creek mine which is
owned by Prime Resources Group Inc., a 50.6%-owned subsidiary of Homestake.
The following chart details Homestake's gold production and total cash costs
per ounce by location, and consolidated revenue and production costs per ounce.
<TABLE>
<CAPTION>
PRODUCTION
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(OUNCES IN THOUSANDS)
<S> <C> <C> <C> <C>
Mine (Percentage interest)
Honnestake (100)........................................ 70.4 97.9 146.4 204.3
Ruby Hill (100)......................................... 30.4 -- 61.0 --
McLaughlin (100)........................................ 34.8 30.9 64.9 62.5
Round Mountain (25)..................................... 36.5 32.5 69.5 60.6
Pinson (50)............................................. 4.5 6.2 10.9 12.6
Marigold (33)........................................... 6.0 7.1 12.2 14.3
--------- --------- --------- ---------
Total United States................................... 182.6 174.6 364.9 354.3
Eskay Creek (100)(1).................................... 130.0 100.9 271.1 195.5
Williams (50)........................................... 50.9 42.8 95.6 94.2
David Bell (50)......................................... 22.9 20.8 41.1 43.8
Quarter Claim (25)...................................... 2.8 2.8 5.6 5.6
Snip (100)(2)........................................... 26.8 31.3 50.5 59.5
--------- --------- --------- ---------
Total Canada.......................................... 233.4 198.6 463.9 398.6
Kalgoorlie (50)......................................... 104.8 107.0 198.9 215.3
Plutonic (100).......................................... 55.7 73.9 112.0 135.0
Darlot/Centenary (100).................................. 14.7 16.1 30.3 29.5
Lawlers (100)........................................... 30.8 18.5 62.4 28.2
Mt Morgans (80)......................................... 15.1 16.5 34.6 36.6
Peak Hill (67).......................................... 6.8 9.0 12.6 18.4
--------- --------- --------- ---------
Total Australia....................................... 227.9 241.0 450.8 463.0
Agua de la Falda, Chile (100)........................... 12.7 8.3 23.7 8.3
--------- --------- --------- ---------
TOTAL PRODUCTION(4)..................................... 656.6 626.7 1,303.3 1,237.2
Less Minority Interests................................. (83.7) (69.5) (170.5) (130.1)
--------- --------- --------- ---------
HOMESTAKE'S SHARE....................................... 572.9 557.2 1,132.8 1,107.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
J-7
<PAGE>
<TABLE>
<CAPTION>
TOTAL CASH COSTS
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS PER OUNCE)
<S> <C> <C> <C> <C>
Mine (Percentage interest)
UNITED STATES
Homestake (100)....................................... $ 256 $ 330 $ 250 $ 323
Ruby Hill (100)....................................... 123 -- 126 --
McLaughlin (100)...................................... 201 254 216 249
Round Mountain (25)................................... 194 204 200 219
Pinson (50)........................................... 447 372 374 342
Marigold (33)......................................... 261 257 253 243
CANADA
Eskay Creek (100)(3).................................. 134 157 127 161
Williams (50)......................................... 209 272 226 251
David Bell (50)....................................... 180 213 206 203
Quarter Claim (25).................................... 169 172 170 174
Snip (100)(3)......................................... 203 216 213 210
AUSTRALIA
Kalgoorlie (50)....................................... 219 279 239 276
Plutonic (100)........................................ 247 218 256 243
Darlot/Centenary (100)................................ 289 271 312 322
Lawlers (100)......................................... 203 232 195 238
Mt Morgans (80)....................................... 222 411 227 386
Peak Hill (67)........................................ 253 251 278 245
CHILE
Agua de la Falda (100)................................ 191 203 202 203
WEIGHTED AVERAGE........................................ $ 201 $ 254 $ 207 $ 256
--------- --------- --------- ---------
--------- --------- --------- ---------
PER OUNCE OF GOLD
Revenue................................................. $ 316 $ 362 $ 316 $ 364
--------- --------- --------- ---------
--------- --------- --------- ---------
Per Ounce Costs
Cash Operating Costs (5)................................ $ 197 $ 250 $ 204 $ 252
Other Cash Costs (6).................................... 4 4 3 4
--------- --------- --------- ---------
Total Cash Costs.................................... 201 254 207 256
Noncash Costs (7)....................................... 56 58 56 59
--------- --------- --------- ---------
Total Production Costs.............................. $ 257 $ 312 $ 263 $ 315
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Ounces produced are expressed on a gold equivalent basis. Silver is
converted to gold equivalent using the ratio of the silver market price to
the gold market price. Eskay Creek production includes 70,000 (56,500 in
1997) ounces of gold and 3.1 million (3.2 million in 1997) ounces of silver
contained in ore and concentrates sold to smelters in the second quarter,
and 143,400 (110,900 in 1997) ounces of gold and 6.3 million (6 million in
1997) ounces of silver contained in ore and concentrates sold to smelters in
the year-to-date period.
(2) Includes ounces of gold contained in dore and concentrates.
(3) For comparison purposes, total cash costs per ounce include estimated
third-party costs incurred by smelter owners and others to produce
marketable gold and silver.
J-8
<PAGE>
(4) Includes 4,200 ounces and 12,500 ounces of gold produced at the Bellevue
project in Western Australia during the 1997 second quarter and year-to-date
periods, respectively, and 500 ounces produced at the El Hueso mine in Chile
during the 1997 year-to-date period.
(5) Cash operating costs are costs directly related to the physical activities
of producing gold; includes mining, milling, third-party smelting and
in-mine drilling expenditures that are related to production.
(6) Other cash costs are costs that are not directly related to, but may result
from, gold production; includes production taxes and royalties.
(7) Noncash costs are costs that typically are accounted for ratably over the
life of an operation; includes depreciation, depletion, accruals for final
reclamation. Noncash costs do not include amortization of additions to
property resulting from SFAS 109 deferred tax purchase accounting
adjustments, as these additions did not involve any economic resources of
Homestake.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $63.8 million during the first six
months of 1998 compared to $109.8 million during the first six months of 1997.
Cash provided by operations during the 1997 six-month period includes the
termination fee received from Santa Fe upon termination of Homestake's merger
agreement with Santa Fe, partially offset by $50 million in payments for income
and mining taxes, primarily payments made in the first quarter of 1997 related
to Prime's 1996 taxable income. Payments for income and mining taxes of $11.4
million (net) were made during the first six months of 1998. Working capital at
June 30, 1998 amounted to $308 million, including $284 million in cash and
equivalents and short-term investments.
Capital additions of $33.9 million for the first half of 1998 compare to
additions of $101.9 million for the first half of 1997. Capital additions during
1998 include $7 million and $6.7 million primarily for underground development
work at the Plutonic and Darlot/Centenary mines, respectively, with the balance
primarily related to productivity improvement projects and sustaining capital at
Homestake's other operating mines. Capital additions in 1997 include $30.9
million for construction and development work at the Ruby Hill mine, $22.7
million primarily for underground development and expenditures for a new gas-
fired power station at the Plutonic mine, $8.3 million at the Round Mountain
mine primarily for a new mill to process the higher-grade sulfide ore, $8.1
million for development work at the Darlot/Centenary mine, $7.3 million
primarily for a tailings dam lift and improvements in the underground operations
at the Homestake mine, and $6.3 million at the Kalgoorlie operations primarily
for a decline from surface and a ventilation raise at the Mt. Charlotte mine.
On March 10, 1997 Santa Fe terminated its previously announced merger
agreement with Homestake and paid Homestake a $65 million termination fee. As a
result, Homestake recorded a pretax gain of $62.9 million ($47.2 million after
tax), net of merger-related expenses of $2.1 million incurred in 1997.
In February 1997, Homestake completed the sale of its interests in the
George Lake and Back River joint ventures in Canada to Kit Resources Corporation
("Kit") for $9.3 million in cash and 3.6 million shares of Kit common stock. As
a result of this transaction, Homestake recorded a pretax gain of $13.5 million
($8.1 million after tax), which is included in other income.
In June 1998, Plutonic repaid $8 million of its debt outstanding under its
syndicated credit facility. Borrowings outstanding at June 30, 1998 include
borrowings of $95.5 million by Plutonic and $45.6 million by HGAL under
Homestake's then-existing credit facilities.
In July 1998, Homestake entered into a new United States/Canadian/Australian
cross-border credit facility providing a total availability of $430 million. The
new facility replaces Homestake's $275 million cross-border credit facility and
Plutonic's A$400 million syndicated credit facility, both of which were
cancelled. Borrowings by Plutonic and HGAL under the prior credit facilities
were repaid using the new facility. The new facility is available through July
14, 2003 and provides for borrowings in United States, Canadian, or Australian
dollars, or gold, or a combination of these. Under the new facility, Homestake
pays a commitment fee ranging from 0.15% to 0.35% per annum, depending upon
rating agencies' ratings
J-9
<PAGE>
for Homestake's senior debt, on the unused portion of this facility. The new
credit agreement requires a minimum consolidated net worth of $500 million.
Interest on the HGAL and Plutonic Australian dollar borrowings under the new
facility is payable quarterly and is based on the Australian Bank Bill Swap Rate
plus a margin of up to 1.125%. At July 31, 1998 the interest rate was 6.22%.
In February 1997, Homestake paid a cash dividend of 5 cents per share. In
March 1997, Homestake reduced its annual dividend rate to 10 cents per share
from 20 cents per share and declared a semi-annual dividend of 5 cents per share
which was paid in May 1997. In May 1998, Homestake paid a semi-annual dividend
of 5 cents per share.
In April 1997, Homestake filed with the Securities and Exchange Commission a
shelf registration statement for the potential sale of up to 20 million shares
of common stock. The proceeds from any such offering would be available for
general corporate purposes, which could include capital expenditures, repayment
of debt and future acquisitions, which have the potential to add to Homestake's
gold reserves and future gold production.
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. SFAS 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. SFAS 132 will be
effective for Homestake's financial statements for the year ended December 31,
1998.
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires that all derivatives be recognized as assets or
liabilities and be measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivatives and whether they qualify for hedge accounting as
either a fair value hedge or a cash flow hedge. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows of the hedging
instruments and the hedged items. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 but earlier adoption is permitted. Homestake
currently is evaluating the impact that this requirement will have on reported
operating results and financial position and has not yet determined when SFAS
133 will be adopted.
Future results will be impacted by such factors as the market price of gold,
silver and sulfur, Homestake's ability to expand its ore reserves and the
fluctuations of foreign currency exchange rates. Homestake believes that the
combination of cash, short-term investments, available lines of credit and
future cash flows from operations will be sufficient to meet normal operating
requirements, planned capital expenditures, and anticipated dividends.
YEAR 2000 COMPLIANCE
Homestake has completed a review of its computer-based systems and has
developed a plan designed to ensure that all of these systems will be Year 2000
compliant. With the exception of the financial systems acquired as part of
Homestake's recent acquisition of Plutonic, Year 2000 compliant upgrades for
Homestake's core financial systems will be installed by the end of 1998. The
Plutonic financial systems, and all other Homestake information system hardware
and software, will be brought into compliance by mid-1999.
Homestake currently is in the process of identifying all
microprocessor-controlled devices, including process-monitoring systems, in use
at its operating locations to determine whether they are Year 2000 compliant. In
addition, Homestake is monitoring similar Year 2000 related activities at its
joint venture operations where it is not the operator. A Year 2000 related
microprocessor problem that is not identified
J-10
<PAGE>
or remedied at an operating location potentially could result in a short-term
production disruption at that location.
Homestake's total expenditures for these Year 2000 activities are expected
to be less than $1 million and should not adversely impact other information
system initiatives.
Homestake currently is surveying all major suppliers and customers to assess
their Year 2000 compliance and, where practical, will make specific contingency
plans based on the results of this survey. The greatest risk to Homestake in
this regard would be in the supply of power and/or water to certain of its
operating locations. A disruption in the supply of either of these utilities
could significantly hamper or curtail production at an operating location until
the service is restored. A disruption in the supply of other services or
supplies at an operating location potentially could result in a short-term
production disruption at that location.
Due to the nature of Homestake's principal customers, Homestake expects that
their core financial operating systems will be Year 2000 compliant, and that
there will be no significant disruption in Homestake's gold selling efforts.
Based on compliance efforts to date, Homestake has concluded that it is not
necessary to establish contingency plans.
PRIME RESOURCES GROUP INC.
On September 11, 1998 Prime and Homestake announced that Homestake and the
Board of Directors of Prime had reached an agreement (the "Arrangement") for
Homestake's acquisition of the 49.4% of Prime held by the public. Under the
terms of the Arrangement, Prime shareholders will have the choice of receiving
0.74 Homestake common shares or 0.74 Homestake Canada Inc. ("HCI") exchangeable
shares for each Prime share held by them. Each HCI exchangeable share would be
exchangeable for one Homestake common share at any time at the option of the
holder, and will have dividend and voting rights essentially equivalent to those
of one Homestake common share.
The transaction is to be structured as an arrangement under the British
Columbia Companies Act. Completion of the Arrangement is subject to approval by
the British Columbia Supreme Court and by Prime shareholders, and the Homestake
shareholders must vote to adopt a Restated Certificate of Incorporation that,
among other things, authorizes the Homestake common shares necessary to effect
the Arrangement. A total of 75% of all Prime shares represented at its
shareholders' meeting, including the Prime shares owned by HCI, must approve the
transaction. In addition, the Arrangement must be approved by two-thirds of the
Prime shares present and voting on the Arrangement, excluding shares voted by
HCI and certain affiliates. If all necessary approvals are obtained, completion
of the Arrangement is expected in mid-December, 1998.
The Arrangement would result in the issuance of a total of 27.8 million
Homestake common and HCI exchangeable shares in exchange for the 37.6 million
Prime shares held by the minority shareholders of Prime.
J-11
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS OF US$, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents.............................................................. $ 134,219 $ 124,083
Short-term investments............................................................ 149,699 141,221
Receivables....................................................................... 48,711 43,529
Inventories:
Finished products............................................................... 22,283 33,019
Ore and in process.............................................................. 29,999 37,811
Supplies........................................................................ 31,149 33,095
Deferred income and mining taxes.................................................. 26,465 19,372
Other............................................................................. 7,669 13,154
------------- -------------
Total current assets............................................................ 450,194 445,284
------------- -------------
Property, plant and equipment--at cost.............................................. 2,204,344 2,222,465
Accumulated depreciation, depletion and amortization.............................. (1,271,610) (1,201,318)
------------- -------------
Property, plant and equipment--net.............................................. 932,734 1,021,147
------------- -------------
Investments and other assets
Noncurrent investments............................................................ 33,054 41,094
Other assets...................................................................... 89,479 102,009
------------- -------------
Total investments and other assets.............................................. 122,533 143,103
------------- -------------
Total Assets........................................................................ $ 1,505,461 $ 1,609,534
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................................. $ 47,015 $ 59,930
Accrued liabilities:
Payroll and other compensation.................................................. 27,761 23,898
Unrealized loss on foreign currency exchange contracts.......................... 28,921 20,416
Reclamation and closure costs................................................... 12,166 11,818
Other........................................................................... 17,151 12,509
Income and other taxes payable.................................................... 9,422 277
------------- -------------
Total current liabilities....................................................... 142,436 128,848
------------- -------------
Long-term liabilities
Long-term debt.................................................................... 356,069 374,593
Other long-term obligations....................................................... 143,871 152,610
------------- -------------
Total long-term liabilities..................................................... 499,940 527,203
------------- -------------
Deferred income and mining taxes.................................................... 146,105 161,862
Minority interests in consolidated subsidiaries..................................... 112,232 108,116
Shareholders' equity
Capital stock, $1 par value per share:
Preferred--10,000 shares authorized; no shares outstanding
Common--250,000 shares authorized; shares outstanding:
1998--211,162; 1997--210,696.................................................. 211,162 210,696
Other shareholders' equity........................................................ 393,586 472,809
------------- -------------
Total shareholders' equity...................................................... 604,748 683,505
------------- -------------
Total Liabilities and Shareholders' Equity.......................................... $ 1,505,461 $ 1,609,534
------------- -------------
------------- -------------
</TABLE>
See notes to the condensed consolidated financial statements.
J-12
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS OF US$, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Gold and ore sales............................................. $ 210,687 $ 214,393 $ 405,026 $ 442,218
Sulfur and oil sales........................................... 5,665 6,842 11,798 13,794
Interest income................................................ 5,218 4,797 9,477 9,106
Gain on termination of Santa Fe merger......................... -- -- -- 62,925
Other income................................................... (26,285) 28 (14,799) 15,355
---------- ---------- ---------- ----------
195,285 226,060 411,502 543,398
---------- ---------- ---------- ----------
Costs and Expenses
Production costs............................................... 142,749 154,831 278,306 319,721
Depreciation, depletion and amortization....................... 37,402 34,047 73,492 73,590
Administrative and general expense............................. 11,272 12,029 23,837 21,821
Exploration expense............................................ 11,509 18,138 21,806 30,073
Interest expense............................................... 5,216 5,413 10,328 10,281
Write-downs and other unusual charges.......................... 2,905 65,115 11,784 65,115
Business combination and integration costs..................... 17,934 -- 20,710 --
Other expense.................................................. 419 2,785 798 3,427
---------- ---------- ---------- ----------
229,406 292,358 441,061 524,028
---------- ---------- ---------- ----------
Income (Loss) Before Taxes and Minority Interests................ (34,121) (66,298) (29,559) 19,370
Income and Mining Taxes.......................................... 4,878 3,858 (2,342) (31,047)
Minority Interests............................................... (1,688) (2,417) (5,616) (4,924)
---------- ---------- ---------- ----------
Net Loss......................................................... $ (30,931) $ (64,857) $ (37,517) $ (16,601)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Loss Per Share--Basic and Diluted............................ $ (0.15) $ (0.31) $ (0.18) $ (0.08)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average Shares Used in the Computation (thousands)............... 211,060 210,567 210,860 210,534
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividends Paid Per Common Share.................................. $ 0.05 $ 0.05 $ 0.05 $ 0.10
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to the condensed consolidated financial statements.
J-13
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF US$)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1998 1997
---------- -----------
<S> <C> <C>
Cash Flows from Operations
Net loss............................................................................... $ (37,517) $ (16,601)
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization............................................. 73,492 73,590
Write-downs.......................................................................... 2,905 65,115
Deferred taxes, minority interests and other......................................... (21,575) 11,332
Gains on asset disposals............................................................. (1,844) (17,884)
Effect of changes in operating working capital items................................. 48,311 (5,798)
---------- -----------
Net cash provided by operations........................................................ 63,772 109,754
---------- -----------
Investment Activities
Increase in short-term investments..................................................... (11,308) (33,630)
Capital additions...................................................................... (33,894) (101,897)
Proceeds from asset sales.............................................................. 7,841 15,451
Other.................................................................................. 113 (2,603)
---------- -----------
Net cash used in investment activities................................................. (37,248) (122,679)
---------- -----------
Financing Activities
Borrowings............................................................................. -- 27,917
Debt repayments........................................................................ (8,024) --
Dividends paid - Homestake............................................................. (7,339) (14,670)
- Plutonic................................................................ (3,554) (9,768)
- Prime minority interests................................................ (1,040) (1,085)
Common shares issued................................................................... 1,038 808
Other.................................................................................. 2,531 2,655
---------- -----------
Net cash provided by (used in) financing activities...................................... (16,388) 5,857
---------- -----------
Net increase (decrease) in cash and equivalents.......................................... 10,136 (7,068)
Cash and equivalents, January 1.......................................................... 124,083 104,657
---------- -----------
Cash and equivalents, June 30............................................................ $ 134,219 $ 97,589
---------- -----------
---------- -----------
</TABLE>
See notes to the condensed consolidated financial statements.
J-14
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
1. The condensed consolidated financial statements included herein should be
read in conjunction with the financial statements and notes thereto, which
include information as to significant accounting policies, for the year
ended December 31, 1997. Year end financial statements for the Company,
restated to include Plutonic on a pooling-of-interests basis (see note 2
below), have been filed with the Securities and Exchange Commission on Form
8-K dated June 22, 1998.
The information furnished in this report reflects all adjustments which, in
the opinion of management, are necessary for a fair statement of the results
for the interim periods. Except as described in notes 2 through 6, such
adjustments consist of items of a normal recurring nature. Results of
operations for interim periods are not necessarily indicative of results for
the full year.
All dollar amounts are in United States dollars unless otherwise indicated.
2. On April 30, 1998 Homestake completed the acquisition of Plutonic Resources
Limited ("Plutonic"), a publicly-traded Australian gold producer, by an
exchange of common stock for common stock. Homestake issued 64.4 million
common shares to acquire Plutonic, including 63.9 million shares in exchange
for all of the Plutonic fully paid ordinary shares outstanding based on an
exchange ratio of 0.34 Homestake common shares for each Plutonic fully paid
ordinary share, and 0.5 million Homestake common shares for the Plutonic
partly-paid shares and options outstanding.
The business combination with Plutonic has been accounted for as a pooling
of interests and, accordingly, Homestake's consolidated financial statements
have been restated to include Plutonic for all periods. Combined and
separate preacquisition results for Homestake and Plutonic for the three
months ended March 31, 1998 and for the three and six months ended June 30,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
HOMESTAKE PLUTONIC
HISTORICAL HISTORICAL(A) ADJUSTMENTS(B) COMBINED
----------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Three months ended March 31, 1998
Revenues............................. $ 174,343 $ 43,624 $ (1,750) $ 216,217
Net loss............................. (4,611) (76) (1,899) (6,586)
Three months ended June 30, 1997
Revenues............................. $ 168,659 $ 64,427 $ (7,026) $ 226,060
Net loss............................. (16,222) (39,633) (9,002) (64,857)
Six months ended June 30, 1997
Revenues............................. $ 418,846 $ 121,035 $ 3,517 $ 543,398
Net income (loss).................... 33,638 (34,541) (15,698) (16,601)
</TABLE>
----------------------------
(a) The Plutonic historical results of operations have been adjusted to
reflect i) presentation of Plutonic's results of operations in accordance
with United States generally accepted accounting principles and the
format and classifications utilized by Homestake, and ii) translation
into U.S. dollars using the average exchange rate for each period.
J-15
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
(b) In combining the historical results of Homestake and Plutonic, certain
adjustments were made to conform Plutonic's accounting policies to
Homestake's accounting policies. The effect of these adjustments on
combined net income (loss) is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1998 JUNE 30, 1997 JUNE 30, 1997
------------------- ------------------- ----------------
<S> <C> <C> <C>
INCREASE (DECREASE)
Revenue recognition............... $ (1,293) $ (3,142) $ (1,848)
Reclamation expense............... 474 (61) 710
Depreciation, depletion and
amortization.................... 1,141 2,102 4,204
Income taxes...................... (1,009) 3,819 8,936
------- ------- --------
$ (1,899) $ (9,002) $ (15,698)
------- ------- --------
------- ------- --------
</TABLE>
3. Other income for the three and six months ended June 30 is as follows (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gains on asset disposals................................. $ 1.6 $ 2.5 $ 1.8 $ 17.9
Gain on sales of Rabbi Trust investments................. 0.3 -- 4.3 --
Royalty income........................................... 0.6 0.6 1.2 1.2
Foreign currency contract gains (losses)................. (26.5) (2.8) (22.4) (3.8)
Foreign currency exchange losses on intercompany
advances............................................... (4.4) (2.4) (3.5) (2.8)
Other foreign currency gains (losses).................... 0.4 -- 0.5 (0.3)
Other.................................................... 1.7 2.1 3.3 3.2
--------- --------- --------- ---------
$ (26.3) $ -- $ (14.8) $ 15.4
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
4. In January 1998, the Company began a major restructuring of operations at
the Homestake mine in order to reduce operating costs. The Company suspended
underground mining for approximately 60 days while it completed the final
details of the new operating plan and readied the underground mine to begin
operating on the restructured basis. Open Cut ore stockpiles continued to be
processed through the mill at an accelerated rate while the underground
operations were suspended. The new mine plan specifically is designed to
improve the grade of ore recovered through the increased use of mechanized
cut-and-fill mining methods. When fully implemented, the plan will reflect a
complete reorganization of underground activities, a significant reduction
in the mine's work force and a reduction in future gold production.
Write-downs and other unusual expenses during the six months ended June 30,
1998 include $8.9 million ($5.9 million after tax) of costs associated with
the temporary suspension of operations and the reduction of 450 employees in
the work force. These costs primarily represent wage payments to the work
force during the temporary shutdown and severance payments and benefit costs
for the severed employees, and are net of approximately $9.3 million of
pension and benefit plan curtailment gains.
J-16
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
5. In March 1997, Santa Fe Pacific Gold Corporation terminated its previously
announced merger agreement with Homestake and paid Homestake a $65 million
termination fee. As a result, the Company recorded a pretax gain of $62.9
million ($47.2 million after tax), net of merger-related expenses of $2.1
million incurred in 1997.
6. In February 1997, Homestake sold its interests in the George Lake and Back
River joint ventures in Canada to Kit Resources Corporation ("Kit") for $9.3
million in cash and 3.6 million shares of Kit common stock. As a result of
this transaction, the Company recorded a pretax gain of $13.5 million ($8.1
million after tax) in the first quarter of 1997, which is included in other
income.
7. In June 1998, Plutonic repaid $8 million of its debt outstanding under its
syndicated credit facility. Borrowings outstanding at June 30, 1998 included
borrowings of $95.5 million by Plutonic and $45.6 million by HGAL under the
Company's then-existing credit facilities.
In July 1998, the Company entered into a new United
States/Canadian/Australian cross-border credit facility providing a total
availability of $430 million. The new facility replaces the Company's $275
million cross-border credit facility and Plutonic's A$400 million syndicated
credit facility, both of which were cancelled. Borrowings by Plutonic and
HGAL under the prior credit facilities were repaid using the new facility.
The new facility is available through July 14, 2003 and provides for
borrowings in United States, Canadian, or Australian dollars, or gold, or a
combination of these. Under the new facility, the Company pays a commitment
fee ranging from 0.15% to 0.35% per annum, depending upon rating agencies'
ratings for the Company's senior debt, on the unused portion of this
facility. The new credit agreement requires a minimum consolidated net worth
of $500 million. Interest on the HGAL and Plutonic Australian dollar
borrowings under the new facility is payable quarterly and is based on the
Australian Bank Bill Swap Rate plus a margin of up to 1.125%. At July 31,
1998 the interest rate was 6.22%.
8. Under the Company's foreign currency protection program, the Company has
entered into a series of foreign currency option contracts which establish
trading ranges within which the United States dollar may be exchanged for
foreign currencies by setting minimum and maximum exchange rates.
At June 30, 1998 the Company had forward currency contracts outstanding as
follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE EXCHANGE RATES
TO U.S. DOLLARS
AMOUNT COVERED -------------------------------- EXPIRATION
CURRENCY (U.S. DOLLARS) PUT OPTIONS CALL OPTIONS DATES
- ------------------------------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Canadian............................. $ 96,800 0.72 0.75 1998
Canadian............................. 123,300 0.70 0.73 1999
Canadian............................. 89,200 0.69 0.72 2000
Canadian............................. 16,500 0.68 0.71 2001
Australian........................... 50,800 0.73 0.76 1998
Australian........................... 84,000 0.67 0.70 1999
Australian........................... 62,600 0.65 0.68 2000
Australian........................... 17,000 0.62 0.65 2001
---------------
$ 540,200
---------------
---------------
</TABLE>
J-17
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
The Company delivered or financially settled during the three and six months
ended June 30, 1998, 30,000 and 60,000 ounces of its North American gold
production at an average price of $398 and $396 per ounce, respectively.
This compares to settlements of 30,000 and 60,000 ounces at an average price
of $380 and $381 per ounce during the three and six months ended June 30,
1997, respectively.
The Company delivered or financially settled during the three and six months
ended June 30, 1998, 55,900 and 178,900 ounces of its Australian gold
production at an average price of $372 and $339 per ounce, respectively.
This compares to settlements of 124,300 and 265,150 ounces at an average
price for both periods of $429 per ounce during the three and six months
ended June 30, 1997. During June 1998, Homestake closed out one million
ounces of the Australian dollar-denominated forward gold contracts which
Plutonic had entered into prior to its acquisition by Homestake. The pretax
gain of $5 million realized as a result of this action was deferred and will
be recorded into income as the originally designated production is sold.
At June 30, 1998 the Company's gold forward sales commitments were as
follows:
<TABLE>
<CAPTION>
US $ DENOMINATED AUSTRALIAN $ DENOMINATED
-------------------------------- --------------------------------
AVERAGE PRICE OF AVERAGE PRICE. OF
FORWARD SALES FORWARD SALES FORWARD SALES FORWARD SALES (US
YEAR (OUNCES) (PER OUNCE) (OUNCES) $ PER OUNCE)
- ----------------------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
1998......................... 60,000 $ 403 60,000 $ 320
1999......................... 109,900 415
2000......................... 85,100 430 24,800 320
2001......................... 95,000 441 24,800 320
2002......................... 95,000 457 24,800 320
Thereafter................... 75,000 481 75,600 320
------------- -------------
520,000 210,000
------------- -------------
------------- -------------
</TABLE>
To provide protection against a decrease in gold prices, during the third
quarter of 1997 the Company entered into a series of put and call option
contracts to provide a floor price of $325 per ounce for 900,000 ounces of
Homestake's expected 1998 gold production. Gold sales during the second
quarter of 1998 include 225,000 ounces at an average price $325 per ounce
and year-to-date revenues in 1998 include 450,000 ounces at $325 per ounce
under this program. At June 30, 1998 the Company owned put options for
450,000 ounces of gold exercisable during 1998 at a price of $325 per ounce.
The Company also had written call options outstanding for 450,000 ounces of
gold exercisable during 1998 at a price of $325 per ounce and owned call
options for 450,000 ounces of gold exercisable during 1998 at a price of
$336 per ounce.
At June 30, 1998 the Company also owned put options for 30,000 ounces of
gold exercisable during 2000 at a price of $350 per ounce and had written
call options outstanding for 15,000 ounces of gold exercisable during 2000
at an average price of $395 per ounce.
In February 1998, Prime Resources Group Inc. ("Prime"), a 50.6%-owned
subsidiary of the Company, adopted a gold and silver hedging policy which
provides for the use of forward sales contracts for up to 40% of each of the
following five year's expected annual gold and silver production at prices
in
J-18
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
excess of certain targeted prices. At June 30, 1998 Prime had forward sales
outstanding for approximately 7.2 million ounces of silver during the period
1999 through 2001 at an average price of $6.28 per ounce.
9. Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 establishes standards for the reporting and display of
comprehensive income. The purpose of reporting comprehensive income is to
present a measure of all changes in shareholders' equity that result from
recognized transactions and other economic events of the period, other than
transactions with shareholders in their capacity as shareholders. SFAS 130
requires that the components of comprehensive income be displayed in annual
financial statements with the same prominence as other financial statements
and that the total amount of comprehensive income be reported in interim
periods. Homestake's comprehensive income (loss) for the three and six
months ended June 30, 1998 and 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net Loss..................................... $ (30,931) $ (64,857) $ (37,517) $ (16,601)
Other Comprehensive Income (Loss)
Currency translation adjustments........... (32,603) (28,105) (26,686) (38,383)
Unrealized losses on securities............ (1,154) (10,298) (3,448) (15,569)
---------- ----------- ---------- ----------
Comprehensive Loss........................... $ (64,688) $ (103,260) $ (67,651) $ (70,553)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 132 ("SFAS 132"),
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
SFAS 132 revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. SFAS 132 standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. SFAS 132 will be effective for
the Company's financial statements for the year ended December 31, 1998.
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires that all derivatives be recognized as assets
or liabilities and be measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending
on the use of the derivatives and whether they qualify for hedge accounting
as either a fair value hedge or a cash flow hedge. The key criterion for
hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows of the hedging
instruments and the hedged items. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 but earlier adoption is permitted. The Company
currently is evaluating the impact that this requirement will have on
reported operating results and financial position and has not yet determined
when SFAS 133 will be adopted.
10. On September 11, 1998 Prime and Homestake announced that Homestake and the
Board of Directors of Prime had reached an agreement (the "Arrangement") for
Homestake's acquisition of the 49.4% of
J-19
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
Prime held by the public. Under the terms of the Arrangement, Prime
shareholders will have the choice of receiving 0.74 Homestake common shares
or 0.74 Homestake Canada Inc. ("HCI") exchangeable shares for each Prime
share held by them. Each HCI exchangeable share would be exchangeable for
one Homestake common share at any time at the option of the holder, and will
have dividend and voting rights essentially equivalent to those of one
Homestake common share.
The transaction is to be structured as an arrangement under the British
Columbia Companies Act. Completion of the Arrangement is subject to approval
by the British Columbia Supreme Court and by Prime shareholders, and the
Homestake shareholders must vote to adopt a Restated Certificate of
Incorporation that, among other things, authorizes the Homestake common
shares necessary to effect the Arrangement. A total of 75% of all Prime
shares represented at its shareholders' meeting, including the Prime shares
owned by HCI, must approve the transaction. In addition, the Arrangement
must be approved by two-thirds of the Prime shares present and voting on the
Arrangement, excluding shares voted by HCI and certain affiliates. If all
necessary approvals are obtained, completion of the Arrangement is expected
in mid-December, 1998.
The Arrangement would result in the issuance of a total of 27.8 million
Homestake common and HCI exchangeable shares in exchange for the 37.6
million Prime shares held by the minority shareholders of Prime.
HCI is a wholly-owned subsidiary of Homestake. Summarized financial
information for HCI as at June 30, 1998 and December 31, 1997 and for the
three and six months ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Current assets............................................................... $ 179,489 $ 160,966
Noncurrent assets............................................................ 229,137 260,278
---------- ------------
Total assets............................................................. $ 408,626 $ 421,244
---------- ------------
---------- ------------
Notes payable to Parent...................................................... $ 22,220 $ 23,459
Other current liabilities.................................................... 33,331 27,768
Long-term liabilities........................................................ 21,872 24,893
Deferred income and mining taxes............................................. 93,187 101,090
Minority interests........................................................... 99,946 96,877
Redeemable preferred stock held by Parent.................................... 37,615 49,929
Shareholders' equity......................................................... 100,455 97,228
---------- ------------
Total liabilities and shareholders' equity............................... $ 408,626 $ 421,244
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
-------------------- ----------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues........................................... $ 51,609 $ 62,515 $ 113,702 $ 138,916
Costs and expenses....................................... 42,093 48,279 83,840 91,631
--------- --------- ---------- ----------
Income before taxes and minority interests............... $ 9,516 $ 14,236 $ 29,862 $ 47,285
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Net income............................................... $ 1,377 $ 3,261 $ 6,297 $ 16,649
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
J-20
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
11. On September 15, 1998, Homestake and Normandy Mining Limited announced that
a revised mining plan would be implemented for the Mt Charlotte underground
mine at Kalgoorlie, Western Australia. The decision was reached following an
evaluation of economic factors and an accelerated level of ground movement
in the mine. Following recent ground movement, a panel of rock mechanics
experts concluded that mining could be conducted safely by restricting
mining to low risk areas of the mine. The new mine plan contemplates
extraction of approximately 1.5 million tons of ore over the next twelve
months. Performance of the mine will be monitored during this time to
determine whether the operation will continue beyond that period. As a
result of the new operating plan, approximately 50% of the Mt Charlotte
employees will be laid off. Homestake expects to record a charge of US$25
million (US$37 million pretax) during the third quarter of 1998 for
severance, unrecovered capital and other costs.
12. The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes heavy liabilities on persons who discharge hazardous
substances. The Environmental Protection Agency ("EPA") publishes a National
Priorities List ("NPL") of known or threatened releases of such substances.
GRANTS: Homestake's former uranium millsite near Grants, New Mexico is
listed on the NPL. The EPA asserted that leachate from the tailings
contaminated a shallow aquifer used by adjacent residential subdivisions.
Homestake paid the costs of extending the municipal water supply to the
affected homes and continues to operate a water injection and collection
system that has significantly improved the quality of the aquifer. The
Company has decommissioned and disposed of the mills and has covered the
tailings impoundments at the site. The total future cost for reclamation,
remediation, monitoring and maintaining compliance at the Grants site is
estimated to be $17.5 million.
Title X of the Energy Policy Act of 1992 (the "Act") and subsequent
amendments to the Act authorized appropriations of $335 million to cover the
Federal Government's share of certain costs of reclamation, decommissioning
and remedial action for by-product material (primarily tailings) generated
by certain licensees as an incident of uranium sales to the Federal
Government. Reimbursement is subject to compliance with regulations of the
Department of Energy ("DOE"), which were issued in 1994. Pursuant to the
Act, the DOE is responsible for 51.2% of past and future costs of reclaiming
the Grants site in accordance with Nuclear Regulatory Commission license
requirements. Through June 30, 1998, Homestake had received $26 million from
the DOE and the accompanying balance sheet at June 30, 1998 includes an
additional receivable of $6.3 million for the DOE's share of reclamation
expenditures made by Homestake through that date. Homestake believes that
its share of the estimated remaining cost of reclaiming the Grants facility
is fully provided in the financial statements at June 30, 1998.
In 1983, the state of New Mexico made a claim against Homestake for
unspecified natural resource damages resulting from the Grants tailings. New
Mexico has taken no action to enforce its claim.
WHITEWOOD CREEK: Whitewood Creek was a site where mining companies operating
in the Black Hills of South Dakota, including Homestake, placed mine
tailings (ground rock) beginning in the nineteenth century. Some tailings
placed in Whitewood Creek eventually flowed into the Belle Fourche River,
the Cheyenne River and Lake Oahe. Placement of mine tailings into Whitewood
Creek was authorized by the laws of the United States, the Dakota territory
and the State of South Dakota, and Whitewood Creek was later specifically
designated by the State of South Dakota as a disposal stream for mine
tailings and for the disposal of raw sewage and other municipal waste. In
response to changes in legal
J-21
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED)
requirements, Homestake ceased the placement of mine tailings into Whitewood
Creek and for many years the Homestake mine has impounded all mine tailings
that are not redeposited in the mine.
Deposits of tailings along an 18-mile stretch of Whitewood Creek formerly
constituted a site on the NPL. The EPA asserted that discharges of tailings
by mining companies, including Homestake, contaminated the soil and
streambed. Homestake signed a Consent Decree with the EPA and carried out
remedial work. The site was deleted from the NPL on August 13, 1996. In the
deletion notice, the EPA stated that "EPA, in consultation with the State of
South Dakota, have determined that the Site poses no significant threat to
public health or the environment."
In September, 1997 the State of South Dakota filed an action against
Homestake, alleging that Homestake's disposal of mine tailings in Whitewood
Creek resulted in injuries to natural resources in Whitewood Creek, the
Belle Fourche River, the Cheyenne River and Lake Oahe (collectively the "NRD
Site"). The complaint also alleges that the tailings constitute a continuing
public nuisance. The complaint asks for abatement of the nuisance, response
costs, damages in an unspecified amounts, litigation costs and interest. In
November 1997, the United States government and the Cheyenne River Sioux
Tribe (the "federal trustees") filed a similar action alleging injuries to
natural resources and seeking response costs, damages in unspecified
amounts, litigation costs and attorneys fees.
In its answers, Homestake denies that there has been any continuing damage
to natural resources or nuisance as a result of the placement of tailings in
Whitewood Creek. Among other defenses, it is also the position of Homestake
that as a result of the State of South Dakota's ownership of Whitewood Creek
and state and federal designation of Whitewood Creek as an authorized
disposal site, the State of South Dakota and the federal government are
responsible for all past and future damages. Homestake has also
counterclaimed against the State of South Dakota and the federal trustees
seeking cost recoupment, contribution and indemnity.
In the opinion of Homestake, there is no basis for the claims by the State
of South Dakota or by the federal trustees. Homestake is also of the opinion
that Homestake has valid defenses and counterclaims against the State of
South Dakota and the federal trustees, and cross-claims for recovery,
contribution and indemnity against other government entities and other
persons who participated in ownership and/or operation of Whitewood Creek as
a waste disposal site or who disposed of waste in the NRD Site.
Homestake, the State of South Dakota and the Federal Trustees are engaged in
settlement discussions with respect to the actions. If settlement is not
achieved, Homestake intends to vigorously defend this action and to seek
recovery, contribution and indemnity from the State of South Dakota and the
federal trustees for past and future expenditures. Homestake also expects to
seek recovery, contribution and indemnity from other government entities and
other persons who participated in ownership and/or operation of Whitewood
Creek as a waste disposal site or who disposed of waste in the NRD Site.
Homestake does not believe that resolution of these matters will have a
material effect on the business or financial condition or results of
operations of Homestake.
J-22
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(ALL AMOUNTS IN US DOLLARS UNLESS OTHERWISE INDICATED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNLESS SPECIFICALLY STATED OTHERWISE, THE FOLLOWING INFORMATION RELATES TO
AMOUNTS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS, WITHOUT REDUCTION FOR
MINORITY INTERESTS. HOMESTAKE REPORTS PER OUNCE PRODUCTION COSTS IN ACCORDANCE
WITH THE "GOLD INSTITUTE PRODUCTION COST STANDARD.")
On April 30, 1998 Homestake acquired 100% of Plutonic Resources Limited
("Plutonic"), a publicly-traded Australian gold producer, by issuing 64.4
million Homestake common shares. This business combination has been accounted
for as a pooling of interests, and accordingly, Homestake's consolidated
financial statements have been restated to include Plutonic for all prior
periods.
RESULTS OF OPERATIONS
Homestake recorded a net loss of $230.6 million or $1.10 per share during
1997 compared to net income of $45.8 million or $0.22 per share during 1996 and
$49.9 million or $0.25 per share during 1995. The 1997 loss includes net
nonrecurring expenses amounting to $159.2 million or $0.76 per share compared to
net nonrecurring income of $18.3 million or $0.08 per share in 1996 and $19.6
million or $0.10 per share in 1995.
Significant nonrecurring items in 1997 included:
- $84.9 million ($107.8 million pretax) write-down of Homestake's investment
in the Main Pass 299 sulfur mine
- $60.1 million ($84.7 million pretax) reduction in the carrying values of
resource assets
- $45.7 million ($47.9 million pretax) write-down of certain investments
- $21.5 million ($29.1 million pretax) increase in the accrual for estimated
future reclamation expenditures
- $12.7 million ($15.8 million pretax) in other charges, primarily foreign
exchange losses on intercompany redeemable preferred stock and losses on
an intercompany gold loan
- $47.2 million ($62.9 million pretax) gain on the fee received from Santa
Fe Pacific Gold Corporation ("Santa Fe") upon termination of Homestake's
merger agreement with Santa Fe
- $10.4 million ($10.4 million pretax) gain on cancellation of option to
acquire 19.9% of Great Central Mines Limited ("Great Central")
- $8.1 million ($13.5 million pretax) gain on the sale of the George Lake
and Back River joint venture interests in the Northwest Territories of
Canada
Significant nonrecurring items in 1996 included:
- $24 million reduction in the accrual for prior year income taxes
- $7.9 million ($7.9 million pretax) gain of the sale of the investment in
Eagle Mining Corporation NL ("Eagle Mining")
- $4.9 million ($5.5 million pretax) of proceeds from a litigation recovery
- $8.3 million ($9 million pretax) write-down of mining investments
- $7.4 million ($8.9 million pretax) of foreign exchange losses, primarily
on advances to Homestake's wholly-owned subsidiary, Homestake Canada Inc.
("HCI")
J-23
<PAGE>
Significant nonrecurring items in 1995 included:
- $12.9 million ($12.9 million pretax) recognition of previously
unrecognized tax benefits
- $4.2 million ($5.4 million pretax) gain on the sale of Homestake's
remaining uranium inventory
Excluding the effect of the nonrecurring items, Homestake incurred a net
loss of $71.4 million or $0.34 per share in 1997 compared to earnings of $27.5
million or $0.14 per share in 1996 and $30.3 million or $0.15 per share in 1995.
The lower 1997 results primarily are due to significantly lower gold prices,
partially offset by higher gold production and sales volumes and lower per ounce
total cash costs. After adjusting for nonrecurring items, the reduction in 1996
earnings from 1995 reflects higher per ounce total cash costs, higher
depreciation charges, substantially increased exploration expenditures and lower
returns from the Main Pass 299 sulfur operations, partially offset by higher
gold prices and increased gold production and sales volumes.
GOLD OPERATIONS: The results of Homestake's operations are affected
significantly by the market price of gold. Gold prices are influenced by
numerous factors over which Homestake has no control, including expectations
with respect to the rate of inflation, the relative strength of the United
States dollar and certain other currencies, interest rates, global or regional
political or economic crises, demand for gold for jewelry and industrial
products, and sales by holders and producers of gold in response to these
factors. Homestake's current gold hedging policy provides for the use of forward
sales contracts to hedge up to 30% of each of the following ten year's expected
annual gold production at prices in excess of certain targeted prices, and the
use of combinations of put and call option contracts to establish minimum floor
prices while allowing participation in future increases in the price of gold.
During 1997, Homestake entered into a series of put and call options which
provide a floor price of $325 per ounce for 900,000 ounces of 1998 production
while allowing for full participation in any increase in the price of gold above
$336 per ounce.
During 1997, 1996 and 1995, Homestake delivered 535,900, 438,400 and 446,700
ounces of its Australian gold production into Australian dollar denominated
forward gold contracts at average prices of $429, $482 and $440 per ounce,
respectively. At December 31, 1997 Homestake had committed 1,227,500 ounces of
its future Australian gold production for sale under Australian dollar
denominated forward gold contracts at an average price of $330 (A$507) per
ounce. During 1997, 1996 and 1995, Homestake delivered or financially settled
120,100, 70,000 and 113,200 ounces of its North American gold production at
average prices of $385, $421 and $398 per ounce, respectively. At December 31,
1997 Homestake had committed 580,000 ounces of its future North American
production for sale through the year 2003 at an average price of $434 per ounce.
Homestake's hedging activities increased revenues by approximately $25 million,
$43 million and $55 million during 1997, 1996 and 1995, respectively. The
estimated liquidation value of Homestake's gold hedging position at December 31,
1997 was approximately $110 million. See note 21 to the consolidated financial
statements for further information and details of these hedging programs.
A significant portion of Homestake's operating expenses is incurred in
Australian and Canadian currencies. Homestake's profitability is impacted by
fluctuations in these currencies' exchange rates relative to the United States
dollar. Under Homestake's foreign currency protection program, Homestake has
entered into a series of foreign currency option contracts which establish
trading ranges within which the United States dollar may be exchanged for
Australian and Canadian dollars. During 1997, both the Australian and Canadian
currencies weakened significantly in relation to the U.S. dollar and Homestake
recorded foreign currency losses of $28.5 million under this program, of which
$20.4 million were unrealized at December 31, 1997. See note 21 to the
consolidated financial statements for additional information regarding this
program.
Revenues from gold, ore and concentrate sales totaled $863.6 million during
1997 compared to revenues of $921.7 million in 1996 and $872 million in 1995.
The decrease in revenue during 1997 reflects
J-24
<PAGE>
significantly lower gold prices, partially offset by higher production. The
increase in revenues in 1996 from 1995 reflects higher sales volumes and higher
gold prices. During 1997, Homestake sold 2,548,700 equivalent ounces of gold at
an average price of $353 per ounce compared to 2,390,800 equivalent ounces of
gold sold at an average price of $406 per ounce in 1996 and 2,320,200 equivalent
ounces of gold sold at an average price of $396 per equivalent ounce during
1995.
Total gold equivalent production increased to 2,544,300 ounces during 1997
compared to 2,417,900 equivalent ounces produced during 1996 and 2,226,000
equivalent ounces produced during 1995. The higher 1997 production primarily is
due to production increases at the Plutonic, Kalgoorlie, Eskay Creek, Lawlers,
Snip and Round Mountain operations, the commencement of production at the La
Falda mine, and initial production at the Ruby Hill mine, partially offset by
lower production at the McLaughlin and Peak Hill mines, and the absence of
production from the Nickel Plate mine. The increase in production during 1996
from 1995 primarily is due to production increases at the Kalgoorlie, Eskay
Creek, David Bell, Darlot, Plutonic and Round Mountain operations, the
acquisition of an 80% interest in the Mt Morgans mine in late 1995 and the
purchase of an additional 60% interest in the Snip mine in early 1996, partially
offset by lower production following the completion of mining operations at the
McLaughlin and Nickel Plate mines.
CONSOLIDATED PRODUCTION COSTS PER OUNCE:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(PER OUNCE OF GOLD)
<S> <C> <C> <C>
Direct mining costs................................................... $ 222 $ 244 $ 236
Deferred stripping adjustments........................................ 5 1 4
Costs of third-party smelters......................................... 14 14 13
Other................................................................. 1 (4) (1)
--------- --------- ---------
Cash Operating Costs.................................................. 242 255 252
Royalties............................................................. 3 4 4
Production taxes...................................................... 1 2 2
--------- --------- ---------
Total Cash Costs...................................................... 246 261 258
Depreciation and amortization......................................... 54 57 50
Reclamation........................................................... 3 5 5
--------- --------- ---------
Total Production Costs................................................ $ 303 $ 323 $ 313
--------- --------- ---------
--------- --------- ---------
</TABLE>
Homestake's reported consolidated total cash cost per gold equivalent ounce
amounted to $246 during 1997 compared to $261 and $258 during 1996 and 1995,
respectively. The lower 1997 total cash costs per ounce primarily reflect higher
production and a weaker Australian dollar at the Kalgoorlie, Plutonic and
Lawlers operations, higher shipments and higher grades at the Eskay Creek mine
and higher production at the Round Mountain mine, partially offset by lower
grades at the Williams and David Bell mines. The increase in total cash costs
per ounce during 1996 from 1995 primarily reflects the effects of a stronger
Australian dollar, higher costs at the Plutonic mine and lower production at the
McLaughlin mine, partially offset by higher silver grades at the Eskay Creek
mine, higher production and the purchase of the disproportionate sharing
arrangement at the Kalgoorlie operations, higher production at the David Bell
and Darlot mines, higher grades and cost reduction efforts at the Lawlers mine
and an increase in ownership at the low-cost Snip mine.
Homestake's total noncash cost per equivalent ounce was $57 during 1997
compared to $62 and $55 per ounce during 1996 and 1995, respectively. The
decrease in noncash costs in 1997 primarily is due to reserve expansions at the
Eskay Creek and Snip mines. The increase in 1996 noncash costs from 1995
reflects additional depreciation and amortization charges resulting from the
purchases of the Homestake
J-25
<PAGE>
Gold of Australia Limited ("HGAL") minority interests, the disproportionate
sharing arrangement, the 80% interest in the Mt Morgans mine and the additional
interest in the Snip mine.
RECONCILIATION OF TOTAL CASH COSTS PER OUNCE TO FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(THOUSANDS OF DOLLARS,
EXCEPT PER OUNCE AMOUNTS)
<S> <C> <C> <C>
Production Costs per Financial
Statements............................ $ 627,639 $ 615,491 $ 609,117
Costs not included in Homestake's
production costs:
Costs of third-party smelters(1)...... 34,530 33,098 29,214
Production costs of equity-accounted
investments......................... 1,947 12,907 11,752
Sulfur and oil production costs......... (25,477) (23,208) (26,917)
Reclamation accruals.................... (8,950) (11,346) (14,078)
By-product silver revenues.............. (2,610) (3,059) (2,334)
Inventory movements and other........... (6,435) 6,846 (32,336)
------------- ------------- -------------
Production Costs for Per Ounce
Calculation Purposes.................. $ 620,644 $ 630,729 $ 574,418
------------- ------------- -------------
------------- ------------- -------------
Ounces Produced During the Year......... 2,544,325(2) 2,417,930 2,226,028
Total Cash Costs Per Ounce.............. $ 246 $ 261 $ 258
</TABLE>
- ------------------------
(1) Eskay Creek sells ore containing gold and silver directly to third-party
smelters. For comparison purposes, cash operating costs per ounce include
estimated third-party costs incurred by smelters and others to produce
marketable gold and silver.
(2) Includes 16,600 ounces produced at the Ruby Hill mine during 1997, prior to
commercial production, which are excluded from the cost per ounce
calculation.
As a result of lower gold prices, at September 30 and December 31, 1997
Homestake reviewed the carrying values of its gold mining operations using a
$325 per ounce gold price for its short-lived operations and a $350 per ounce
gold price for its operations with longer lives. Homestake determined that
impairment write-downs totaling $84.7 million were required to reduce the
carrying values of several of its assets or operations with short remaining
lives, including the Mt Morgans and Peak Hill mines in Australia, the Pinson
mine in Nevada, the Homestake mine's Open Cut, low-grade stockpiled ore and
exploration properties at certain locations in Western Australia, and redundant
mining equipment at the Kalgoorlie operations. Homestake determined that no
adjustments to the carrying values of its longer-lived operations were required.
UNITED STATES
At the HOMESTAKE MINE in South Dakota, production decreased slightly to
397,300 ounces during 1997 from 407,300 ounces during 1996 and 402,900 ounces
during 1995. The decrease in production in 1997 primarily is a result of a
decrease in the grade of ore from the underground operations, partially offset
by an increase in the grade of ore from the Open Cut. The increase in 1996
production from 1995 is a result of an increase in production from the Open Cut,
partially offset by lower production from the underground operations. Total cash
costs of $310 per ounce during 1997 compare to total cash costs of $304 per
ounce during 1996 and $303 per ounce during 1995.
In January 1998, Homestake commenced a major restructuring of operations at
the Homestake mine in order to reduce operating costs. Homestake suspended
underground mining for approximately 60 days while it completed the final
details of the new operating plan and readied the underground mine to begin
operating on the restructured basis. Open Cut ore stockpiles continued to be
processed through the mill at an accelerated rate while the underground
operations were suspended. The new mine plan, which resulted
J-26
<PAGE>
in a decrease in proven and probable ore reserves of 1.5 million ounces before
considering 1997 production, is designed to improve the grade of ore recovered
through the increased use of mechanized cut-and-fill mining methods. When fully
implemented, the plan will reflect a reorganization of underground activities
and a significant reduction in work force that will generate considerable cost
savings and will increase the mine's future total earnings and cash flow.
Homestake expects to invest $30 million by the end of 1999 in the restructuring
process to purchase equipment and to upgrade facilities and infrastructure. Once
the new operating plan is fully implemented by the end of 1999, annual gold
production is expected to be between 150,000 and 180,000 ounces. Total cash
costs for the underground operations are projected to decline to $280 per ounce
from recent levels of approximately $335 per ounce.
Homestake's share of production from the ROUND MOUNTAIN MINE in Nevada
totaled 120,000 ounces in 1997 compared to production of 102,700 ounces in 1996
and 86,100 ounces in 1995. The higher 1997 production is a result of higher
recoveries on the reusable pad and an increase in the volume of ore placed on
the dedicated pad. The increase in 1996 production from 1995 was due to higher
grades and volumes of ore placed on the reusable pad and an increase in
dedicated pad capacity. Total cash costs of $226 per ounce in 1997 compare to
total cash costs of $256 per ounce and $254 per ounce in 1996 and 1995,
respectively. The decrease in total cash costs in 1997 is due to the higher
production.
During the third quarter of 1997, a new Round Mountain mining plan was
approved. The new plan is expected to increase the mine's cash flow and
profitability and reduce total cash costs. Primarily as result of the new plan,
Homestake's share of Round Mountain ore reserves decreased by approximately
315,000 ounces at December 31, 1997, before considering 1997 production. A new
8,000 ton-per-day gravity mill to process higher-grade sulfide ores commenced
commercial production in November 1997. The mill, which is expected to produce
approximately 23,000 ounces (Homestake's share) of gold during 1998, was
constructed at a cost $62.2 million (Homestake's share--$15.5 million).
Development of the new RUBY HILL MINE in Nevada was completed in 1997 at a
total capital cost of $64.7 million. The mine, which poured its first gold on
November 6, 1997, produced 16,600 ounces of gold during 1997. The mine commenced
commercial production effective January 1, 1998 and is expected to produce
110,000 ounces of gold in 1998 at a total cash cost of approximately $130 per
ounce.
Production at the MCLAUGHLIN MINE in northern California decreased to
118,500 ounces during 1997 from 185,500 ounces during 1996 and 241,800 ounces
during 1995. In June 1996, mining operations were completed and the autoclaves
were shut down as the orebody was depleted. Through 2003, lower-grade stockpiled
ore will be processed through a conventional carbon-in-pulp circuit. The effect
of the decrease in production on unit operating costs largely has been offset by
a reduction in expenditures. Total cash costs in 1997 were $254 per ounce
compared to $250 per ounce in 1996 and $242 per ounce in 1995.
CANADA
The ESKAY CREEK MINE in British Columbia, Canada sold ore containing
417,300, 372,300 and 331,300 equivalent ounces of gold during 1997, 1996 and
1995, respectively. The increase in 1997 shipments reflects slightly higher
shipments under the two long-term smelter contracts and 12,000 tons of spot
sales to an additional smelter. The higher shipments in conjunction with higher
gold grades and a decrease in the gold/silver equivalency ratio were the primary
reasons for the 45,000 ounce increase in gold equivalent production during 1997.
The increase in shipments in 1996 from 1995 reflects 14,000 tons of spot ore
sales to two additional smelters. Total cash costs, including third-party
smelter costs, decreased to $157 per equivalent ounce during 1997 from $170 per
equivalent ounce during 1996 and $185 per equivalent ounce during 1995. The
lower 1997 costs per ounce primarily are a result of the higher shipments,
higher gold grades and productivity improvements, partially offset by lower
silver grades. The lower 1996 costs per ounce in comparison to 1995 primarily
are a result of lower development costs and higher ore grades.
The new gravity/flotation mill facility at the Eskay Creek mine site, which
was constructed at a cost of $12 million, was commissioned in December 1997. The
mill, which is expected to increase annual
J-27
<PAGE>
production over the mine's remaining life, will improve the profitability of
certain Eskay Creek ore and permit the treatment of material that previously was
uneconomic.
Homestake's share of gold production from the WILLIAMS MINE in the Hemlo
mining camp in Canada amounted to 201,100 ounces at a total cash cost of $229
per ounce during 1997 compared to 205,500 ounces at a total cash cost of $222
per ounce during 1996 and 202,600 ounces at a total cash cost of $222 per ounce
during 1995. The slight decrease in production and corresponding increase in
total cash costs during 1997 primarily is due to lower ore grades.
Homestake's share of production at the DAVID BELL MINE, also in the Hemlo
mining camp, amounted to 90,000 ounces during 1997 compared to production of
97,700 ounces during 1996 and 79,400 ounces during 1995. The decrease in
production during 1997 is due to lower ore grades partially offset by higher
throughput. During 1996, mining in the higher-grade areas of the mine offset
production difficulties that had reduced throughput. An accelerated development
program was initiated to increase throughput by providing access to additional
mining areas. Total cash costs were $194 per ounce during 1997 compared to $172
per ounce during 1996 and $203 per ounce during 1995. Production is expected to
decline further in 1998 as the grade of ore to be mined approaches the remaining
life-of-mine reserve grade.
Homestake's share of production from the SNIP MINE increased to 115,600
ounces during 1997 from 101,800 ounces during 1996 and 51,300 ounces during
1995. Excluding the effects of the purchase of the additional 60% interest in
the mine in April 1996, production decreased by 6% during 1997. The lower
production primarily is due to lower mill throughput caused by an increase in
more labor-intensive conventional mining as the remaining ore blocks become
narrower as the mine nears the end of its economic life. Total cash costs
increased to $213 per ounce during 1997 from $190 per ounce during 1996 and $176
per ounce during 1995. Production in 1998 is expected to be derived primarily
from conventional mining areas. As a result, total cash costs are expected to
increase further and 1998 production is expected to be approximately 100,000
ounces. Operations at the Snip mine are expected to be completed in early 1999.
AUSTRALIA
HGAL's share of production from the KALGOORLIE OPERATIONS in Western
Australia increased to 425,900 ounces during 1997 from 368,800 ounces during
1996 and 311,400 ounces during 1995. The increase in HGAL's share of production
during 1997 reflects higher mill throughput, ore grades and recoveries. The
increase in HGAL's share of production during 1996 from 1995 primarily was a
result of an increase in mill throughput and the purchase of the
disproportionate sharing arrangement from HGAL's joint venture partner. Total
cash costs at the Kalgoorlie operations decreased to $259 per ounce during 1997
from $291 per ounce in 1996 and $296 per ounce in 1995. The decrease in cash
costs in 1997 reflects the higher production, the installation of a recycle
crusher at the Fimiston mill earlier in the year, and a weakening of the
Australian dollar in relation to the United States dollar. The reduction in cash
costs in 1996 from 1995 reflects higher production, partially offset by the
effects of a stronger Australian dollar.
Production at the PLUTONIC MINE in Western Australia increased to 274,600
ounces in 1997 compared to 183,700 and 165,900 ounces in 1996 and 1995,
respectively. The increase in 1997 production primarily is due to an increase in
throughput following an expansion of the mill in late 1996 and an increase in
production from the higher-grade areas of the underground operations. The
Plutonic mine is being transformed over time from an open-pit operation to one
of Australia's largest underground gold mining operations. During 1997, ore
sourced from the underground operations provided 26% of total production
compared to 22% in 1996 and 3% in 1995. The increase in 1996 production from
1995 was the result of higher ore grades in both the open-pit and underground
operations and an increase in throughput following the expansion of the mill.
Total cash costs of $234 per ounce in 1997 compare to $276 per ounce during 1996
and $219 per ounce during 1995. The construction of an on-site gas-fired power
station during 1997 is expected to continue to reduce cash operating costs.
J-28
<PAGE>
Production at the DARLOT MINE in Western Australia increased to 65,200
ounces in 1997 compared to 62,800 and 41,100 ounces during 1996 and 1995,
respectively. Production had been hindered in 1995 by delays in developing the
underground orebody, completion of open-pit mining, and a high proportion of
harder primary ore which reduced mill throughput. Total cash costs of $320 per
ounce in 1997 compare to $345 per ounce during 1996 and $379 per ounce in 1995.
During 1996, exploration drilling at the Darlot property resulted in the
discovery of a previously unknown mineralized zone, the Centenary deposit. At
December 31, 1997 the Centenary deposit was estimated to contain 1.4 million
ounces of gold reserves. Access to the Centenary orebody is through an extension
of the Darlot decline. Ore from the Centenary deposit will be processed through
the existing Darlot plant and facilities.
Production at the LAWLERS MINE in Western Australia increased to 87,500
ounces in 1997 from 50,600 and 42,500 ounces during 1996 and 1995, respectively.
This increase in production primarily was due to higher-grade ore sourced from
the New Holland pit. The higher production in conjunction with successful cost
reduction efforts reduced total cash costs to $260 per ounce in 1997 from $417
per ounce during 1996 and $447 per ounce in 1995.
In October 1995, the Company acquired an 80% interest in the MT MORGANS MINE
in Western Australia. The Company's share of production from the Mt Morgans mine
was 73,600 ounces in 1997 compared to 75,000 ounces in 1996 and 24,900 ounces
for the fourth quarter of 1995. Total cash costs were $380 in 1997 compared to
$341 per ounce in 1996 and $268 during the fourth quarter of 1995. Mining
operations at Mt Morgans likely are to cease during 1998.
The Company's share of production from the PEAK HILL MINE (66.7% interest)
in Western Australia decreased to 33,100 ounces from 60,400 ounces in 1996 and
56,700 ounces in 1995. Cash operating costs were $269 per ounce in 1997 compared
to $163 per ounce during 1996 and $136 per ounce in 1995. The decrease in
production and corresponding increase in total cash costs is attributable to
declining reserves and the impact of treating an increasing proportion of
lower-grade ore stockpiles.
MAIN PASS 299: The Company has a 16.7% undivided interest in the Main Pass
299 sulfur mine and oil recovery operations in the Gulf of Mexico. At December
31, 1997 the Main Pass 299 sulfur mine had proven recoverable reserves of
approximately 64.3 million long tons (100% basis) of sulfur. Main Pass 299 oil
production, which peaked in 1992, is expected to continue to decline over the
next few years. During 1997, continuing low sulfur prices, reduced sales volumes
and higher operating costs for both sulfur and oil operations resulted in
Homestake recording a Main Pass 299 operating loss of $3.6 million compared to
operating profits of $1.3 million and $5.7 million during 1996 and 1995,
respectively.
The sulfur operations incurred an operating loss of $4.5 million in 1997
compared to an operating loss of $3.1 million in 1996 and operating earnings of
$3.7 million in 1995. In response to the continued weak market for sulfur, Main
Pass 299 maintained the reduced production levels established in 1996. The
Company's share of sulfur revenues totaled $18.3 million during 1997 compared to
$20.1 million during 1996 and $30.5 million during 1995. During 1997, the
Company sold 307,000 tons of sulfur at an average price of $59 per ton compared
to 333,300 tons of sulfur at an average price of $60 per ton during 1996 and
445,600 tons at an average price of $68 per ton during 1995. The Company's share
of production was 316,000 tons in 1997 compared to 325,000 tons in 1996 and
365,100 tons in 1995.
Planned write-downs during the third quarter of 1997 by Homestake's joint
venture partners caused the Company to reexamine the carrying value of its
investment in Main Pass 299. Due to a prolonged period of low sulfur prices and
Homestake's current assessment of estimated future cash flows from the Main Pass
299 sulfur mine, the Company recorded a write-down of $107.8 million in its
investment in Main Pass 299. As a result of this write-down, the Company's
carrying value of the Main Pass 299 sulfur property, plant and equipment was
reduced to zero at September 30, 1997.
OTHER INCOME: Other income of $.7 million in 1997 compares to $25.6 million
in 1996 and $17.5 million in 1995. Other income in 1997 includes foreign
currency exchange losses of $34.1 million, income of
J-29
<PAGE>
$10.4 million related to an agreement to sell a right to cancel the Company's
option to acquire 19.9% of Great Central, and a gain of $13.5 million from the
sale of the George Lake and Back River joint venture interests. Other income in
1996 includes a gain of $7.9 million on the sale of an investment in Eagle
Mining which had been acquired in 1995, income of $4.7 million on the execution
of the agreement to cancel the Company's option to acquire shares of Great
Central, and $8.9 million of foreign exchange losses, primarily on Canadian
dollar denominated advances to HCI.
DEPRECIATION, DEPLETION AND AMORTIZATION: Depreciation, depletion and
amortization of $162.8 million during 1997 compares to $151.9 million during
1996 and $125.6 million during 1995. Depreciation, depletion and amortization
expense in 1997 reflects higher production partially offset by reserve
expansions at the Eskay Creek and Snip mines. The increase in depreciation,
depletion and amortization in 1996 from 1995 primarily is due to higher
production and additional depreciation charges resulting from the purchases of
the HGAL minority interests and the disproportionate sharing arrangement, and
the acquisitions of the 80% interest in the Mt Morgans mine and the additional
interest in the Snip mine.
EXPLORATION EXPENSE: Exploration expense, excluding capitalized costs
associated with development stage projects, of $65.2 million in 1997 compares to
$67.4 million in 1996 and $43.3 million in 1995. During 1997, the Company
continued to concentrate its exploration efforts in and around its existing
operations. Significant expenditures were made at the Eskay Creek, Pinson, La
Falda and Ruby Hill operations as well as on the extensive land position
surrounding the Company's operations in Western Australia. Exploration in
Western Australia resulted in the discovery of poly-metallic mineralization at
the Kundip project during 1997 and the Centenary deposit at the Darlot mine in
1996. Exploration also continued in the northern part of South America at the El
Foco concession in Venezuela, the St. Pierre concession in French Guiana and the
Tapajos area in Brazil. Exploration results were disappointing in Venezuela and
French Guiana, and exploration efforts in this part of the world in 1998 will be
directed to the largely under-explored Tapajos area. The Company currently plans
to spend approximately $58 million on its existing exploration projects during
1998.
INCOME AND MINING TAXES: The Company's income and mining tax rate was 7.9%
during 1997 compared to 27.4% and 41.2% during 1996 and 1995, respectively. The
low 1997 effective tax rate is due to the geographic mix of pretax income and
losses. During 1997, the Company had pretax income of $50.6 million in Canada,
and pretax losses of $167.6 million, $115.3 million and $13.8 million in the
United States, Australia and other foreign jurisdictions, respectively. The
effective Canadian tax rate was 57% during 1997, reflecting high statutory tax
rates and certain nondeductible expenses. In the United States, where the
Company is subject to the Alternative Minimum Tax, the effective rate was 16% in
1997. The effective Australian tax rate was 19.3% in 1997 reflecting the
statutory rate of 36% and certain nondeductible expenses. No tax benefit was
recognized on losses incurred in other foreign jurisdictions, primarily South
America exploration expenditures, due to the uncertainty of their realization.
On a consolidated basis the tax benefits related to the losses incurred in the
United States and Australia are largely offset by the tax expense recorded with
respect to the Canadian earnings, and the result is a consolidated tax benefit
of only $19.5 million.
Income and mining tax expense in 1996 includes a $24 million decrease in the
consolidated tax provision due to a reduction in prior years' income tax
accruals for certain contingencies which were resolved in 1996.
At December 31, 1997 and 1996 the Company had tax valuation allowances of
$107.9 million and $100.7 million, respectively. While circumstances could occur
which would permit the Company to reduce its deferred tax valuation allowances
in future years, based on the Company's current projections, it does not expect
significant future reductions. Events that would allow the Company to reduce
such allowances in the future would include (i) generating substantial taxable
income in Chile, (ii) an acceleration of the payment of the Company's
postretirement benefit obligations and (iii) the future disposal of certain
J-30
<PAGE>
nonamortizable United States and Australia land and mineral properties at such
time as the Company determines the properties have no further significant
exploration potential.
See note 7 to the consolidated financial statements for further discussion
of tax matters.
MINORITY INTERESTS: Income allocable to minority interests in consolidated
subsidiaries amounted to $4 million in 1997 compared to $13.3 million in 1996
and $15 million in 1995. The decrease in income allocable to minority interests
in 1997 is due to reduced earnings from the Eskay Creek and Snip mines, both of
which are owned by Prime Resources Group Inc. ("Prime"), a 50.6%-owned
subsidiary of Homestake, and increases in exploration expenditures incurred by
the Company's 51%-owned subsidiary, Agua de la Falda S.A. and the Company's
62.1%-owned subsidiary, Lachlan Resources NL ("Lachlan").
LIQUIDITY AND CAPITAL RESOURCES
During 1997, Homestake's cash and equivalents and short-term investment
balances increased by $30.5 million to $265.3 million. Net cash provided by
operations in 1997 amounted to $160 million compared to $182.2 million and
$220.1 million in 1996 and 1995, respectively. The decrease in cash provided by
operations during 1997 primarily is due to lower gold prices, partially offset
by the receipt of the $65 million Santa Fe merger termination fee. Investing
activities in 1997 include capital expenditures of $204.6 million, the repayment
of a $37.2 million (A$50 million) loan made by the Company to Edensor Nominees
Pty, Ltd. ("Edensor"), a $16 million investment in mining and exploration
interests in Bulgaria, and $33.5 million of proceeds from asset sales. Financing
activities in 1997 include dividends paid of $33.9 million and net additional
borrowings of $76.8 million.
The Company has a United States/Canadian/Australian cross-border credit
facility ("Cross-border Facility") providing a total availability of $275
million. The Company pays a commitment fee of up to 0.225% per annum on the
unused portion of this facility. The credit facility is available through
September 2001 and provides for borrowings in United States, Canadian, or
Australian dollars, or gold, or a combination of these. The credit agreement
requires a minimum consolidated net worth of $500 million. At December 31, 1997
HGAL had borrowed $48.9 million (A$75 million) under this agreement primarily to
repay intercompany advances. The interest rate on these borrowings is based on
the Australian Bank Bill Swap Rate plus a margin of up to 0.625%. At December
31, 1997 this rate was 5.25%.
In June 1997, the Company replaced its unsecured debt facility with an
Australian bank with a $260 million (A$400 million) unsecured syndicated debt
facility ("Syndicated Facility") with a syndicate of seven banks. This facility,
which provides for borrowings in either Australian or United States dollars,
consists of a $186 million (A$285 million) revolving debt facility which expires
in June 2002 and a $75 million (A$115 million) standby facility which expires in
September 1998. The Company pays a commitment fee of 0.175% per annum on the
unused portion of this facility. Interest is charged at the Australian Bank Bill
Swap Rate plus a margin of 0.33%. At December 31, 1997 this rate was 5.35%. At
December 31, 1997 the Company had drawn down $110.7 million (A$170 million)
under this facility.
The Syndicated Facility Agreement provides that any lender may elect to
terminate its respective commitment to this facility and request repayment of
any outstanding indebtedness for a period of sixty days following a change of
control. Homestake's acquisition of Plutonic constitutes a change of control for
purposes of this agreement. Homestake does not expect any difficulty in
refinancing these borrowings under the Company's Cross-border Facility.
In 1993, the Company sold $150 million of 5.5% convertible subordinated
notes maturing June 23, 2000. Interest on the notes is payable semiannually in
June and December. The notes are convertible into the Company's common shares at
a rate of $23.06 per common share and are redeemable by the Company in whole at
any time.
In December 1996, Homestake and Santa Fe announced that they had entered
into an agreement whereby Homestake would acquire Santa Fe by an exchange of
common stock for common stock. In
J-31
<PAGE>
March 1997, the Company announced that Santa Fe had terminated the agreement
and, in accordance with the terms of the merger agreement, had paid Homestake a
$65 million termination fee. As a result, Homestake recorded a gain of $62.9
million ($47.2 million after tax), net of merger related expenses incurred in
1997 of $2.1 million.
In February 1997, Homestake completed the sale of its interests in the
George Lake and Back River joint ventures in Canada to Kit Resources Corporation
("Kit") for $9.3 million in cash and 3.6 million shares of Kit common stock. As
a result of this arrangement, the Company recorded a pretax gain of $13.5
million ($8.1 million after tax).
In April 1997, the Company filed a shelf registration with the Securities
and Exchange Commission for the potential sale of up to 20 million shares of
Homestake common stock. The proceeds from any such offering would be available
for general corporate purposes, which could include capital expenditures,
repayment of debt and future acquisitions which have the potential to add to the
Company's gold reserves and future gold production.
In July 1997, Lawrence County, South Dakota issued $30 million of South
Dakota Solid Waste Disposal Revenue Bonds ("Waste Disposal Bonds") and $18
million of South Dakota Pollution Control Refunding Revenue Bonds ("Pollution
Control Bonds"), both of which are due in 2032. Proceeds from the Waste Disposal
Bonds were loaned to the Company and proceeds from the Pollution Control Bonds
were used to redeem outstanding South Dakota pollution control bonds. The
Company is responsible for funding principal and interest payments on these
bonds. See note 14 to the Consolidated Financial Statements for further
information on these bonds.
In 1995, Homestake acquired for $24 million a 10% interest in Navan
Resources plc ("Navan"), an Irish public company with diverse mineral interests
in Europe. At December 31, 1996 Homestake reduced the carrying value of its
investment in Navan to the quoted market value through a $7.2 million charge to
income. During 1997, Homestake recorded additional write-downs of $10.1 million
with respect to the carrying value of the investment in Navan.
In November 1997, Homestake purchased a 20% interest in Navan Bulgarian
Mining BV ("Navan BV"), a wholly-owned subsidiary of Navan, for $12 million and
a 32% interest in Navan's Bulgarian exploration program and projects for $4
million. Homestake has agreed, under certain circumstances, to invest an
additional $18 million in Navan BV, which would result in Homestake owning 51%
of Navan BV, and give Homestake the right to become operator of the Chelopech
project in Bulgaria. See note 11 to the Consolidated Financial Statements for
further information on this investment.
In April 1996, Prime purchased Cominco's 60% interest in the Snip mine for
$39.3 million in cash.
In June 1996, the Company paid $51.4 million to purchase past and all future
rights and entitlements under the disproportionate sharing arrangement covering
gold production from a portion of the Super Pit operation at the Kalgoorlie
operations. The Company now shares equally with its joint venture partner in all
gold produced at the Kalgoorlie operations.
In June 1996, the Company recorded a gain of $7.9 million on the sale of its
17.3% holding in Eagle Mining. The Company had acquired its interest in Eagle
Mining in November 1995.
In July 1996, Lachlan acquired 90.7% of Archaean Gold NL ("Archaean") for
$36.8 million. In 1997, Lachlan acquired the remaining interest in Archaean.
This acquisition, which was accounted for as a purchase, was funded by a loan
from the Company to Lachlan which, together with accrued interest up to August
1997, totaled $33.2 million (A$50.9 million). The loan became noninterest
bearing in September 1997. Lachlan plans to repay this loan by issuing
additional shares to the Company which will increase the Company's interest in
Lachlan from approximately 62% to 81%.
In 1995, the Company agreed to provide Edensor with a loan facility up to
$37 million (A$50 million) and was granted an option to acquire 19.9% of the
issued capital of Great Central in consideration for this
J-32
<PAGE>
loan. In July 1996, an agreement was concluded for the sale of a right to cancel
the Company's option to acquire 19.9% of the shares of Great Central. The
Company was paid $4.7 million in 1996 and a further $10.4 million in 1997 in
respect to this agreement.
During the fourth quarter of 1995 and the first quarter of 1996, Homestake
acquired the 18.5% of HGAL it did not already own. The total purchase price was
$164.9 million, including $141.7 million for 8.5 million newly issued shares of
the Company, $19.5 million in cash and $3.7 million of arrangement expenses.
In October 1995, the Company acquired most of Dominion Mining Limited's
("Dominion") gold assets including an 80% interest in the Mt Morgans mine. The
net purchase price after working capital adjustments was $39.1 million. As part
of its agreement with Dominion, the Company offered Dominion shareholders the
opportunity to apply their individual entitlements to a return of Dominion
capital to subscribe for shares of the Company which resulted in 2.3 million
shares of the Company being issued to Dominion shareholders on January 29, 1996
for consideration of $32.1 million.
Additions to property, plant and equipment in 1997 totaled $204.6 million
compared to $170 million and $110.2 million in 1996 and 1995, respectively.
Capital additions in 1997 include $56.1 million for construction and development
work at the Ruby Hill mine, $38.5 million at the Plutonic mine, primarily for
underground development and construction of the gas-fired power station, $16.1
million at the Darlot mine primarily for the Centenary decline and various
efficiency improvement projects, $14.8 million at the Round Mountain mine
primarily for the new mill, $13.7 million at the Kalgoorlie operations primarily
for a decline from surface and a ventilation raise at the Mt. Charlotte mine,
$15.4 million at the Eskay Creek mine primarily for the construction of the new
gravity/flotation mill, and $16 million at the Homestake mine primarily for a
tailings dam lift and improvements in the underground operations. The remaining
expenditures primarily were for replacement capital to maintain existing
production capacity.
In addition to sustaining capital, planned capital expenditures of
approximately $80 million at the Company's existing operations during 1998
include; $19.6 million and $15.2 million at Darlot and Plutonic mines,
respectively, primarily for underground development, $13 million at the
Homestake mine, primarily for the operations restructuring and completion of the
tailings dam lift, and $14 million at the Kalgoorlie operations, primarily to
extend the new Mt. Charlotte decline further into the mine's workings and to
increase the flotation capacity at the Fimiston mill.
Total dividends paid by the Company, including $2.2 million of dividends
paid by Prime to its minority shareholders, amounted to $33.9 million in 1997
compared to $45.5 million and $39.6 million during 1996 and 1995, respectively.
During 1997, Homestake reduced its dividend rate to two semiannual payments of
$.05 each.
The Company paid cash income and mining taxes (net of tax refunds) of $66.2
million in 1997 compared to $15.9 million and $28.6 million in 1996 and 1995,
respectively. The 1997 tax payments include $30.9 million of final payments for
the 1996 tax year and $35.3 million of estimated payments for the 1997 tax year.
The increase in tax payments is due to the exhaustion of the majority of the
Company's Canadian income and mining tax pools during 1996.
The Company evaluates its accruals for remediation, reclamation and site
restoration regularly. The Company believes it has fully provided for all
remediation liabilities and for estimated reclamation and site restoration costs
at its nonoperating properties. At its operating properties, the Company is
providing for estimated ultimate reclamation relating to ongoing and end-of-mine
restoration and closure costs over the lives of its individual operations using
the units-of-production method.
At September 30, 1997 the Company determined that it was necessary to
increase the reclamation accruals at certain of its nonoperating properties,
including the Santa Fe mine in Nevada, the Nickel Plate mine in Canada and the
Grants uranium complex in New Mexico, to reflect revised estimates, changed
J-33
<PAGE>
conditions and more stringent future reclamation requirements. Accordingly, a
charge of $29.1 million was recorded at that time.
See note 20 to the consolidated financial statements for discussion of
certain legal matters.
Homestake has completed a review of its computer-based systems and has
developed a plan designed to ensure that all of these systems will be Year 2000
compliant. With the exception of the financial systems acquired as part of
Homestake's recent acquisition of Plutonic, Year 2000 compliant upgrades for
Homestake's core financial systems will be installed by the end of 1998. The
Plutonic financial systems, and all other Homestake information system hardware
and software, will be brought into compliance by mid-1999.
Homestake currently is in the process of identifying all
microprocessor-controlled devices, including process-monitoring systems, in use
at its operating locations to determine whether they are Year 2000 compliant. In
addition, Homestake is monitoring similar Year 2000 related activities at its
joint venture operations where it is not the operator. A Year 2000 related
microprocessor problem that is not identified or remedied at an operating
location potentially could result in a short-term production disruption at that
location.
Homestake's total expenditures for these Year 2000 activities are expected
to be less than $1 million and should not adversely impact other information
system initiatives.
Homestake currently is surveying all major suppliers and customers to assess
their Year 2000 compliance and, where practical, will make specific contingency
plans based on the results of this survey. The greatest risk to Homestake in
this regard would be in the supply of power and/or water to certain of its
operating locations. A disruption in the supply of either of these utilities
could significantly hamper or curtail production at an operating location until
the service is restored. A disruption in the supply of other services or
supplies at an operating location potentially could result in a short-term
production disruption at that location.
Due to the nature of Homestake's principal customers, Homestake expects that
their core financial operating systems will be Year 2000 compliant, and that
there will be no significant disruption in Homestake's gold selling efforts.
Based on compliance efforts to date, Homestake has concluded that it is not
necessary to establish contingency plans.
Future results will be impacted by such factors as the market price of gold,
silver and sulfur, the Company's ability to expand its ore reserves and the
fluctuations of foreign currency exchange rates. During 1998, Homestake expects
to incur approximately $15 million of arrangement costs and $11 million of
implementation costs, including $7 million of post-combination severance and
lease termination costs, in connection with the acquisition of Plutonic. The
Company believes that the combination of cash, short-term investments, available
lines of credit and future cash flows from operations will be sufficient to meet
normal operating requirements, planned capital expenditures and anticipated
dividends.
J-34
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
REVENUES
Gold and ore sales....................................................... $ 863,628 $ 921,685 $ 871,959
Sulfur and oil sales..................................................... 26,821 30,749 40,620
Interest income.......................................................... 17,320 20,392 19,152
Gain on termination of Santa Fe merger (note 4).......................... 62,925
Other income (note 5).................................................... 721 25,620 17,520
------------ ---------- ----------
971,415 998,446 949,251
------------ ---------- ----------
COSTS AND EXPENSES
Production costs......................................................... 627,639 615,491 609,117
Depreciation, depletion and amortization................................. 162,781 151,852 125,639
Administrative and general expense....................................... 48,905 48,664 44,469
Exploration expense...................................................... 65,238 67,363 43,281
Interest expense......................................................... 20,756 19,140 12,459
Write-downs and other unusual charges (note 6)........................... 285,315 8,983
Other expense............................................................ 6,836 5,592 3,965
------------ ---------- ----------
1,217,470 917,085 838,930
------------ ---------- ----------
INCOME (LOSS) BEFORE TAXES AND MINORITY INTERESTS.......................... (246,055) 81,361 110,321
INCOME AND MINING TAXES (NOTE 7)........................................... 19,458 (22,328) (45,422)
MINORITY INTERESTS......................................................... (4,009) (13,268) (14,957)
------------ ---------- ----------
NET INCOME (LOSS).......................................................... $ (230,606) $ 45,765 $ 49,942
------------ ---------- ----------
------------ ---------- ----------
NET INCOME (LOSS) PER SHARE (BASIC AND DILUTED)............................ $ (1.10) $ 0.22 $ 0.25
------------ ---------- ----------
------------ ---------- ----------
AVERAGE SHARES USED IN THE COMPUTATION..................................... 210,537 210,027 199,385
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of these restated financial
statements (see note 3 for information concerning the 1998 acquisition of
Plutonic Resources Limited).
J-35
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents................................................................ $ 124,083 $ 104,657
Short-term investments.............................................................. 141,221 130,158
Receivables (note 8)................................................................ 43,529 53,471
Inventories (note 9)................................................................ 103,925 139,015
Deferred income and mining taxes (note 7)........................................... 19,372 13,298
Other............................................................................... 13,154 12,403
------------ ------------
Total current assets.............................................................. 445,284 453,002
PROPERTY, PLANT AND EQUIPMENT--NET (notes 3 and 10)................................... 1,021,147 1,276,039
INVESTMENTS AND OTHER ASSETS
Noncurrent investments (note 11).................................................... 41,094 82,009
Other assets (note 12).............................................................. 102,009 128,280
------------ ------------
Total investments and other assets................................................ 143,103 210,289
------------ ------------
TOTAL ASSETS.......................................................................... $ 1,609,534 $ 1,939,330
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................................... $ 59,930 $ 53,498
Accrued liabilities (note 13)....................................................... 68,641 49,490
Current portion of long-term debt (note 14)......................................... 73,649
Income and other taxes payable...................................................... 277 38,386
------------ ------------
Total current liabilities......................................................... 128,848 215,023
LONG-TERM LIABILITIES
Long-term debt (note 14)............................................................ 374,593 254,668
Other long-term obligations (note 15)............................................... 152,610 123,475
------------ ------------
Total long-term liabilities....................................................... 527,203 378,143
DEFERRED INCOME AND MINING TAXES (note 7)............................................. 161,862 218,379
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES....................................... 108,116 103,960
SHAREHOLDERS' EQUITY (note 18)
Capital stock, $1 par value per share:
Preferred--10,000 shares authorized; no shares outstanding
Common--250,000 shares authorized; shares outstanding:
1997--210,696; 1996--210,419.................................................... 210,696 210,419
Additional paid-in capital.......................................................... 602,999 601,987
Retained earnings (deficit)......................................................... (97,553) 164,837
Accumulated currency translation adjustments........................................ (33,381) 58,264
Other............................................................................... 744 (11,682)
------------ ------------
Total shareholders' equity........................................................ 683,505 1,023,825
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................ $ 1,609,534 $ 1,939,330
------------ ------------
------------ ------------
Commitments and Contingencies--see notes 20 and 21.
</TABLE>
The accompanying notes are an integral part of these restated financial
statements (see note 3 for information concerning the 1998 acquisition of
Plutonic Resources Limited).
J-36
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income (loss).......................................................... $ (230,606) $ 45,765 $ 49,942
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization................................. 162,781 151,852 125,639
Write-downs and other unusual charges (note 6)........................... 285,315 8,983
Foreign currency exchange losses on intercompany debt (note 5)........... 5,657 8,943 883
Gains on asset disposals................................................. (16,926) (12,305) (5,575)
Deferred income and mining taxes (note 7)................................ (56,318) (19,620) 25,756
Minority interests....................................................... 4,009 13,268 14,957
Reclamation--net......................................................... 2,970 (20) (720)
Other noncash items--net................................................. 11,345 (2,498) 4,215
Effect of changes in operating working capital items:
Receivables............................................................ (372) 12,337 529
Inventories............................................................ 2,932 (44,947) 16,438
Accounts payable....................................................... 9,582 4,808 (2,028)
Accrued liabilities and taxes payable.................................. (18,720) 24,183 (12,772)
Other.................................................................. (1,625) (8,572) 2,788
----------- ----------- -----------
Net cash provided by operations............................................ 160,024 182,177 220,052
----------- ----------- -----------
INVESTMENT ACTIVITIES
Decrease (increase) in short-term investments.............................. (11,063) (63,742) 33,063
Proceeds from asset sales.................................................. 33,494 49,221 15,557
Additions to property, plant and equipment................................. (204,629) (169,950) (110,180)
Increase in restricted cash................................................ (15,990)
Investments in mining companies............................................ (22,950) (65,006) (100,940)
Receipt (advance) to Edensor (note 12)..................................... 37,210 (6,599) (30,599)
Purchase of HGAL minority interests (note 3)............................... (6,435) (16,714)
Purchase of interest in Snip mine (note 3)................................. (39,279)
Other...................................................................... (2,430) 3,264 3,296
----------- ----------- -----------
Net cash used in investment activities..................................... (186,358) (298,526) (206,517)
----------- ----------- -----------
FINANCING ACTIVITIES
Borrowings................................................................. 102,270 56,775 88,968
Debt repayments............................................................ (25,442) (9,788) (10,009)
Dividends paid on common shares--Homestake................................. (31,784) (43,278) (39,619)
--Prime minority interests................... (2,151) (2,205)
Common shares issued....................................................... 1,289 35,113 3,178
Other...................................................................... 4,234
----------- ----------- -----------
Net cash provided by financing activities.................................. 48,416 36,617 42,518
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS.................... (2,656) 2,541 (4,127)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............................ 19,426 (77,191) 51,926
CASH AND EQUIVALENTS, JANUARY 1............................................ 104,657 181,848 129,922
----------- ----------- -----------
CASH AND EQUIVALENTS, DECEMBER 31.......................................... $ 124,083 $ 104,657 $ 181,848
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these restated financial
statements (see note 3 for information concerning the 1998 acquisition of
Plutonic Resources Limited).
J-37
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED CURRENCY
COMMON PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENTS OTHER TOTAL
---------- ---------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994................ $ 198,993 $ 433,624 $ 152,027 $ 22,951 $ (8,219) $ 799,376
Net income............................... 49,942 49,942
Dividends paid........................... (39,619) (39,619)
Exercise of stock options................ 340 2,838 3,178
Stock issued for purchase of HGAL
minority interests (note 3)............ 2,550 39,849 42,399
Currency translation adjustments......... (10,132) (10,132)
Change in unrealized loss on
investments............................ 3,555 3,555
Other.................................... (59) (59)
---------- ---------- ----------- ------------ --------- ------------
BALANCES, DECEMBER 31, 1995................ 201,883 476,311 162,350 12,819 (4,723) 848,640
Net income............................... 45,765 45,765
Dividends paid........................... (43,278) (43,278)
Exercise of stock options................ 299 2,726 3,025
Stock issued for purchase of assets of
Dominion (note 3)...................... 2,273 29,815 32,088
Stock issued for purchase of HGAL
minority interests (note 3)............ 5,976 93,370 99,346
Currency translation adjustments......... 45,445 45,445
Change in unrealized loss on
investments............................ (7,082) (7,082)
Other.................................... (12) (235) 123 (124)
---------- ---------- ----------- ------------ --------- ------------
BALANCES, DECEMBER 31, 1996................ 210,419 601,987 164,837 58,264 (11,682) 1,023,825
Net loss................................. (230,606) (230,606)
Dividends paid........................... (31,784) (31,784)
Exercise of stock options................ 277 1,012 1,289
Currency translation adjustments......... (91,645) (91,645)
Change in unrealized loss on
investments............................ 10,210 10,210
Other.................................... 2,216 2,216
---------- ---------- ----------- ------------ --------- ------------
BALANCES, DECEMBER 31, 1997................ $ 210,696 $ 602,999 $ (97,553) $ (33,381) $ 744 $ 683,505
---------- ---------- ----------- ------------ --------- ------------
---------- ---------- ----------- ------------ --------- ------------
</TABLE>
The accompanying notes are an integral part of these restated financial
statements (see note 3 for information concerning the 1998 acquisition of
Plutonic Resources Limited).
J-38
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 1: NATURE OF OPERATIONS
Homestake Mining Company ("Homestake" or the "Company") is engaged in gold
mining and related activities including exploration, extraction, processing,
refining and reclamation. Gold bullion, the Company's principal product, is
produced and sold in the United States, Canada, Australia and Chile. Ore and
concentrates, containing gold and silver from the Eskay Creek and Snip mines in
Canada, are sold directly to smelters. Through its investment in Main Pass 299,
the Company also produces and sells sulfur and oil.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include
Homestake and its majority-owned subsidiaries, including Plutonic Resources
Limited ("Plutonic") which was acquired on April 30, 1998 (see note 3), and
their undivided interests in joint ventures after elimination of intercompany
amounts. The Company owns 50.6% of Prime Resources Group Inc. ("Prime"), 51% of
Agua de la Falda S.A. and 62.1% of Lachlan Resources NL ("Lachlan") with the
remaining interests reflected as minority interests in the consolidated
financial statements. Undivided interests in gold mining operations (the Round
Mountain, Pinson and Marigold mines in the United States; Homestake Gold of
Australia Limited's ("HGAL") interest in the gold mining operations in
Kalgoorlie, Western Australia; Plutonic's interests in the Mt Morgans and Peak
Hill mines in Western Australia; and Homestake Canada Inc.'s ("HCI") interests
in the Williams and David Bell mines in Canada) and in the sulfur and oil
recovery operations at Main Pass 299 in the Gulf of Mexico are reported using
pro rata consolidation whereby the Company reports its proportionate share of
assets, liabilities, income and expenses.
USE OF ESTIMATES: The preparation of financial statements in conformity
with United States generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND EQUIVALENTS include all highly-liquid investments with a maturity
of three months or less at the date of purchase. The Company minimizes its
credit risk by investing its cash and equivalents with major international banks
and financial institutions located principally in the United States, Canada and
Australia. The Company believes that no concentration of credit risk exists with
respect to investment of its cash and equivalents.
SHORT-TERM INVESTMENTS principally consist of highly-liquid United States
and foreign government and corporate securities with original maturities in
excess of three months. The Company classifies all short-term investments as
available-for-sale securities. Unrealized gains and losses on these investments
are recorded as a separate component of shareholders' equity, except that
declines in market value judged to be other than temporary are recognized in
determining net income.
INVENTORIES, which include finished products, ore in process, stockpiled
ore, ore in transit, and supplies, are stated at the lower of cost or net
realizable value. The cost of gold produced by certain United States operations
is determined principally by the last-in, first-out method ("LIFO"). The cost of
other inventories is determined primarily by averaging methods.
EXPLORATION COSTS are expensed as incurred. All costs related to property
acquisitions are capitalized.
J-39
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEVELOPMENT COSTS: Following completion of a favorable feasibility study,
development costs incurred to place new mines into production and to complete
major development projects at operating mines are capitalized. Ongoing costs to
maintain production are expensed as incurred.
DEPRECIATION, DEPLETION AND AMORTIZATION of mining properties, mine
development costs and major plant facilities is computed principally by the
units-of-production method based on estimated quantities of ore which can be
recovered economically in the future from known mineral deposits. Such estimates
are based on current and projected costs and prices. Other equipment and plant
facilities are depreciated using straight-line or accelerated methods
principally over estimated useful lives of three to ten years.
PROPERTY EVALUATIONS: Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If deemed impaired, an impairment loss is
measured and recorded based on the fair value of the asset, which generally will
be computed using discounted cash flows.
Estimated future net cash flows from each mine are calculated using
estimates of production, future sales prices (considering historical and current
prices, price trends and related factors), production costs, capital and
reclamation costs. (See note 6.)
The Company's estimates of future cash flows are subject to risks and
uncertainties. Therefore, it is possible that changes could occur which may
affect the recoverability of the Company's investments in mineral properties and
other assets.
Undeveloped properties upon which the Company has not performed sufficient
exploration work to determine whether significant mineralization exists are
carried at original acquisition cost. If it is determined that significant
mineralization does not exist, the property would be written down to estimated
net realizable value at the time of such determination.
RECLAMATION AND REMEDIATION: Reclamation costs and related accrued
liabilities, which are based on the Company's interpretation of current
environmental and regulatory requirements, are accrued and expensed principally
by the units-of-production method based on estimated quantities of ore which can
be recovered economically in the future from known mineral deposits. Remediation
liabilities, including estimated governmental oversight costs, are expensed upon
determination that a liability has been incurred and where a minimum cost or
reasonable estimate of the cost can be determined. (See note 6.)
The Company provides for all costs of reclamation, including long-term care
and monitoring and maintenance costs. The Company uses undiscounted current
costs in preparing its estimates of future reclamation costs. The Company
regularly updates its estimates of reclamation costs. Amounts to be received
from the Federal Government for its 51.2% share of the cost of future
reclamation activities at the Grants, New Mexico uranium facility are offset
against the remaining estimated Grants reclamation liabilities. Receivables are
recorded for the Federal Government's share of reclamation expenditures at the
Grants uranium facility in the period that such expenditures are made.
Based on current environmental regulations and known reclamation
requirements, the Company has included its best estimates of these obligations
in its reclamation accruals. However, the Company's estimates of its ultimate
reclamation liabilities could change as a result of changes in regulations or
cost estimates.
J-40
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NONCURRENT INVESTMENTS include investments in mining securities and assets
held in trust to fund employee benefits.
Investments in mining securities that have readily determinable fair values
and assets held in trust to fund employee benefits are classified as
available-for-sale investments. Unrealized gains and losses on these investments
are recorded as a separate component of shareholders' equity, except that
declines in market value judged to be other than temporary are recognized in
determining net income. Realized gains and losses on these investments are
included in determining net income. (See note 6.)
PRODUCT SALES are recognized when title passes at the shipment or delivery
point.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses derivative financial
instruments as part of an overall risk-management strategy. These instruments
are used as a means of hedging exposure to precious metals prices and foreign
currency exchange rates. The Company does not hold or issue derivative financial
instruments for trading purposes. The Company's accounting for derivative
financial instruments is in accordance with the concepts established in
Statement of Financial Accounting Standards ("SFAS") No. 80, "Accounting for
Futures Contracts," SFAS No. 52, "Foreign Currency Translation," American
Institute of Certified Public Accountants Statement of Positions 86-2,
"Accounting for Options," and various Emerging Issues Task Force ("EITF")
pronouncements.
The Company uses forward sales contracts and combinations of put and call
options to hedge its exposure to precious metals prices. The underlying hedged
production is designated at the inception of the hedge. Deferral accounting is
applied only if the derivatives continue to reduce the price risk associated
with the underlying hedged production. Contracted prices on forward sales
contracts and options are recognized in product sales as the designated
production is delivered or sold. In the event of early settlement of hedge
contracts, gains and losses are deferred and recognized in income at the
originally designated delivery date.
The Company uses combinations of put and call options to hedge its exposure
to foreign currency exchange rates. Currently, these options do not qualify for
deferral accounting and, accordingly, are marked to market at each balance sheet
date. Realized and unrealized gains and losses on these options are recognized
in other income.
INCOME TAXES: The Company follows the liability method of accounting for
income taxes whereby deferred income taxes are recognized for the tax
consequences of temporary differences by applying statutory tax rates applicable
to future years to differences between the financial statement carrying amounts
and the tax bases of certain assets and liabilities. Changes in deferred tax
assets and liabilities include the impact of any tax rate changes enacted during
the year. Mining taxes represent Canadian provincial taxes levied on mining
operations.
FOREIGN CURRENCY: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the end of each
period. Revenues and expenses are translated at the average exchange rate for
the period. Accumulated currency translation adjustments are included as a
separate component of shareholders' equity. Foreign currency arrangement gains
and losses are included in the determination of net income.
J-41
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS: Pension costs related to
United States employees are determined using the projected unit credit actuarial
method. Pension plans are funded through annual contributions. In addition, the
Company provides medical and life insurance benefits for certain retired
employees and accrues the cost of such benefits over the period in which active
employees become eligible for the benefits. The costs of the postretirement
medical and life insurance benefits are paid at the time such benefits are
provided.
NET INCOME PER SHARE is computed by dividing net income by the weighted
average number of common shares outstanding during the year. The Company's basic
and diluted net income per share are the same since the exercise of stock
options and the conversion of the 5.5% convertible subordinated notes would
produce anti-dilutive results.
PREPARATION OF FINANCIAL STATEMENTS: Certain amounts for 1996 and 1995 have
been reclassified to conform to the current year's presentation. All dollar
amounts are expressed in United States dollars unless otherwise indicated.
COMPREHENSIVE INCOME: In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS 130, "Reporting Comprehensive Income." SFAS 130
establishes standards for the reporting and display of comprehensive income. The
purpose of reporting comprehensive income is to present a measure of all changes
in shareholders' equity that result from recognized arrangements and other
economic events of the period, other than arrangements with shareholders in
their capacity as shareholders. SFAS 130 will be effective for Homestake's 1998
financial statements. Adoption of SFAS 130 will result in additional disclosures
in Homestake's financial statements but will not impact the Company's reported
net income or net income per share.
NOTE 3: ACQUISITIONS AND DIVESTITURES
PLUTONIC RESOURCES LIMITED: On April 30, 1998 Homestake completed the
acquisition of Plutonic, a publicly-traded Australian gold producer, by an
exchange of common stock for common stock. As a result of the acquisition,
Homestake is now the second-largest gold producer in Australia. Homestake issued
64.4 million common shares to acquire Plutonic, including 63.9 million shares in
exchange for all of the Plutonic common shares outstanding based on an exchange
ratio of .34 Homestake common shares for each fully-paid Plutonic common share,
and .5 million Homestake common shares for the Plutonic partly paid shares and
options outstanding.
The business combination with Plutonic has been accounted for as a pooling
of interests and accordingly, Homestake's consolidated financial statements have
been restated to include Plutonic for all
J-42
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 3: ACQUISITIONS AND DIVESTITURES (CONTINUED)
periods. Combined and separate results for Homestake and Plutonic for the years
ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOMESTAKE PLUTONIC
HISTORICAL HISTORICAL(A) ADJUSTMENTS(B) COMBINED
----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Revenues.............................................. $ 723,834 $ 248,519 $ (938) $ 971,415
Net loss.............................................. (168,879) (33,998) (27,729) (230,606)
Shareholders' equity at December 31................... 531,750 186,577 (34,822) 683,505
Year ended December 31, 1996:
Revenues.............................................. 766,936 238,065 (6,555) 998,446
Net income............................................ 30,281 18,984 (3,500) 45,765
Shareholders' equity at December 31................... 768,552 268,168 (12,895) 1,023,825
Year ended December 31, 1995:
Revenues.............................................. 746,365 163,069 39,817 949,251
Net income............................................ 30,327 20,126 (511) 49,942
Shareholders' equity at December 31................... 635,857 221,510 (8,727) 848,640
</TABLE>
- ------------------------
(a) The Plutonic historical results of operations have been adjusted to reflect
i) presentation of Plutonic's results of operations in accordance with
United States generally accepted accounting principles and the format and
classifications utilized by Homestake, and ii) translation into U.S. dollars
using the average exchange rate for each period. Shareholders' equity has
been translated into U.S. dollars using the end-of-period exchange rates.
(b) In combining the historical results of Homestake and Plutonic, certain
adjustments were made to conform Plutonic's accounting policies to
Homestake's accounting policies. The effect of these adjustments on combined
net income (loss) is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Revenue recognition......................................... $ 377 $ (3,318) $ 11,515
Reclamation expense......................................... (1,215) (1,430) (5,324)
Depreciation, depletion and amortization.................... (6,958) (2,305)
Income taxes................................................ (19,933) 1,248 (4,397)
---------- --------- ---------
$ (27,729) $ (3,500) $ (511)
---------- --------- ---------
---------- --------- ---------
</TABLE>
Homestake estimates that arrangement costs related to the merger will total
approximately $15 million and post-combination severance and lease termination
costs will total approximately $7 million. The merger arrangement expenses are
being charged to operations as incurred, primarily in the first half of 1998,
and the estimated post-combination severance and lease termination costs will be
expensed as of the date of the combination.
J-43
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 3: ACQUISITIONS AND DIVESTITURES (CONTINUED)
HOMESTAKE GOLD OF AUSTRALIA LIMITED: During the fourth quarter of 1995 and
the first quarter of 1996, Homestake acquired the 18.5% of HGAL it did not
already own. The total purchase price was $164.9 million, including $141.7
million for 8.5 million newly issued shares of the Company, $19.5 million in
cash and $3.7 million of arrangement expenses. The acquisition of the HGAL
minority interests was accounted for as a purchase.
MT MORGANS MINE: In October 1995, the Company acquired most of Dominion
Mining Limited's ("Dominion") gold assets, including an 80% interest in the Mt
Morgans mine. The net purchase price after working capital adjustments was $39.1
million. As part of its agreement with Dominion, the Company offered Dominion
shareholders the opportunity to subscribe for shares of the Company instead of
receiving a return of Dominion capital. As a result, 2.3 million shares of the
Company were issued to Dominion shareholders on January 29, 1996 for
consideration of $32.1 million.
SNIP MINE: On April 30, 1996 Prime purchased Cominco Ltd.'s ("Cominco") 60%
interest in the Snip mine in British Columbia, Canada for $39.3 million in cash.
As a result of this purchase, Prime became the sole owner of the Snip mine.
AGUA DE LA FALDA S.A.: In July 1996, Homestake and Corporacion Nacional del
Cobre Chile ("Codelco"), a state-owned mining company in Chile, formed a new
company, Agua de la Falda S.A. ("La Falda") to conduct exploration and mining
activities near Homestake's former El Hueso mine in northern Chile. Homestake
owns 51% of the corporation and Codelco owns 49%. Codelco and Homestake have
contributed property interests in the area to the new company. In addition,
Codelco contributed the existing El Hueso plant, which had been under lease to
Homestake. Homestake also contributed $5.1 million for exploration and
development, including $3.7 million of exploration and development expenditures
incurred prior to the formation of La Falda.
ARCHAEAN GOLD NL: In July 1996, Lachlan acquired 90.7% of Archaean Gold NL
("Archaean") for $36.8 million. In April 1997, Lachlan acquired the remaining
interest in Archaean. This acquisition, which was accounted for as a purchase,
was funded by a loan from the Company to Lachlan which, together with
capitalized interest up to August 1997, totaled $33.2 million (A$50.9 million).
The loan became noninterest bearing in September 1997. Lachlan plans to repay
this loan by issuing additional shares to the Company which will increase the
Company's interest in Lachlan from approximately 62% to 81%.
PINSON MINING COMPANY: In December 1996, Homestake increased its interest
in the Pinson Mining Company partnership ("Pinson Partnership") from 26.25% to
50% and became the operator of the Pinson mine. Barrick Gold Corporation owns
the remaining 50% interest. The purchase price for the additional 23.75%
partnership interest consisted of $4.4 million in cash, a net smelter royalty on
certain future Pinson Partnership production and assumption of a proportionate
increase of the Pinson Partnership's liabilities, including reclamation.
GEORGE LAKE AND BACK RIVER JOINT VENTURES: In February 1997, Homestake sold
its interests in the George Lake and Back River joint ventures in Canada to Kit
Resources Corporation ("Kit") for $9.3 million in cash and 3.6 million shares of
Kit common stock. As a result of this arrangement, the Company recorded a pretax
gain of $13.5 million in the first quarter of 1997, which was included in other
income. The write-downs of noncurrent investments recorded in the third and
fourth quarters of 1997 (see note 6) include $5.5 million related to the
Company's investment in Kit.
J-44
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 3: ACQUISITIONS AND DIVESTITURES (CONTINUED)
TORRES MINING COMPLEX: In 1995, the Company sold its 28% equity interest in
the Torres silver mining complex in Mexico for $6 million. This sale resulted in
a pretax gain of $2.7 million, which was included in other income.
NOTE 4: GAIN ON TERMINATION OF SANTA FE MERGER
In March 1997, Santa Fe Pacific Gold Corporation terminated its previously
announced merger agreement with Homestake and paid Homestake a $65 million
termination fee. As a result, in 1997 the Company recorded a pretax gain of
$62.9 million ($47.2 million after tax), net of merger related expenses of $2.1
million incurred in 1997. Other expense for the year ended December 31, 1996
included $3.4 million of expenses related to this proposed merger.
NOTE 5: OTHER INCOME
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Gains on asset disposals.............................................. $ 16,926 $ 12,305 $ 5,575
Royalty income........................................................ 2,425 2,888 2,252
Foreign currency contract gains (losses).............................. (28,453) 1,632 (151)
Foreign currency exchange losses on intercompany advances............. (5,657) (8,943) (883)
Pension curtailment gain.............................................. 1,868
Gain on sale of Great Central option (see note 12).................... 10,419 4,699
Other................................................................. 5,061 11,171 10,727
---------- --------- ---------
$ 721 $ 25,620 $ 17,520
---------- --------- ---------
---------- --------- ---------
</TABLE>
NOTE 6: WRITE-DOWNS AND OTHER UNUSUAL CHARGES
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Write-down of Homestake's investment in the Main Pass 299 sulfur mine(a).......... $ 107,761
Reduction in the carrying values of resource assets(b)............................ 84,655
Increase in the estimated accrual for future reclamation expenditures(c).......... 29,156
Write-downs of noncurrent investments(d).......................................... 47,932 $ 8,983
Other(e).......................................................................... 15,811
---------- ---------
$ 285,315 $ 8,983
---------- ---------
---------- ---------
</TABLE>
- ------------------------
(a) Homestake owns a 16.7% undivided interest in the Main Pass 299 sulfur mine
located in the Gulf of Mexico. Planned write-downs by Homestake's joint
venture partners caused the Company to reexamine the carrying value of its
investment in Main Pass 299. Due to a prolonged period of low sulfur prices
and Homestake's current assessment of estimated future cash flows from the
Main Pass 299 sulfur mine, in the third quarter of 1997 the Company recorded
a write-down of $107.8 million in its
J-45
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 6: WRITE-DOWNS AND OTHER UNUSUAL CHARGES (CONTINUED)
investment in Main Pass 299. As a result of this write-down, the Company's
carrying value of the Main Pass 299 sulfur property, plant and equipment was
reduced to zero at September 30, 1997.
(b) As a result of lower gold prices, the Company reviewed the carrying values
of its gold mining operations using a $325 per ounce gold price for its
short-lived operations and a $350 per ounce gold price for its operations
with longer lives. The Company determined that impairment write-downs were
required to reduce the carrying value of several of its assets or operations
with short remaining lives, including the Mt Morgans and Peak Hill mines in
Western Australia, the Pinson mine in Nevada, the Homestake mine's Open Cut
in South Dakota, low-grade stockpiled ore and exploration properties at
certain locations in Western Australia and redundant mining equipment at the
Kalgoorlie operations in Western Australia. The Company determined that no
adjustments to the carrying values of its longer-lived operations were
required.
(c) As a result of a review of the Company's reclamation liabilities, the
Company determined that it was necessary to increase the reclamation
accruals at certain of its nonoperating properties including the Santa Fe
mine in Nevada, the Nickel Plate mine in Canada and the Grants uranium
complex in New Mexico to reflect revised estimates, changed conditions and
more stringent future reclamation requirements.
(d) Low gold prices and lower market valuations for junior mining companies have
caused the value of certain of the Company's noncurrent investments in other
companies to decline significantly. The Company recorded in income the
reductions in the carrying values that it deemed to be other than temporary.
(See note 11.)
(e) Other consists primarily of foreign exchange losses on intercompany
redeemable preferred stock and a loss on repayment of an intercompany gold
loan.
J-46
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 7: INCOME TAXES
The provision for income and mining taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current
Income taxes
Federal............................................... $ 1,023 $ (1,999) $ 7,375
Canadian.............................................. 26,048 28,367 1,928
Other................................................. (8) 616 115
---------- ---------- ----------
27,063 26,984 9,418
Canadian mining taxes................................... 9,797 14,964 10,248
---------- ---------- ----------
Total current taxes..................................... 36,860 41,948 19,666
---------- ---------- ----------
Deferred
Income taxes
Federal............................................... (29,203) (3,879) (3,743)
State................................................. 2,026 (1,300) 436
Canadian.............................................. (7,039) (14,588) 25,347
Australian............................................ (22,282) (2,024) 4,240
---------- ---------- ----------
(56,498) (21,791) 26,280
---------- ---------- ----------
Canadian mining taxes................................... 180 2,171 (524)
---------- ---------- ----------
Total deferred taxes.................................... (56,318) (19,620) 25,756
---------- ---------- ----------
Total income and mining taxes......................... $ (19,458) $ 22,328 $ 45,422
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The provision for income taxes is based on pretax income (loss) before
minority interests as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
United States............................................ $ (167,570) $ (14,003) $ 17,607
Canada................................................... 50,592 95,548 71,333
Australia................................................ (115,323) 7,840 25,684
Other foreign............................................ (13,754) (8,024) (4,303)
----------- ---------- ----------
$ (246,055) $ 81,361 $ 110,321
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
J-47
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 7: INCOME TAXES (CONTINUED)
Deferred tax liabilities and assets as of December 31, 1997 and 1996 relate
to the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Liabilities
Depreciation and other resource property differences
United States............................................................... $ 18,598 $ 64,855
Canada--Federal............................................................. 29,906 32,395
Canada--Provincial.......................................................... 61,509 69,069
Australia................................................................... 112,356 136,523
---------- ----------
222,369 302,842
---------- ----------
Other......................................................................... 31,697 19,360
---------- ----------
Gross deferred tax liabilities.................................................. 254,066 322,202
---------- ----------
Deferred Tax Assets
Tax loss carry-forwards
Canada--Federal............................................................. 2,001
Australia................................................................... 52,868 88,956
Chile....................................................................... 23,943 19,929
Other....................................................................... 2,512 162
---------- ----------
79,323 111,048
Reclamation costs
United States............................................................... 16,827 6,783
Other....................................................................... 13,393 9,638
---------- ----------
30,220 16,421
Employee benefit costs........................................................ 28,716 27,732
Alternative minimum tax credit carry-forwards................................. 14,215
Land and other resource property.............................................. 18,750 15,225
Inventory..................................................................... 23,149
Foreign tax credit carry-forwards............................................. 5,857 12,725
Unrealized foreign exchange losses............................................ 9,157 2,543
Write-downs of noncurrent investments......................................... 9,619 3,722
Other......................................................................... 14,705 14,161
---------- ----------
Gross deferred tax assets....................................................... 219,496 217,792
Deferred tax asset valuation allowances......................................... (107,920) (100,671)
---------- ----------
Net deferred tax assets......................................................... 111,576 117,121
---------- ----------
Net deferred tax liability...................................................... $ 142,490 $ 205,081
---------- ----------
---------- ----------
Net deferred tax liability consists of
Current deferred tax assets................................................... $ (19,372) $ (13,298)
Long-term deferred tax liability.............................................. 161,862 218,379
---------- ----------
Net deferred tax liability.................................................. $ 142,490 $ 205,081
---------- ----------
---------- ----------
</TABLE>
J-48
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 7: INCOME TAXES (CONTINUED)
The classification of deferred tax assets and liabilities is based on the
related asset or liability creating the deferred tax. Deferred taxes not related
to a specific asset or liability are classified based on the estimated period of
reversal. The $107.9 million deferred tax valuation allowance at December 31,
1997 represents the portion of the Company's consolidated deferred tax assets
which, based on projections at December 31, 1997, the Company does not believe
that realization is "more likely than not". The deferred tax valuation allowance
consists of United States, Chile, Australia and Canada unrealized deferred tax
assets of $56.6 million, $27.1 million, $23.9 million, and $.3 million,
respectively. The increase in the valuation allowance for deferred tax assets of
$7.2 million in 1997 is comprised primarily of the following: an increase of
$9.9 million for future alternative minimum tax credits that the Company
projects it will be unable to utilize; an increase of $6.2 million for potential
capital losses for which the Company currently has no tax strategy to utilize;
an increase of $6.3 million for additional unrealized tax loss carry-forwards in
South America; a decrease of $6.8 million for a reduction of the Company's
foreign tax credit carryover; and a decrease of $8.4 million for utilization of
previously unbenefited losses in Australia. For income tax purposes, the Company
has United States foreign tax credit carry-forwards of approximately $5.9
million, which are due to expire at various times through the year 2003.
The largest portion of the $107.9 million of unrealized deferred tax assets
is comprised of $65.0 million of future United States ($40.8 million), Australia
($23.9 million), and Canada ($.3 million) tax benefits relating to expenses that
the Company projects will not be deductible for tax return purposes until after
the year 2011. In projecting United States source income beyond this period, the
Company currently does not meet the SFAS 109 "more likely than not" criteria
required to recognize the United States tax benefits. In addition, there
currently is not a tax strategy which would result in the realization of the
Australian tax benefit. The remaining $42.9 million principally is comprised of
future Chilean tax benefits, United States foreign tax credit carry-forwards and
future alternative minimum tax credits that the Company projects it will be
unable to realize.
Major items causing the Company's income tax provision to differ from the
federal statutory rate of 35% were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Income tax (credit) based on statutory rate.......................... $ (86,120) $ 28,476 $ 38,612
Percentage depletion................................................. (900) (7,611) (9,879)
Earnings in foreign jurisdictions at different rates................. 273 (2,009) (27)
State income taxes, net of federal benefit........................... 1,219 333 340
Australian investment allowance...................................... (125) (2,097)
Unrealized minimum tax credits....................................... 21,201 5,645 4,790
Reduction of prior year accruals..................................... (24,048)
Other nondeductible losses........................................... 34,874 2,875 6,231
Deferred tax assets not recognized in prior years.................... (2,504) (1,262)
Foreign taxes withheld............................................... 465 1,430 1,965
Litigation recovery.................................................. (2,629)
Other--net........................................................... (322) 5,235 (2,975)
---------- ---------- ---------
Total income taxes................................................... (29,435) 5,193 35,698
Canadian mining taxes................................................ 9,977 17,135 9,724
---------- ---------- ---------
Total income and mining taxes........................................ $ (19,458) $ 22,328 $ 45,422
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
J-49
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 7: INCOME TAXES (CONTINUED)
The Company's 1996 income tax expense includes a $24 million benefit
relating to a reduction of prior years' income tax accruals for certain
contingencies which were resolved in 1996 and a $2.6 million benefit relating to
the tax portion of litigation recovery proceeds.
Deferred tax assets not recognized in prior years include reversals of prior
year valuation allowances of $2.5 million in 1996 and $1.3 million in 1995.
NOTE 8: RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Trade accounts.......................................................... $ 24,612 $ 27,373
U.S. Government receivable (see note 20)................................ 5,500 5,500
Interest and other...................................................... 13,417 20,598
--------- ---------
$ 43,529 $ 53,471
--------- ---------
--------- ---------
</TABLE>
NOTE 9: INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Finished products..................................................... $ 33,019 $ 41,080
Ore and in-process.................................................... 37,811 62,183
Supplies.............................................................. 33,095 35,752
---------- ----------
$ 103,925 $ 139,015
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997 and 1996, the cost of certain finished gold inventories
in the United States stated on the LIFO cost basis totaled $5.5 million and $2.1
million, respectively. Such inventories would have approximated $6.2 million and
$3.7 million, respectively, if stated at the lower of market or current year
average production costs.
At December 31, 1997 and 1996, ore stockpiles in the amounts of $32.1
million and $43.3 million, respectively, not expected to be processed within the
12 months following the end of each year are included in other noncurrent assets
(see note 12).
J-50
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 10: PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Mining properties and development costs......................... $ 1,103,705 $ 1,217,461
Plant and equipment............................................. 1,091,814 1,023,087
Land and royalty interests...................................... 4,487 4,103
Construction and mine development in progress................... 22,459 36,374
------------- -------------
2,222,465 2,281,025
Accumulated depreciation, depletion and amortization............ (1,201,318) (1,004,986)
------------- -------------
$ 1,021,147 $ 1,276,039
------------- -------------
------------- -------------
</TABLE>
During 1997, the Company wrote down the carrying value of its 16.7%
undivided interest in the Main Pass 299 sulfur mine and the carrying values of
certain short-lived mining properties (see note 6).
NOTE 11: NONCURRENT INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Navan Resources plc (see note 6)........................................ $ 6,685 $ 16,800
Navan Bulgarian Mining BV............................................... 12,000
Other investments (see note 6).......................................... 22,409 65,209
--------- ---------
$ 41,094 $ 82,009
--------- ---------
--------- ---------
</TABLE>
In 1995, Homestake acquired for $24 million a 10% interest in Navan
Resources plc ("Navan"), an Irish public company with diverse mineral interests
in Europe. At December 31, 1996 Homestake reduced the carrying value of its
investment in Navan to the quoted market value. The resulting charge of $7.2
million was recorded in income. During 1997, Homestake recorded in income
additional write-downs of $10.1 million with respect to the carrying value of
the investment in Navan.
In November 1997, Homestake purchased a 20% interest in Navan Bulgarian
Mining BV ("Navan BV"), a wholly-owned subsidiary of Navan, for $12 million and
a 32% interest in Navan's Bulgarian exploration projects and program for $4
million. Navan BV is a Netherlands company, which in turn owns 68% of Bimak AD
("Bimak"), a Bulgarian company that owns and operates the surface facilities at
the Chelopech copper-gold mine near Sofia, Bulgaria. The other 32% of Bimak is
owned by Chelopech EAD ("Chelopech"), a government-owned corporation that owns
and operates the Chelopech mine. Bimak provides consulting services to Chelopech
and purchases the ore from the Chelopech mine at cost plus a 1% gross royalty.
Homestake has agreed, under certain circumstances, to invest an additional $18
million in Navan BV, which would result in Homestake owning 51% of Navan BV, and
give Homestake the right to become operator of the project. The investment of
the additional $18 million is dependent on certain conditions including, Navan
BV acquiring at least 80% of Chelopech, securing the Chelopech mine concession,
approval by Homestake and Navan of an expansion plan for the mine and mill, and
receipt of financial commitments from lenders for additional funding for the
expansion plan.
J-51
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 12: OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Assets held in trust (see note 16).................................... $ 38,975 $ 25,252
Restricted cash (see note 14)......................................... 15,990
Ore stockpiles (see note 9)........................................... 32,125 43,292
U.S. Government receivable (see note 20).............................. 5,362 10,663
Note receivable--Edensor.............................................. 39,810
Other................................................................. 9,557 9,263
---------- ----------
$ 102,009 $ 128,280
---------- ----------
---------- ----------
</TABLE>
In 1995, the Company provided Edensor Nominees Pty, Ltd ("Edensor") with a
loan facility of $39.8 million and was granted an option to acquire 19.9% of the
issued capital of Great Central Mines Limited ("Great Central") in consideration
for this loan. In July 1996, the Company sold a right to cancel the option to
acquire 19.9% of the shares of Great Central. The Company received, and recorded
in other income, $10.4 million in 1997 and $4.7 million in 1996 with respect to
the cancellation of the option. In 1997, Edensor repaid the amounts borrowed
from the Company.
NOTE 13: ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Accrued payroll and other compensation.................................. $ 23,898 $ 25,212
Accrued reclamation and closure costs................................... 11,818 10,055
Unrealized loss on foreign currency exchange contracts.................. 20,416
Other................................................................... 12,509 14,223
--------- ---------
$ 68,641 $ 49,490
--------- ---------
--------- ---------
</TABLE>
NOTE 14: LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Convertible subordinated notes (due 2000)............................. $ 150,000 $ 150,000
Pollution control bonds
Lawrence County, South Dakota (due 2032)............................ 48,000
Lawrence County, South Dakota (due 2003)............................ 18,000
State of California (due 2004)...................................... 17,000 17,000
Cross-border credit facility (due 2001)............................... 48,855
Plutonic syndicated credit facility (due 2000-2002)................... 110,738
Plutonic credit facility.............................................. 143,317
---------- ----------
374,593 328,317
Less current portion.................................................. 73,649
---------- ----------
$ 374,593 $ 254,668
---------- ----------
---------- ----------
</TABLE>
J-52
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 14: LONG-TERM DEBT (CONTINUED)
CONVERTIBLE SUBORDINATED NOTES: The Company's 5.5% convertible subordinated
notes, which mature on June 23, 2000, are convertible into common shares at a
price of $23.06 per common share and are redeemable by the Company in whole at
any time. Interest on the notes is payable semiannually in June and December.
Issuance costs of $3.9 million were capitalized and are being amortized over the
life of the notes.
POLLUTION CONTROL BONDS: In July 1997, Lawrence County, South Dakota issued
$30 million of South Dakota Solid Waste Disposal Revenue Bonds ("Waste Disposal
Bonds") and $18 million of South Dakota Pollution Control Refunding Revenue
Bonds ("Pollution Control Bonds"), both of which are due in 2032. Proceeds from
the Waste Disposal Bonds were lent to the Company and proceeds from the
Pollution Control Bonds were used to redeem outstanding South Dakota pollution
control bonds. The Company is responsible for funding principal and interest
payments on these bonds. Proceeds from the Waste Disposal Bonds are being used
for construction of a new tailings dam lift and other qualifying expenditures at
the Homestake mine. Qualifying expenditures of $14 million had been incurred
through December 31, 1997. The remaining $16 million, which is held in a trustee
account, is included in "other assets" in the accompanying balance sheet at
December 31, 1997.
The Company pays interest monthly on the pollution control bonds based on
variable short-term, tax-exempt obligation rates. Interest rates at December 31,
1997 and 1996 were 4.6% and 4.3%, respectively. No principal payments are
required until cancellation, redemption or maturity. Bondholders have the right
to tender the bonds for payment at any time on seven days notice. The Company
has arrangements with underwriters to remarket any tendered bonds and also with
a bank to provide liquidity and credit support to the Company and to purchase
and hold for up to 15 months any tendered bonds that the underwriters are unable
to remarket.
CROSS-BORDER CREDIT FACILITY: The Company has a United
States/Canadian/Australian cross-border credit facility providing a total
availability of $275 million. The Company pays a commitment fee of up to 0.225%
per annum on the unused portion of this facility. The credit facility is
available through September 20, 2001 and provides for borrowings in United
States, Canadian or Australian dollars, or gold, or a combination of these. The
credit agreement requires a minimum consolidated net worth of $500 million.
During 1997, HGAL borrowed A$75 million (equal to US$48.9 million at the
December 31, 1997 exchange rate) under the credit agreement primarily for the
repayment of intercompany debt. Interest on these Australian dollar borrowings
is payable quarterly or semiannually, depending on the interest rate period as
determined on each borrowing date, based on the Australian Bank Bill Swap Rate
plus a margin of up to 0.625%. The average interest rate on borrowings
outstanding at December 31, 1997 was 5.25%.
In addition, Prime has an $11 million credit facility. No amount has been
borrowed under this credit agreement.
PLUTONIC SYNDICATED CREDIT FACILITY: In June 1997, Plutonic replaced its
credit facility with an Australian bank with a credit facility with a syndicate
of banks providing a total availability of $260 million (A$400 million),
including a $185.6 million (A$285 million) revolving debt facility that reduces
on stated amortization rates and matures in June 2002 and a $75 million (A$115
million) standby facility which expires in September 1998. The facility provides
for borrowings in either United States or Australian dollars and is subject to a
number of financial covenants. Interest on the revolving facility is based on
the Australian
J-53
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 14: LONG-TERM DEBT (CONTINUED)
Bank Bill Swap Rate plus a margin of 0.33%. The average interest rate on the
$110.7 million (A$170 million) of borrowings outstanding at December 31, 1997
was 5.35%.
The aggregate maturities of long-term debt in the years subsequent to
December 31, 1997 are as follows: $167.9 million in 2000, $67.4 million in 2001,
$74.3 million in 2002 and $65 million in 2004 and thereafter.
NOTE 15: OTHER LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Accrued reclamation and closure costs................................. $ 80,428 $ 54,138
Accrued pension and other postretirement benefit obligations (see note
16)................................................................. 60,942 59,273
Other................................................................. 11,240 10,064
---------- ----------
$ 152,610 $ 123,475
---------- ----------
---------- ----------
</TABLE>
While the ultimate amount of reclamation and site restoration costs to be
incurred in the future is uncertain, the Company has estimated that the
aggregate amount of these costs for operating properties, plus previously
accrued reclamation and remediation liabilities for nonoperating properties,
will be approximately $175 million. This figure includes approximately $9
million of reclamation costs at the Grants uranium facility which will be funded
by the United States Federal Government. At December 31, 1997 the Company had
accrued $92 million for estimated ultimate reclamation and site restoration
costs and remediation liabilities (see notes 13 and 20).
NOTE 16: EMPLOYEE BENEFIT PLANS
PENSION PLANS: The Company has pension plans covering substantially all
United States employees. Plans covering salaried and other nonunion employees
provide pension benefits based on years of service and the employee's highest
compensation during any 60 consecutive months prior to retirement. Plans
covering union employees provide defined benefits for each year of service.
Pension costs for 1997, 1996 and 1995 for Company-sponsored United States
employee plans included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost--benefits earned during the year............. $ 4,308 $ 4,519 $ 3,573
Interest cost on projected benefit obligations............ 15,958 15,319 14,476
Actual net return on assets............................... (43,955) (34,693) (44,788)
Net amortization.......................................... 26,523 20,696 32,405
Pension curtailment gain.................................. (1,868)
---------- ---------- ----------
$ 2,834 $ 3,973 $ 5,666
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
J-54
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 16: EMPLOYEE BENEFIT PLANS (CONTINUED)
Assumptions used in determining net periodic pension cost for 1997, 1996 and
1995 include discount rates of 7%, 7%, and 8%, respectively, an assumed rate of
increase in compensation of 5% for each year and an assumed long-term rate of
return on assets of 8.5% for each year. Assumptions used in determining the
projected benefit obligations at December 31, 1997 and 1996 include discount
rates of 7% and an assumed rate of increase in compensation of 5%.
The funded status and amounts recognized for pension plans in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
PLANS WHERE PLANS WHERE
------------------------ ------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations
Vested benefits........................ $(165,437) $ (15,122) $(162,100) $ (17,700)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Accumulated benefits................... $(186,583) $ (20,035) $(180,800) $ (18,900)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Projected benefits..................... $(210,156) $ (27,195) $(202,200) $ (21,000)
Plan assets at fair value(1)............. 257,147 224,064
----------- ----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation........... 46,991 (27,195) 21,864 (21,000)
Unrecognized net loss (gain)............. (45,960) (1,666) (22,467) 51
Unrecognized net transition obligation
(asset) amortized over 15 years........ (2,810) 365 (3,364) 547
Unrecognized prior service cost
(benefit).............................. (398) 8,020 141 2,459
Additional minimum liability............. (251) (957)
----------- ----------- ----------- -----------
Pension liability recognized in the
consolidated balance sheets............ $ (2,177) $ (20,727) $ (3,826) $ (18,900)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Approximately 99% and 98% of the plan assets were invested in listed stocks
and bonds and the balance was invested in fixed-rate insurance contracts at
December 31, 1997 and 1996, respectively.
Amounts shown under "plans where accumulated benefits exceed assets" at
December 31, 1997 and 1996 consist of liabilities for a nonqualified
supplemental pension plan covering certain employees and a nonqualified pension
plan covering directors of the Company. These plans are unfunded. The Company
has established a grantor trust, consisting of money market funds, mutual funds
and corporate-owned life insurance policies, to provide funding for the benefits
payable under these nonqualified plans and certain other deferred compensation
plans. The grantor trust, which is included in other assets, amounted to $39
million at December 31, 1997 and $25.3 million at December 31, 1996.
Certain of the Company's foreign operations participate in pension plans.
The Company's share of contributions to these plans was $2.3 million in 1997,
$2.1 million in 1996, and $1.6 million in 1995.
J-55
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 16: EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The Company provides medical
and life insurance benefits for certain retired employees, primarily retirees of
the Homestake mine. Retirees generally are eligible for benefits upon retirement
if they are at least age 55 and have completed five years of service. Net
periodic postretirement benefit costs were $2.6 million in 1997, $3.1 million in
1996 and $3.5 million in 1995.
The actuarial assumptions used in determining net periodic postretirement
benefit costs include discount rates of 7% for 1997 and 1996 and 8% for 1995,
initial health care trend rates of 9.5% for 1997, 10% for 1996 and 11.5% for
1995, grading down to an ultimate health care cost trend rate of 5%. The
ultimate trend rate is expected to be achieved by 2006. Actuarial gains and
losses are amortized over five years. The actuarial assumptions used in
determining the Company's accumulated postretirement benefit obligation at
December 31, 1997 and 1996 include a discount rate of 7%. A one percentage-point
increase in the assumed health care cost trend rate would result in an increase
of approximately $5.6 million in the accumulated postretirement benefit
obligation at December 31, 1997 and an increase of approximately $.6 million in
net periodic postretirement benefit costs for 1997.
The following table sets forth amounts recorded in the Company's
consolidated balance sheets at December 31, 1997 and 1996. The Company has not
funded any of its estimated future obligation.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees............................................................ $ (27,000) $ (29,000)
Fully-eligible active plan participants............................. (1,000) (1,000)
Other active plan participants...................................... (9,000) (7,000)
---------- ----------
(37,000) (37,000)
Unrecognized net gain................................................. (4,995) (4,364)
Unrecognized prior service cost....................................... 557 617
---------- ----------
Accumulated postretirement benefit obligation liability recognized in
the consolidated balance sheets..................................... $ (41,438) $ (40,747)
---------- ----------
---------- ----------
</TABLE>
STOCK OPTION AND SHARE RIGHTS PLAN: The Company's 1996 Stock Option and
Share Rights Plan ("1996 Plan") provides for grants of up to 6 million common
shares. At December 31, 1997, stock options and share rights for 1 million
shares were outstanding under the 1996 Plan and stock options for 3.5 million
shares were outstanding under prior plans. The exercise price of each stock
option granted under these plans is equal to or greater than the market price of
the Company's stock on the date of grant and an option's maximum term is ten
years. Options usually vest over a four-year period.
J-56
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 16: EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1997, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF PRICE PER NUMBER OF PRICE PER NUMBER OF PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1..................... 3,738 3,053 3,177
Granted................................ 794 $ 15.11 1,435 $ 19.32 429 $ 15.24
Exercised.............................. (63) 13.99 (743) 6.24 (400) 8.12
Expired................................ (148) 22.04 (7) 16.43 (153) 16.78
----- ----- -----
Balance at December 31................... 4,321 3,738 3,053
----- ----- -----
----- ----- -----
Options exercisable at December 31....... 2,248 1,933 2,102
Fair value of options granted during the
year................................... $ 4.95 $ 4.35 $ 4.91
</TABLE>
The fair value of each stock option is estimated on the date of grant using
a Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 1.7, 1.8 and 1.8 years from the vest date (with
incremental vesting over four years) for 1997, 1996 and 1995, respectively,
expected volatility of 30.9%, 31.7% and 33.3% for 1997, 1996 and 1995,
respectively, a dividend yield of 1%, 1% and 1.3% for 1997, 1996 and 1995,
respectively, and a risk-free interest rate of 6.6%, 5.4% and 6.9% in 1997, 1996
and 1995, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE
PRICES PER SHARE OUTSTANDING CONTRACTUAL LIFE PER SHARE EXERCISABLE PER SHARE
- ------------------ ------------- ---------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$11.79 to $14.90 1,028 5.7 years $ 13.41 659 $ 12.71
15.15 to 15.75 1,338 6.0 years 15.30 394 15.52
15.78 to 19.13 1,374 5.3 years 17.72 658 17.54
19.70 to 39.79 581 3.1 years 27.36 537 27.92
----- -----
4,321 2,248
----- -----
----- -----
</TABLE>
At December 31, 1997 there were .2 million share rights (1996:nil)
outstanding under the 1996 plan. Share rights are converted into common stock
when certain performance measurement or vesting criteria are met.
An additional 5 million and 6 million shares were available for future
grants at December 31, 1997 and 1996, respectively.
The Company elected to use the pro forma disclosure provisions of SFAS 123,
"Accounting for Stock-Based Compensation," and has applied Accounting Principles
Board Opinion 25 and related interpretations in accounting for its stock
options. Accordingly, no compensation cost has been recognized for the Company's
stock options. The compensation cost for share rights is being recognized based
on the fair
J-57
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 16: EMPLOYEE BENEFIT PLANS (CONTINUED)
value of the Company's stock over the period that the performance measurement
and vesting criteria are estimated to be met. Had compensation expense for the
Company's stock options been determined based on the fair value of options at
the grant dates as calculated in accordance with SFAS 123, the Company's net
income and earnings per share for the years ended December 31, 1997, 1996 and
1995 would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
LOSS PER EARNINGS EARNINGS
NET LOSS SHARE NET INCOME PER SHARE NET INCOME PER SHARE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
As reported................... $ (230,606) $ (1.10) $ 45,765 $ 0.22 $ 49,942 $ 0.25
Pro forma..................... (233,317) (1.11) 43,637 0.21 49,323 0.25
</TABLE>
During the initial phase-in period of SFAS 123, disclosures are not likely
to be representative of the pro forma effects on reported net income for future
years, as the disclosures only include the pro forma effects of options granted
on or after January 1, 1995.
OTHER PLANS: Substantially all full-time United States employees of the
Company are eligible to participate in the Company's defined contribution
savings plans. The Company's matching contribution was approximately $2.6
million in 1997, $2.2 million in 1996 and $1.6 million in 1995.
NOTE 17: FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1997 and 1996 the carrying values of the Company's cash and
equivalents and short-term investments, noncurrent investments, long-term debt
and foreign currency options approximated their estimated fair values. The
estimated total liquidation value at December 31, 1997 of the gold forward sales
contracts and the gold put and call option contracts held by the Company at that
date was approximately $110 million. No amounts are included in the accompanying
balance sheet at December 31, 1997 for these contracts (see note 21).
NOTE 18: SHAREHOLDERS' EQUITY
In September 1997, the Company's Board of Directors extended the term of the
Rights Agreement until October 2007 and amended certain terms of the Rights
Agreement. A summary of the amended Rights Agreement is as follows:
Each share of common stock includes and trades with a right. Rights are not
exercisable currently. Rights will become exercisable on a date designated by
the Board of Directors following the commencement of, or announcement of an
intent to commence, a tender offer by any person, entity or group for 15% or
more of the Company's common stock. When so exercisable, each right initially
entitles the owner to purchase from the Company one one-hundredth of a share of
Series A Participating Preferred Stock, par value $1 per share, at a price of
$75 per share (the "Purchase Price"). In addition, if any person, entity or
group (an "Acquiring Person") acquires 15% or more of the Company's common
stock, each right (whether or not previously exercisable) thereafter entitles
the owner (other than an Acquiring Person or its affiliates and associates) to
purchase for the Purchase Price the number of one one-hundredth of a share of
Series A Preferred Stock equal to the Purchase Price divided by one-half of the
market price of the Company's common stock. In lieu of the rights holder
exercising such right, the Board of Directors has the
J-58
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 18: SHAREHOLDERS' EQUITY (CONTINUED)
option to issue, in exchange for each right, one-half of the number of shares of
preferred stock (or common stock having a value equal to the Purchase Price)
that would be issuable on exercise of the right. If the Board of Directors has
not exchanged shares for the rights and the Company engages in a business
combination with an Acquiring Person (or affiliate or associate thereof), the
holder of rights will be entitled to purchase for the Purchase Price (i) common
stock of the surviving company or its publicly held affiliate having a market
value equal to twice the Purchase Price, or (ii) common stock of the surviving
company having a book value equal to twice the Purchase Price if the surviving
company and its affiliates are not publicly held. The numbers of shares and the
Purchase Price are subject to adjustment for stock dividends, stock splits and
other changes in capitalization. The rights expire on October 15, 2007.
NOTE 19: ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest and for income and mining taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest, net of amounts capitalized......................... $ 19,506 $ 18,785 $ 12,143
Income and mining taxes, net of refunds...................... 66,227 15,896 28,574
</TABLE>
Certain investing and financing activities of the Company affected its
financial position but did not affect its cash flows. During the 1995 fourth
quarter and the 1996 first quarter, the Company issued 2.6 million common shares
and 6 million common shares valued at $42.4 million and $99.3 million,
respectively, as part of the purchase consideration in the acquisition of the
HGAL minority interests.
NOTE 20: CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes heavy liabilities on persons who discharge hazardous
substances. The Environmental Protection Agency ("EPA") publishes a National
Priorities List ("NPL") of known or threatened releases of such substances.
GRANTS: Homestake's former uranium millsite near Grants, New Mexico is
listed on the NPL. The EPA asserted that leachate from the tailings contaminated
a shallow aquifer used by adjacent residential subdivisions. Homestake paid the
costs of extending the municipal water supply to the affected homes and
continues to operate a water injection and collection system that has
significantly improved the quality of the aquifer. The Company has
decommissioned and disposed of the mills and has covered the tailings
impoundments at the site. The total future cost for reclamation, remediation,
monitoring and maintaining compliance at the Grants site is estimated to be
$17.5 million.
Title X of the Energy Policy Act of 1992 (the "Act") and subsequent
amendments to the Act authorized appropriations of $335 million to cover the
Federal Government's share of certain costs of reclamation, decommissioning and
remedial action for by-product material (primarily tailings) generated by
certain licensees as an incident of uranium sales to the Federal Government.
Reimbursement is subject to compliance with regulations of the Department of
Energy ("DOE"), which were issued in 1994. Pursuant to the Act, the DOE is
responsible for 51.2% of past and future costs of reclaiming the Grants site in
accordance with Nuclear Regulatory Commission license requirements. Through
December 31,
J-59
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 20: CONTINGENCIES (CONTINUED)
1997, Homestake had received $21 million from the DOE and the accompanying
balance sheet at December 31, 1997 includes an additional receivable of $10.9
million (see notes 8 and 12) for the DOE's share of reclamation expenditures
made by Homestake through 1997. Homestake believes that its share of the
estimated remaining cost of reclaiming the Grants facility is fully provided in
the financial statements at December 31, 1997.
In 1983, the State of New Mexico made a claim against Homestake for
unspecified natural resource damages resulting from the Grants tailings. New
Mexico has taken no action to enforce its claim.
WHITEWOOD CREEK: Whitewood Creek was a site where mining companies
operating in the Black Hills of South Dakota, including Homestake, placed mine
tailings (ground rock) beginning in the nineteenth century. Some tailings placed
in Whitewood Creek eventually flowed into the Belle Fourche River, the Cheyenne
River and Lake Oahe. Placement of mine tailings into Whitewood Creek was
authorized by the laws of the United States, the Dakota territory and the State
of South Dakota, and Whitewood Creek was later specifically designated by the
State of South Dakota as a disposal stream for mine tailings and for the
disposal of raw sewage and other municipal waste. In response to changes in
legal requirements, Homestake ceased the placement of mine tailings into
Whitewood Creek and for many years the Homestake mine has impounded all mine
tailings that are not redeposited in the mine.
Deposits of tailings along an 18-mile stretch of Whitewood Creek formerly
constituted a site on the NPL. The EPA asserted that discharges of tailings by
mining companies, including Homestake, contaminated the soil and streambed.
Homestake signed a Consent Decree with the EPA and carried out remedial work.
The site was deleted from the NPL on August 13, 1996. In the deletion notice,
the EPA stated that "EPA, in consultation with the State of South Dakota, have
determined that the Site poses no significant threat to public health or the
environment."
In September 1997, the State of South Dakota filed an action against
Homestake, alleging that Homestake's disposal of mine tailings in Whitewood
Creek resulted in injuries to natural resources in Whitewood Creek, the Belle
Fourche River, the Cheyenne River and Lake Oahe (collectively the "NRD Site").
The complaint also alleges that the tailings constitute a continuing public
nuisance. The complaint asks for abatement of the nuisance, response costs,
damages in an unspecified amount, litigation costs and interest. In November
1997, the United States Government and the Cheyenne River Sioux Tribe (the
"federal trustees") filed a similar action alleging injuries to natural resource
and seeking response costs, damages in unspecified amounts, litigation costs and
attorneys' fees.
In its answers, Homestake denies that there has been any continuing damage
to natural resources or nuisance as a result of the placement of tailings in
Whitewood Creek. Among other defenses, it is also the position of Homestake that
as a result of the State of South Dakota's ownership of Whitewood Creek and
state and federal designation of Whitewood Creek as an authorized disposal site,
the State of South Dakota and the federal government are responsible for all
past and future damages. Homestake has also counterclaimed against the State of
South Dakota and the federal trustees seeking cost recoupment, contribution and
indemnity.
Homestake intends to vigorously defend this action and to seek recovery,
contribution and indemnity from the State of South Dakota and the federal
trustees for past and future expenditures. Homestake also expects to seek
recovery, contribution and indemnity from other government entities and other
persons
J-60
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 20: CONTINGENCIES (CONTINUED)
who participated in ownership and/or operation of Whitewood Creek as a waste
disposal site or who disposed of waste in the NRD Site.
In the opinion of Homestake, there is no basis for the claims by the State
of South Dakota or by the federal trustees. Homestake is also of the opinion
that Homestake has valid defenses and counterclaims against the State of South
Dakota and the federal trustees, and claims for contribution and indemnity
against other government entities and other persons who participated in
ownership and/or operation of Whitewood Creek as a waste disposal site or who
disposed of waste in the NRD Site. Homestake does not believe that resolution of
these matters will have a material effect on the business or financial condition
or results of operations of Homestake.
OTHER CONTINGENCIES
In addition to the above, the Company is party to legal actions and
administrative proceedings and is subject to claims arising in the ordinary
course of business. The Company believes the disposition of these matters will
not have a material adverse effect on its financial position or results of
operations.
NOTE 21: FOREIGN CURRENCY, GOLD AND OTHER COMMITMENTS
Under the Company's foreign currency protection program, the Company has
entered into a series of foreign currency option contracts which established
trading ranges within which the United States dollar may be exchanged for
foreign currencies by setting minimum and maximum exchange rates. Net unrealized
gains (losses) on contracts outstanding at December 31, 1997 and 1996 were
$(20.4) million and $.3 million, respectively. Other income for the years ended
December 31, 1997, 1996 and 1995 included income (losses) of $(28.5) million,
$1.6 million, and $(.2) million, respectively, related to the foreign currency
protection program. At December 31, 1997 the Company had foreign currency
contracts outstanding as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE EXCHANGE RATES
TO U.S. DOLLARS
AMOUNT COVERED --------------------------------------------- EXPIRATION
CURRENCY (U.S. DOLLARS) PUT OPTIONS CALL OPTIONS FORWARDS DATES
- -------------------------- --------------- --------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Canadian.................. $ 196,040 0.72 0.76 1998
Canadian.................. 67,440 0.71 0.74 1999
Canadian.................. 50,770 0.70 0.73 2000
Australian................ 20,000 0.68 1998
Australian................ 104,750 0.74 0.77 1998
Australian................ 61,600 0.68 0.72 1999
Australian................ 3,000 0.65 0.68 2000
---------------
$ 503,600
---------------
---------------
</TABLE>
In addition to amounts related to the foreign currency option contracts, the
Company recorded mark-to-market foreign currency losses on intercompany debt of
$5.7 million in 1997, $8.9 million in 1996, and $.9 million in 1995 which were
included in other income. These foreign currency exchange losses are
J-61
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 21: FOREIGN CURRENCY, GOLD AND OTHER COMMITMENTS (CONTINUED)
related to the Company's Canadian and Australian dollar denominated advances to
HCI and HGAL, respectively.
During 1997, 1996 and 1995, the Company delivered 535,900, 438,400 and
446,700 ounces of its Australian gold production into Australian dollar
denominated forward gold contracts at average prices of $429, $482 and $440 per
ounce, respectively. At December 31, 1997 the Company had committed 1,227,500
ounces of its future Australian gold production for sale under Australian dollar
denominated forward gold contracts at an average price of $330 (A$507) per
ounce. During 1997, 1996 and 1995, the Company delivered or financially settled
120,100, 70,000 and 113,200 ounces of its North American gold production at
average prices of $385, $421, and $398 per ounce, respectively. At December 31,
1997 the Company had committed 580,000 ounces of its future North American
production for sale through the year 2003 at an average price of $434 per ounce.
At December 31, 1997 the Company's forward sales commitments were as
follows:
<TABLE>
<CAPTION>
US$ DENOMINATED AUSTRALIAN $ DENOMINATED
-------------------------------- --------------------------------
AVERAGE PRICE OF AVERAGE PRICE OF
FORWARD SALES FORWARD SALES FORWARD SALES FORWARD SALES
YEAR (OUNCES) (US$ PER OUNCE) (OUNCES) (US$ PER OUNCE)
- ----------------------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
1998......................... 120,000 $ 399 945,490 $ 315
1999......................... 109,900 415 82,000 423
2000......................... 85,100 430 24,800 343
2001......................... 95,000 441 24,800 343
2002......................... 95,000 457 74,800 397
2003......................... 75,000 481 75,600 343
------------- -------------
580,000 1,227,490
------------- -------------
------------- -------------
</TABLE>
To provide protection against a decrease in gold prices, during the third
quarter of 1997 the Company entered into a series of put and call option
contracts which provide a floor price of $325 per ounce for 900,000 ounces of
Homestake's 1998 gold production. The Company purchased put options for 900,000
ounces of gold exercisable during 1998 at a price of $325 per ounce. The Company
also sold call options for 900,000 ounces of gold exercisable during 1998 at a
price of $325 per ounce and purchased call options for 900,000 ounces of gold
exercisable during 1998 at $336 per ounce. These option contracts were
established at no net cost to the Company.
The Company also purchased put options for 30,000 ounces of gold exercisable
during 2000 at a price of $350 per ounce and sold call options for 15,000 ounces
of gold exercisable during 2000 at an average price of $395 per ounce.
The Company does not require or place collateral for its foreign currency
and gold hedging derivatives. However, the Company minimizes its credit risk by
dealing with only major international banks and financial institutions.
The Company has entered into various commitments during the ordinary course
of its business, which include commitments to perform assessment work and other
obligations necessary to maintain or protect its interests in mining properties,
financing and other obligations to joint ventures and partners under
J-62
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 21: FOREIGN CURRENCY, GOLD AND OTHER COMMITMENTS (CONTINUED)
venture and partnership agreements, and commitments under federal and state
environmental health and safety permits.
NOTE 22: GEOGRAPHIC AND SEGMENT INFORMATION
The Company primarily is engaged in gold mining and related activities.
Interests in joint ventures are included in segment operations and identifiable
assets. Operating earnings, which are defined as operating revenues less
operating costs and exploration expenses, exclude corporate income and expenses,
and income and mining taxes. Identifiable assets represent those assets used in
a segment's operations. Corporate assets are principally cash and equivalents,
short-term investments and assets related to operations not significant enough
to require classification as a business segment.
J-63
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 22: GEOGRAPHIC AND SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
United States(1)(2)......................................... $ 330,698 $ 310,881 $ 349,461
Canada(3)................................................... 261,167 304,530 264,548
Australia(4)................................................ 368,368 378,751 323,784
Latin America............................................... 11,182 4,284 11,458
------------ ------------ ------------
$ 971,415 $ 998,446 $ 949,251
------------ ------------ ------------
------------ ------------ ------------
EXPLORATION EXPENSE
United States............................................... $ 13,902 $ 11,861 $ 12,750
Canada...................................................... 8,406 9,751 2,797
Australia................................................... 25,623 29,844 20,485
Latin America and other..................................... 17,307 15,907 7,249
------------ ------------ ------------
$ 65,238 $ 67,363 $ 43,281
------------ ------------ ------------
------------ ------------ ------------
OPERATING EARNINGS (LOSS)
United States(5)............................................ $ (144,105) $ 23,124 $ 32,623
Canada(3)................................................... 82,186 103,640 86,662
Australia(6)................................................ (87,057) 10,123 32,844
Latin America and other..................................... (16,523) (14,606) (6,544)
------------ ------------ ------------
$ (165,499) $ 122,281 $ 145,585
------------ ------------ ------------
------------ ------------ ------------
IDENTIFIABLE ASSETS AS OF DECEMBER 31
United States............................................... $ 507,845 $ 522,565 $ 618,267
Canada...................................................... 427,388 494,083 432,087
Australia................................................... 658,690 909,195 615,995
Latin America and other..................................... 15,611 13,487 7,041
------------ ------------ ------------
$ 1,609,534 $ 1,939,330 $ 1,673,390
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Includes a gain of $62.9 million in 1997 on the fee received upon
termination of Homestake's merger agreement with Santa Fe Pacific Gold
Corporation.
(2) Includes foreign currency exchange losses of $5.7 million in 1997 and $8.9
million in 1996 related to the Company's Canadian and Australian dollar
denominated advances to HCI and HGAL.
(3) Includes a gain of $13.5 million in 1997 on the sale of the George Lake and
Back River joint venture interests in the Northwest Territories of Canada.
(4) Includes gains of $10.4 million in 1997 and $4.7 million in 1996 with
respect to the cancellation of an option to acquire Great Central Mines
Limited and a gain of $7.9 million in 1996 on the sale of the investment in
Eagle Mining Corporation NL.
(5) Includes write-downs in 1997 of $107.8 million in Homestake's investment in
the Main Pass 299 sulfur mine and $20.8 million in the carrying values of
resource assets.
(6) Includes write-downs in 1997 of $63.9 million in the carrying values of
resource assets.
J-64
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 22: GEOGRAPHIC AND SEGMENT INFORMATION (CONTINUED)
SEGMENT INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Gold........................................................ $ 863,628 $ 923,273 $ 874,114
Sulfur and oil.............................................. 26,821 30,749 40,620
Interest and other(1)(2)(3)................................. 80,966 44,424 34,517
------------ ------------ ------------
$ 971,415 $ 998,446 $ 949,251
------------ ------------ ------------
------------ ------------ ------------
OPERATING EARNINGS (LOSS)
Gold(3)(4).................................................. $ (54,112) $ 121,009 $ 139,892
Sulfur and oil(5)........................................... (111,387) 1,272 5,693
------------ ------------ ------------
Operating earnings (loss)................................... (165,499) 122,281 145,585
Net corporate expense(1)(2)(6)(7)........................... (80,556) (40,920) (35,264)
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES AND MINORITY INTERESTS............. $ (246,055) $ 81,361 $ 110,321
------------ ------------ ------------
------------ ------------ ------------
DEPRECIATION, DEPLETION AND AMORTIZATION
Gold........................................................ $ 155,924 $ 144,171 $ 115,675
Sulfur and oil.............................................. 5,013 6,302 8,055
Corporate................................................... 1,844 1,379 1,909
------------ ------------ ------------
$ 162,781 $ 151,852 $ 125,639
------------ ------------ ------------
------------ ------------ ------------
EXPLORATION EXPENSE
Gold........................................................ $ 65,238 $ 67,363 $ 43,281
------------ ------------ ------------
------------ ------------ ------------
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Gold(8)..................................................... $ 200,991 $ 325,490 $ 175,150
Sulfur and oil.............................................. 1,181 1,541 1,604
Corporate................................................... 2,457 1,212 2,083
------------ ------------ ------------
$ 204,629 $ 328,243 $ 178,837
------------ ------------ ------------
------------ ------------ ------------
IDENTIFIABLE ASSETS AS OF DECEMBER 31
Gold........................................................ $ 1,248,797 $ 1,477,079 $ 1,183,165
Sulfur and oil.............................................. 15,181 126,499 134,990
Corporate:
Cash and equivalents and short-term investments........... 265,304 234,815 248,264
Other..................................................... 80,252 100,937 106,971
------------ ------------ ------------
$ 1,609,534 $ 1,939,330 $ 1,673,390
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Includes a gain of $62.9 million in 1997 on the fee received upon
termination of Homestake's merger agreement with Santa Fe Pacific Gold
Corporation, gains of $10.4 million in 1997 and $4.7 million in 1996 with
respect to the cancellation of an option to acquire Great Central Mines
Limited and a gain of $7.9 million in 1996 on the sale of the investment in
Eagle Mining Corporation NL.
J-65
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 22: GEOGRAPHIC AND SEGMENT INFORMATION (CONTINUED)
(2) Includes foreign currency exchange losses of $5.7 million in 1997 and $8.9
million in 1996 related to the Company's Canadian and Australian dollar
denominated advances to HCI and HGAL.
(3) Includes gains in 1997 of $13.5 million on the sale of the George Lake and
Back River joint venture interests in the Northwest Territories of Canada.
(4) Includes write-downs in 1997 of $84.7 million in the carrying values of
resource assets.
(5) Includes a write-down in 1997 of $107.8 million on Homestake's investment in
the Main Pass 299 sulfur mine.
(6) Includes, in 1997, write-downs of $47.9 million in the carrying value of
investments in mining company securities, an increase of $29.1 million in
the accrual for estimated future reclamation expenditures, and $15.8 million
in other charges, primarily foreign exchange losses on intercompany
redeemable preferred stock and losses on an intercompany gold loan.
(7) Includes write-downs in 1996 of $9 million in the carrying value of
investments in mining company securities.
(8) Includes additions to property, plant and equipment of $35.6 million in 1996
related to the purchase of Cominco's 60% interest in the Snip mine and
additions of $122.6 million and $68.7 million in 1996 and 1995,
respectively, related to the acquisition of the 18.5% of HGAL the Company
did not already own (including deferred tax purchase adjustments of $32.5
million and $18.2 million, respectively).
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 specifies revised guidelines for
determining an entity's operating segments and the type and level of financial
information to be disclosed. SFAS 131 is effective for fiscal years beginning
after December 15, 1997. Adoption of SFAS 131 will not have a material impact on
Homestake's current geographic and segment disclosures.
Sales to individual customers exceeding 10% of the Company's consolidated
revenues were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Customer A............................................... $ 143,000 $ 117,000 $ 102,000
B............................................... 104,500 42,700 --
C............................................... 100,000 129,000 92,000
D............................................... 96,200 140,400 171,300
E............................................... -- -- 101,000
</TABLE>
Because of the active worldwide market for gold, Homestake believes that the
loss of any of these customers would not have a material adverse impact on the
Company.
NOTE 23: SUBSEQUENT EVENT--PRIME RESOURCES GROUP INC.
On May 25, 1998 Homestake announced that it had informed the Board of
Directors of Prime of its offer to acquire the 49.4% of Prime held by the
public. Under the terms of Homestake's offer, Prime shareholders would receive
at their election Homestake common shares or Homestake Canada Inc.
J-66
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 23: SUBSEQUENT EVENT--PRIME RESOURCES GROUP INC. (CONTINUED)
("HCI") exchangeable shares in exchange for their Prime shares. Each HCI
exchangeable share would be exchangeable for one Homestake common share at any
time at the option of the holder, and would have dividend and voting rights
essentially equivalent to those of one Homestake common share. Completion of the
transaction would be subject to approval by the British Columbia Supreme Court
and by Prime's shareholders, and the Homestake stockholders must vote to adopt a
Restated Certificate of Incorporation that, among other things, authorizes the
Homestake common shares necessary to effect the Arrangement.
HCI is a wholly-owned subsidiary of the Company. Summarized financial
information for HCI is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets................................................... $ 160,966 $ 191,896
Noncurrent assets................................................ 260,278 296,187
------------ ------------
Total assets................................................... $ 421,244 $ 488,083
------------ ------------
------------ ------------
Notes payable to Parent.......................................... $ 23,459 $ 80,637
Other current liabilities........................................ 27,768 50,842
Long-term liabilities............................................ 24,893 15,302
Deferred income and mining taxes................................. 101,090 107,338
Minority interests............................................... 96,877 91,428
Redeemable preferred stock held by Parent........................ 49,929 55,796
Shareholders' equity............................................. 97,228 86,740
------------ ------------
Total liabilities and shareholders' equity..................... $ 421,244 $ 488,083
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Total revenues........................................... $ 261,167 $ 317,821 $ 277,381
Costs and expenses....................................... 210,575 206,731 193,561
---------- ---------- ----------
Income before taxes and minority interests............... $ 50,592 $ 111,090 $ 83,820
---------- ---------- ----------
---------- ---------- ----------
Net income............................................... $ 9,953 $ 63,705 $ 31,598
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 24: SUBSEQUENT EVENT--MT CHARLOTTE (UNAUDITED)
On September 15, 1998, Homestake and Normandy Mining Limited announced that
a revised mining plan would be implemented for the Mt Charlotte underground mine
at Kalgoorlie, Western Australia. The decision was reached following an
evaluation of economic factors and an accelerated level of ground movement in
the mine. Following recent ground movement, a panel of rock mechanics experts
concluded that mining could be conducted safely by restricting mining to low
risk areas of the mine. The new mine plan contemplates extraction of
approximately 1.5 million tons of ore over the next twelve months. Performance
of the mine will be monitored during this time to determine whether the
operation will
J-67
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 24: SUBSEQUENT EVENT--MT CHARLOTTE (UNAUDITED) (CONTINUED)
continue beyond that period. As a result of the new operating plan,
approximately 50% of the Mt Charlotte employees will be laid off. Homestake
expects to record a charge of US$25 million (US$37 million pretax) during the
third quarter of 1998 for severance, unrecovered capital and other costs.
J-68
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors of
Homestake Mining Company:
We have audited the consolidated balance sheets of Homestake Mining Company
and Subsidiaries as of December 31, 1997 and 1996, and the related statements of
consolidated operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997, restated for all periods
presented to give effect to the business combination with Plutonic Resources
Limited on April 30, 1998, accounted for as a pooling of interests. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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 the audit to obtain
reasonable assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Homestake
Mining Company and Subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
- -------------------------
Coopers & Lybrand L.L.P.
San Francisco, California
May 21, 1998, except for
Note 23 as to which the
date is May 25, 1998.
J-69
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
QUARTERLY SELECTED DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
----------- ----------- -----------
<S> <C> <C> <C>
1997:
Revenues...................... $ 317,338 $ 226,060 $ 217,737
Net income (loss)............. 48,256(1) (64,857)(2) (155,561)(3)
Per common share:
Net income (loss)(10)....... $ 0.23(1) (0.31)(2) (0.74)(3)
Dividends paid(11).......... 0.05 0.05 0.05
1996:
Revenues...................... $ 223,230 $ 265,933 $ 265,580
Net income.................... 4,375(5) 18,252(6) 7,134(7)
Per common share:
Net income(10).............. $ 0.02(5) $ 0.09(6) $ 0.03(7)
Dividends paid(11).......... 0.05 0.05 0.05
<CAPTION>
FOURTH
QUARTER YEAR
----------- ---------------
<S> <C><C> <C>
1997:
Revenues...................... $ 210,280 $ 971,415
Net income (loss)............. (58,444)(4) (230,606)(1)(2)(3)(4)
Per common share:
Net income (loss)(10)....... (0.28)(4) (1.10)(1)(2)(3)(4)
Dividends paid(11).......... 0.15
1996:
Revenues...................... $ 243,703 $ 998,446
Net income.................... 16,004(7)(8)(9) 45,765(5)(6)(7)(8)(9)
Per common share:
Net income(10).............. $ 0.08(7)(8)(9) $ 0.22(5)(6)(7)(8)(9)
Dividends paid(11).......... 0.05 0.20
</TABLE>
- --------------------------
(1) Includes a gain of $47.2 million ($62.9 million pretax) or $0.22 per share
on the fee received upon termination of Homestake's merger agreement with
Santa Fe Pacific Gold Corporation and a gain of $8.1 million ($13.5 million
pretax) or $0.04 per share on the sale of the George Lake and Back River
joint venture interests in the Northwest Territories of Canada.
(2) Includes write-downs and unusual charges of $50 million ($65.1 million
pretax) or $0.24 per share including (i) a reduction of $31.9 million ($45
million pretax) in the carrying value of resource assets, (ii) write-downs
of $14.5 million ($14.5 million pretax) of certain mining investments, and
(iii) other charges of $3.6 million ($5.6 million pretax).
(3) Includes write-downs and unusual charges of $145.1 million ($183.6 million
pretax) or $0.69 per share including (i) a write-down of $84.9 million
($107.8 million pretax) in Homestake's investment in the Main Pass 299
sulfur mine, (ii) a reduction of $18.2 million ($24.3 million pretax) in the
carrying values of resource assets, (iii) an increase of $21.5 million
($29.1 million pretax) in the estimated accrual for future reclamation
expenditures, (iv) write-downs of $14.7 million ($16.5 million pretax) of
certain mining investments, and (v) other charges of $5.8 million ($5.9
million pretax) primarily related to foreign exchange losses on intercompany
redeemable preferred stock.
(4) Includes write-downs and unusual charges of $29.8 million ($36.6 million
pretax) or $0.14 per share including (i) a reduction of $10 million ($15.4
million pretax) in the carrying values of resource assets, (ii) write-downs
of $16.4 million ($16.9 million pretax) of certain mining investments, and
(iii) other charges of $3.3 million ($4.3 million pretax) primarily losses
on an intercompany gold loan.
(5) Includes income of $4.9 million ($5.5 million pretax) or $0.02 per share
from a litigation recovery.
(6) Includes a gain of $7.9 million ($7.9 million pretax) or $0.04 per share on
the sale of the investment in Eagle Mining Corporation NL.
(7) Includes $2.7 million or $0.01 per share and $21.3 million or $0.10 per
share in the third and fourth quarters, respectively, for reductions in the
Company's accrual for prior year income taxes.
(8) Includes foreign currency exchange losses on intercompany advances of $7.2
million ($8.7 million pretax) or $0.03 per share and $7.4 million ($8.9
million pretax) or $0.04 per share in the 1996 fourth quarter and
year-to-date periods, respectively, primarily related to the Company's
Canadian-dollar denominated advances to HCI.
(9) Includes write-downs of $8.3 million ($9 million pretax) or $0.04 per share
in the carrying value of investments in mining company securities.
(10) Basic and diluted earnings per share.
(11) Homestake only.
J-70
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
FIVE-YEAR SELECTED DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 971,415 $ 998,446 $ 949,251 $ 829,935 $ 855,834
Net income (loss)............. (230,606)(2) 45,765(3) 49,942 93,631(4) 68,734(5)
Net income (loss) per
share(6).................... (1.10)(2) 0.22(3) 0.25 0.47(4) 0.36(5)
Total assets.................. 1,609,534 1,939,330 1,673,390 1,460,968 1,355,928
Long-term debt................ 374,593 254,668 274,292 188,085 198,266
Other long-term obligations... 152,610 123,475 127,558 111,065 93,685
Deferred income and mining
taxes....................... 161,862 218,379 202,607 147,278 173,258
Minority interest............. 108,116 103,960 100,380 94,140 55,164
Shareholders' equity.......... 683,505 1,023,825 848,640 799,376 700,545
Dividends per share(7)........ 0.15 0.20 0.20 0.175 0.10
</TABLE>
- ------------------------
(1) Five-year selected financial data reflects the 1998 combination of Homestake
and Plutonic on a pooling-of-interests basis, accordingly all periods have
been restated.
(2) Includes a gain of $47.2 million ($62.9 million pretax) or $0.22 per share
on the fee received upon termination of Homestake's merger agreement with
Santa Fe Pacific Gold Corporation, a gain of $10.4 million ($10.4 million
pretax) or $0.05 per share with respect to the cancellation of an option to
acquire Great Central Mines Limited, and a gain of $8.1 million ($13.5
million pretax) or $0.04 per share on the sale of the George Lake and Back
River joint venture interests in the Northwest Territories of Canada, and
write-downs and unusual charges of $224.9 million ($285.3 million pretax) or
$1.07 per share including (i) a write-down of $84.9 million ($107.8 million
pretax) in Homestake's investment in the Main Pass 299 sulfur mine, (ii) a
reduction of $60.1 million ($84.7 million pretax) in the carrying values of
resource assets, (iii) write-downs of $45.7 million ($47.9 million pretax)
of certain investments, (iv) an increase of $21.5 million ($29.1 million
pretax) in the accrual for estimated future reclamation expenditures, and
(v) other charges of $12.7 million ($15.8 million pretax) consisting
primarily of foreign exchange losses on intercompany redeemable preferred
stock and losses on an intercompany gold loan.
(3) Includes income of $24 million or $0.11 per share from a reduction in the
Company's accrual for prior year income taxes, a gain of $7.9 million ($7.9
million pretax) or $0.04 per share from the sale of the investment in Eagle
Mining Corporation NL, a foreign currency exchange loss on intercompany
advances of $7.4 million ($8.9 million pretax) or $0.04 per share primarily
related to the Company's Canadian-dollar denominated advances to HCI,
write-downs of $8.3 million ($9 million pretax) or $0.04 per share in the
carrying values of investments in mining company securities, and proceeds of
$4.9 million ($5.5 million pretax) or $0.02 per share from a litigation
recovery.
(4) Includes a gain of $12.6 million ($15.7 million pretax) or $0.06 per share
on the sale of the Company's interest in the Dee mine and a gain of $11.2
million ($11.2 million pretax) or $0.06 per share on dilution of the
Company's interest in Prime.
(5) Includes expense of $12.8 million ($16 million pretax) or $0.07 per share
for the write-down of oil assets at Main Pass 299 and expense of $6.8
million ($8.2 million pretax) or $0.03 per share for restructuring and
business combination costs.
(6) Basic and diluted earnings per share.
(7) Homestake only.
J-71
<PAGE>
APPENDIX K
MAPS SHOWING
LOCATIONS OF
HOMESTAKE AND PRIME MINES
K-1
<PAGE>
LOCATION OF HOMESTAKE MINING COMPANY
AND PRIME RESOURCES GROUP INC.
OPERATIONS, BRITISH COLUMBIA
[MAPS IDENTIFYING THE LOCATIONS OF THE OPERATIONS AT SNIP AND ESKAY CREEK.]
K-2
<PAGE>
LOCATION OF HOMESTAKE MINING COMPANY
OPERATIONS, WESTERN AUSTRALIA
[MAPS IDENTIFYING THE LOCATIONS OF THE OPERATIONS AT PEAK HILL, PLUTONIC,
BELLEVUE, LAWLERS, DARLOT/CENTENARY, MT MORGANS AND KALGOORLIE.]
K-3
<PAGE>
LOCATION OF HOMESTAKE MINING COMPANY
OPERATIONS, NEVADA
[MAPS IDENTIFYING THE LOCATIONS OF THE OPERATIONS AT PINSON, MARIGOLD, RUBY HILL
AND ROUND MOUNTAIN.]
K-4
<PAGE>
LOCATION OF HOMESTAKE MINING COMPANY
OPERATIONS, ONTARIO
[MAPS IDENTIFYING THE LOCATION OF THE OPERATIONS AT WILLIAMS / DAVID BELL.]
K-5
<PAGE>
LOCATION OF HOMESTAKE MINING COMPANY
OPERATIONS, CALIFORNIA
[MAPS IDENTIFYING THE LOCATION OF THE OPERATION AT MCLAUGHLIN.]
K-6
<PAGE>
LOCATION OF HOMESTAKE MINING COMPANY
OPERATIONS, SOUTH DAKOTA
[MAPS IDENTIFYING THE LOCATION OF THE OPERATION AT THE HOMESTAKE GOLD MINE.]
K-7
<PAGE>
LOCATION OF HOMESTAKE MINING COMPANY
OPERATIONS, NORTHERN CHILE
[MAPS IDENTIFYING THE LOCATION OF THE OPERATION AT AGUA DE LA FALDA.]
K-8
<PAGE>
PROXY
HOMESTAKE MINING COMPANY
650 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94108
SPECIAL MEETING OF STOCKHOLDERS - __________, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack E. Thompson, Gene G. Elam and Wayne
Kirk as proxies, each with the power to appoint a substitute, and hereby
authorizes a majority (or if only one, then that one) of them to represent
and to vote, as designated on the reverse side, all shares of common stock of
Homestake Mining Company held of record by the undersigned on _________, 1998
at the special meeting of stockholders, or any postponement or adjournment
thereof.
[X] Please mark votes as in this example.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL NUMBER 1 AND PROPOSAL NUMBER 2.
1. Approval to adopt a Restated Certificate of Incorporation of Homestake
which will (i) increase the number of authorized shares of Homestake
Common Stock from 250,000,000 to 450,000,000 shares, (ii) increase the
number of authorized shares of Series A Preferred Stock from 2,500,000
to 4,500,000 shares, (iii) create one share of Special Voting Stock,
and (iv) make certain technical changes, primarily to reflect the
existence of the Special Voting Stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Approval of the 1998 Outside Directors' Stock Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
By execution of this proxy the undersigned hereby authorizes such proxies or
their substitutes to vote in their discretion on such other business as may
properly come before the meeting.
Sign exactly as name appears on this proxy card. If shares are held jointly,
each holder should sign. Executors, administrators, trustees, guardians,
attorneys and agents should give their full titles. If stockholder is a
corporation, sign in full corporate name by an authorized officer.
Signature: Date: Signature: Date:
------------------- ------- ------------------- -------
