<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BATTLE MOUNTAIN GOLD 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2),
or Item 22(a) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
Common Shares of Hemlo Gold Mines Inc.
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
100,065,082(1)
- --------------------------------------------------------------------------------
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):
$14.0625(2)
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$1,407,164,465
- --------------------------------------------------------------------------------
5) Total fee paid:
$281,433
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / 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:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3) Filing Party:
- --------------------------------------------------------------------------------
4) Date Filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Number of outstanding Common Shares of Hemlo Gold Mines Inc. as of March 31,
1996.
(2) Calculated based on the average of the high and low prices of Common Shares
of Hemlo Gold Mines Inc. on the American Stock Exchange on April 8, 1996.
<PAGE> 2
BATTLE MOUNTAIN GOLD COMPANY
333 Clay Street, 42nd Floor
Houston, Texas 77002-4103
June 7, 1996
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Battle Mountain Gold Company, which will be held at the Doubletree Hotel at One
Allen Center, 400 Dallas Street, Houston, Texas, on July 15, 1996 at 1:30 p.m.
On March 11, 1996, Battle Mountain and Hemlo Gold Mines Inc. entered into
an agreement to combine the two companies. We regard the combination with Hemlo
Gold as an event of singular importance in the history of our Company. The
combination is expected to create the fifth largest North American-based gold
producer. It presents an opportunity for Battle Mountain to diversify its
production and proven and probable reserve base to include eight mines on three
continents, expected to produce about 1 million ounces of gold in 1996. The
combined company will have two flagship mines, Kori Kollo in Bolivia and the
Golden Giant in Ontario.
Your Board of Directors believes the larger size of the combined company
coupled with continued low cash production costs will result in a top tier "pure
play" international precious metals mining company with the expertise and
financial capability to grow by bringing existing development projects into
production and carrying out a strong international exploration effort. We
believe the combination will result in a new critical mass and create
opportunities unavailable to either company standing alone. The name of the
combined enterprise will remain Battle Mountain Gold Company, with headquarters
in Houston.
At the annual meeting, you will be asked to approve and adopt the
definitive agreement relating to the combination and the transactions
contemplated thereby and certain related amendments to Battle Mountain's
articles of incorporation. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR APPROVAL AND ADOPTION OF THESE MATTERS.
In the combination, each share of Hemlo Gold will be exchanged for 1.48
shares of a new class of "Exchangeable Shares" of Hemlo Gold. The Exchangeable
Shares will entitle their holders to dividends economically equivalent to
dividends paid on the Battle Mountain Common Stock and will also carry the right
to vote at meetings of stockholders of Battle Mountain. They are also
exchangeable at any time for Battle Mountain Common Stock at the option of the
holder. Hemlo Gold will become a subsidiary of Battle Mountain and be renamed
Battle Mountain Canada Inc. The Exchangeable Share structure is designed to
provide an opportunity for shareholders of Hemlo Gold to achieve tax deferral in
certain circumstances, as described in the attached Joint Management Information
Circular and Proxy Statement.
Other matters to be considered at the annual meeting will include the
election of directors, amendments to our stock incentive plan to increase the
number of shares available and allow for future awards of Exchangeable Shares,
and other routine matters.
WE URGE YOU TO CONSIDER CAREFULLY THE IMPORTANT MATTERS DESCRIBED IN THE
ATTACHED JOINT MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT. The document
is lengthy because of the complexity of the Exchangeable Share structure and the
use of the document to obtain the necessary approvals of both the Battle
Mountain and Hemlo Gold stockholders and satisfy legal requirements of both the
United States and Canada. A summary of some of the more important information in
the document begins on page 1, and is a useful place to begin your review.
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE AS SOON AS POSSIBLE. This action will not limit your right to vote in
person if you wish to attend the annual meeting and vote personally.
Sincerely yours,
/s/ Karl E. Elers
Karl E. Elers
Chairman of the Board
<PAGE> 3
BATTLE MOUNTAIN GOLD COMPANY
333 Clay Street, 42nd Floor
Houston, Texas, U.S.A. 77002-4103
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 15, 1996
TO THE STOCKHOLDERS
OF BATTLE MOUNTAIN GOLD COMPANY:
The annual meeting of stockholders of Battle Mountain Gold Company ("Battle
Mountain") will be held at the Doubletree Hotel at One Allen Center, 400 Dallas
Street, Houston, Texas, on July 15, 1996 at 1:30 p.m., for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Combination Agreement effective as of March 11, 1996 by and between Battle
Mountain and Hemlo Gold Mines Inc. and the transactions contemplated
thereby, including the amendment of Battle Mountain's Restated Articles of
Incorporation to increase the number of shares of Battle Mountain's Common
Stock authorized for issuance from 200,000,000 to 500,000,000, increase the
number of shares of Battle Mountain's Preferred Stock authorized for
issuance from 20,000,000 to 50,000,000, authorize one share of a new class
of stock, designated Special Voting Stock, par value US$0.10 per share, and
provide for the relative rights of such class;
2. To elect three directors;
3. To consider and vote upon a proposal to amend Battle Mountain's
1994 Long-Term Incentive Plan, in connection with the approval of the
Combination Agreement referred to in proposal 1, to increase the number of
shares of Battle Mountain's Common Stock authorized for issuance under the
Plan to 10,000,000 and to provide that stock options and other stock awards
under the Plan may include awards relating to Exchangeable Shares of Hemlo
Gold Mines Inc. as well as Common Stock of Battle Mountain;
4. To ratify the appointment of Price Waterhouse LLP as Battle
Mountain's independent accountants for 1996; and
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on May 28, 1996 as
the record date for determining stockholders entitled to notice of and to vote
at the meeting.
You are cordially invited to attend the meeting; however, you are requested
to mark, sign, date and return the accompanying proxy as soon as possible.
By Order of the Board of Directors
/s/ Robert J. Quinn
Robert J. Quinn
Vice President, General Counsel and
Secretary
June 7, 1996
333 Clay Street, 42nd Floor
Houston, Texas, U.S.A. 77002
<PAGE> 4
<TABLE>
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BATTLE MOUNTAIN GOLD COMPANY HEMLO GOLD MINES INC.
333 Clay Street, 42nd Floor 1 Adelaide Street East, Suite 2902
Houston, Texas, U.S.A. 77002-4103 Toronto, Ontario, Canada M5C 2Z9
</TABLE>
JOINT MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT
This Joint Management Information Circular and Proxy Statement ("Joint
Proxy Statement") is being furnished to holders of common stock, par value
US$0.10 per share ("Battle Mountain Common Stock"), of Battle Mountain Gold
Company, a Nevada corporation ("Battle Mountain"), in connection with the
solicitation of proxies by the Board of Directors of Battle Mountain for use at
the annual meeting of Battle Mountain stockholders to be held on July 15, 1996
and any adjournment or postponement thereof (the "Battle Mountain Stockholders
Meeting").
This Joint Proxy Statement is also being furnished to holders of Common
Shares ("Hemlo Gold Common Shares") of Hemlo Gold Mines Inc., an Ontario
corporation ("Hemlo Gold"), in connection with the solicitation of proxies by
the management of Hemlo Gold for use at the annual and special meeting of Hemlo
Gold shareholders to be held on July 15, 1996 and any adjournment or
postponement thereof (the "Hemlo Gold Shareholders Meeting").
At the Battle Mountain Stockholders Meeting and the Hemlo Gold Shareholders
Meeting, holders of shares of Battle Mountain Common Stock and Hemlo Gold Common
Shares, respectively, will be asked to consider and vote upon (i) in the case of
holders of Battle Mountain Common Stock, a proposal to approve and adopt the
Combination Agreement effective as of March 11, 1996 by and between Battle
Mountain and Hemlo Gold (the "Combination Agreement") and the transactions
contemplated thereby, including the amendment of Battle Mountain's Restated
Articles of Incorporation (the "Battle Mountain Articles") to increase the
number of shares of Battle Mountain Common Stock authorized for issuance from
200,000,000 to 500,000,000, increase the number of shares of Battle Mountain
Preferred Stock, par value US$1.00 per share (the "Battle Mountain Preferred
Stock"), authorized for issuance from 20,000,000 to 50,000,000, authorize one
share of a new class of stock, designated special voting stock, par value
US$0.10 per share (the "Special Voting Stock"), and provide for the relative
rights of such class, and (ii) in the case of holders of Hemlo Gold Common
Shares, a special resolution to approve the arrangement (the "Arrangement")
contemplated by the Combination Agreement. Pursuant to the Arrangement, each
outstanding Hemlo Gold Common Share will be exchanged for 1.48 Exchangeable
Shares of Hemlo Gold (the "Exchangeable Shares"), Battle Mountain will become
the beneficial owner of all of the outstanding Hemlo Gold Common Shares and
Hemlo Gold will change its name to Battle Mountain Canada Inc.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO APPROVAL OF THE PROPOSALS AND AN INVESTMENT IN THE SECURITIES REFERRED TO
HEREIN.
(Continued on next page)
------------------------
This Joint Proxy Statement and the accompanying form of proxy are first
being mailed to stockholders of Battle Mountain on or about June 11, 1996.
THE SECURITIES TO BE ISSUED IN THE TRANSACTION HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement is June 7, 1996.
<PAGE> 5
The Exchangeable Shares will be created pursuant to the Arrangement and
will be exchangeable by a holder thereof, at any time, on a one-for-one basis
for shares of Battle Mountain Common Stock. Holders of Exchangeable Shares will
be entitled to receive dividends economically equivalent to any dividends paid
on the Battle Mountain Common Stock, and in accordance with the Voting, Support
and Exchange Trust Agreement to be entered into among Battle Mountain, Hemlo
Gold and The R-M Trust Company, as trustee (the "Trustee") (the "Voting, Support
and Exchange Trust Agreement"), Battle Mountain will be restricted from paying
dividends on the Battle Mountain Common Stock unless equivalent dividends are
paid on the Exchangeable Shares. Holders of Exchangeable Shares (other than
Battle Mountain and certain subsidiaries of Battle Mountain) will also be able
to exercise the same voting rights with respect to Battle Mountain as they would
have after exchange of their Exchangeable Shares for Battle Mountain Common
Stock. These voting rights will be provided by means of the issuance by Battle
Mountain to the Trustee of the one share of Special Voting Stock, which will
entitle the Trustee to the number of votes per share on all matters on which
holders of Battle Mountain Common Stock may vote equal to the number of
Exchangeable Shares outstanding from time to time that are not held by Battle
Mountain or certain subsidiaries of Battle Mountain. Holders of Exchangeable
Shares will also be entitled to participate in any liquidation of Battle
Mountain on the same basis as holders of Battle Mountain Common Stock. See "THE
TRANSACTION -- Transaction Mechanics and Description of Exchangeable Shares."
At the Battle Mountain Stockholders Meeting, holders of Battle Mountain
Common Stock also will be asked (a) to elect three directors to the Battle
Mountain Board of Directors, (b) to vote upon a proposal to amend Battle
Mountain's 1994 Long-Term Incentive Plan (the "Battle Mountain Incentive Plan"),
in connection with the approval of the Combination Agreement, to increase the
number of shares of Battle Mountain Common Stock authorized for issuance under
the Plan to 10,000,000 shares and to provide that stock options and other stock
awards under the Plan may include awards relating to Exchangeable Shares as well
as Battle Mountain Common Stock and (c) to ratify the appointment of Price
Waterhouse LLP as Battle Mountain's independent accountants for 1996.
At the Hemlo Gold Shareholders Meeting, the Hemlo Gold shareholders also
will be asked to elect nine directors to the Hemlo Gold Board of Directors and
to vote on a resolution to appoint Ernst & Young as Hemlo Gold's independent
auditors and to authorize the directors to fix their remuneration.
Upon consummation of the Combination Agreement, the Battle Mountain Board
of Directors will consist of 12 directors, six of whom are currently directors
of Battle Mountain and six of whom will be designated by the Hemlo Gold Board of
Directors. Under the Battle Mountain Articles, the board is classified into
three groups of approximately equal size. Upon consummation of the Combination
Agreement, two members of each class will be current directors of Battle
Mountain and two members of each class will be designated by the Hemlo Gold
Board of Directors. See "THE COMPANIES AFTER THE TRANSACTION -- Management."
All information in this Joint Proxy Statement relating to Battle Mountain
has been supplied by Battle Mountain, and all information relating to Hemlo Gold
has been supplied by Hemlo Gold.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Joint Proxy Statement does not constitute an offer to
sell, or a solicitation of an offer to purchase, any securities, or the
solicitation of a proxy, by any person in any jurisdiction in which such an
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to any person to whom it is
unlawful to make such an offer or solicitation of an offer or proxy
solicitation. Neither delivery of this Joint Proxy Statement nor any
distribution of the securities referred to in this Joint Proxy Statement shall,
under any circumstances, create an implication that there has been no change in
the information set forth herein since the date of this Joint Proxy Statement.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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SUMMARY............................................................................ 1
RISK FACTORS....................................................................... 11
GLOSSARY OF CERTAIN TERMS RELATING TO THE TRANSACTION.............................. 16
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES..................................... 21
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS......................................... 21
COMPARATIVE MARKET PRICE DATA...................................................... 22
COMPARATIVE PER SHARE DATA......................................................... 23
SELECTED HISTORICAL FINANCIAL DATA................................................. 24
Battle Mountain............................................................... 24
Hemlo Gold.................................................................... 25
PRO FORMA FINANCIAL INFORMATION.................................................... 26
SELECTED PRO FORMA OPERATING DATA.................................................. 34
THE MEETINGS -- GENERAL PROXY INFORMATION.......................................... 38
Battle Mountain............................................................... 38
Hemlo Gold.................................................................... 39
THE TRANSACTION.................................................................... 40
Background of the Transaction................................................. 40
Reasons for the Transaction................................................... 41
Board Recommendations......................................................... 44
Opinions of Financial Advisors................................................ 44
Interests of Certain Persons in the Transaction............................... 50
Transaction Mechanics and Description of Exchangeable Shares.................. 52
The Combination Agreement..................................................... 55
Other Agreements.............................................................. 61
Court Approval of the Arrangement and Completion of the Transaction........... 62
Anticipated Accounting Treatment.............................................. 62
Procedures for Exchange of Share Certificates by Hemlo Gold Shareholders...... 63
Stock Exchange Listings....................................................... 63
Eligibility for Investment in Canada.......................................... 64
Regulatory Matters............................................................ 64
Resale of Exchangeable Shares and Battle Mountain Common Stock Received in the
Transaction.................................................................. 66
Ongoing Canadian Reporting Obligations........................................ 67
Future Issuances of Authorized Shares......................................... 67
THE COMPANIES AFTER THE TRANSACTION................................................ 68
The Combination -- General.................................................... 68
Management.................................................................... 68
Plans and Proposals........................................................... 70
Principal Holders of Securities............................................... 71
Battle Mountain Capital Stock................................................. 72
Battle Mountain Canada Share Capital.......................................... 75
Voting, Support and Exchange Trust Agreement.................................. 80
Independent Accountants....................................................... 82
Transfer Agents and Registrars................................................ 82
TAX CONSIDERATIONS TO HEMLO GOLD SHAREHOLDERS...................................... 82
Canadian Federal Income Tax Considerations to Hemlo Gold Shareholders......... 82
Shareholders Resident in Canada............................................... 83
Shareholders Not Resident in Canada........................................... 87
United States Federal Tax Considerations to Hemlo Gold Shareholders........... 87
BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 96
</TABLE>
i
<PAGE> 7
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Years Ended December 31, 1995, 1994 and 1993.................................. 96
Three Months Ended March 31, 1996 and 1995.................................... 106
INFORMATION CONCERNING BATTLE MOUNTAIN............................................. 112
Business and Properties of Battle Mountain.................................... 112
Legal Proceedings............................................................. 134
Executive Officers............................................................ 134
Security Ownership............................................................ 135
Executive Compensation........................................................ 136
Compensation of Directors..................................................... 141
Compensation and Stock Option Committee Report on Battle Mountain Executive
Compensation................................................................. 141
Stockholder Return Performance Presentation................................... 145
HEMLO GOLD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................................................... 146
Years Ended December 31, 1995 and 1994........................................ 146
Three Months Ended March 31, 1996 and 1995.................................... 155
INFORMATION CONCERNING HEMLO GOLD.................................................. 156
Incorporation and Subsidiaries................................................ 156
General Development of the Business........................................... 156
Business and Property of Hemlo Gold........................................... 158
Share Capital Structure....................................................... 172
General....................................................................... 172
Directors and Officers........................................................ 174
Statement of Corporate Governance Practices................................... 176
Executive Compensation........................................................ 179
Interest of Management and Others in Material Transactions.................... 185
COMPARISON OF STOCKHOLDER RIGHTS................................................... 185
Vote Required for Extraordinary Transactions.................................. 185
Amendment to Governing Documents.............................................. 186
Dissenters' Rights............................................................ 187
Oppression Remedy............................................................. 187
Derivative Action............................................................. 188
Shareholder Consent in Lieu of Meeting........................................ 188
Director Qualifications....................................................... 188
Fiduciary Duties of Directors................................................. 188
Indemnification of Officers and Directors..................................... 189
Director Liability............................................................ 189
Anti-Takeover Provisions and Interested Stockholder Transactions.............. 189
DISSENTING SHAREHOLDERS' RIGHTS.................................................... 191
Hemlo Gold.................................................................... 191
Battle Mountain............................................................... 193
ADDITIONAL MATTERS FOR CONSIDERATION OF BATTLE MOUNTAIN STOCKHOLDERS............... 193
Election of Three Directors and Director Compensation......................... 193
Approval of Amendment to 1994 Long-Term Incentive Plan........................ 195
Appointment of Independent Accountants........................................ 198
Compliance with Section 16(a) of the Securities Exchange Act.................. 198
Other Business................................................................ 198
Stockholder Proposals......................................................... 199
ADDITIONAL MATTERS FOR CONSIDERATION OF HEMLO GOLD
SHAREHOLDERS..................................................................... 199
Election of Directors......................................................... 199
Appointment of Auditors....................................................... 199
</TABLE>
ii
<PAGE> 8
<TABLE>
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AVAILABLE INFORMATION.............................................................. 200
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................... 200
APPROVAL OF PROXY STATEMENT BY HEMLO GOLD BOARD OF DIRECTORS....................... 202
INDEX TO FINANCIAL STATEMENTS...................................................... FS-(i)
ANNEX A -- Form of the Arrangement Resolution
ANNEX B -- Interim Order and Notice of Motion for Final Order
ANNEX C -- Combination Agreement
ANNEX D -- Plan of Arrangement including Exchangeable Share Provisions
ANNEX E -- Form of Voting, Support and Exchange Trust Agreement
ANNEX F -- Amendment to Restated Articles of Incorporation of Battle Mountain Gold
Company
ANNEX G -- Salomon Brothers Inc Fairness Opinion
ANNEX H -- RBC Dominion Securities Inc. Fairness Opinion
ANNEX I -- Amended and Restated 1994 Long-Term Incentive Plan of Battle Mountain Gold
Company
ANNEX J -- Glossary of Certain Mining Terms
</TABLE>
iii
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement. It is not, and is not intended to be, complete in
itself. Reference is made to, and this summary is qualified in its entirety by,
the more detailed information contained in this Joint Proxy Statement, which
Hemlo Gold shareholders and Battle Mountain stockholders are encouraged to
review. Unless otherwise indicated, capitalized terms used in this Joint Proxy
Statement are defined in the Glossary of Certain Terms Relating to the
Transaction or in the Glossary of Certain Mining Terms or elsewhere in this
Joint Proxy Statement.
THE COMPANIES
Battle Mountain............... Battle Mountain is engaged in the mining and
processing of gold, silver and copper ore in
the United States, Bolivia, Chile and Australia
and in the exploration and evaluation of
precious metals properties primarily in Latin
America, the South Pacific and the United
States. Battle Mountain's principal executive
offices are located at 333 Clay Street, 42nd
Floor, Houston, Texas, U.S.A. 77002-4103
(telephone number (713) 650-6400). See
"INFORMATION CONCERNING BATTLE MOUNTAIN."
Hemlo Gold.................... Hemlo Gold is engaged in the mining and
processing of gold ore in Canada and in the
exploration and development of precious metals
properties in Canada, the United States,
Australia, Mexico, Chile and Ghana. Hemlo
Gold's principal executive offices are located
at 1 Adelaide Street East, Suite 2902, Toronto,
Ontario, Canada M5C 2Z9 (telephone number (416)
982-7116). See "INFORMATION CONCERNING HEMLO
GOLD."
The Combination............... The Combination Agreement between Battle
Mountain and Hemlo Gold provides for the
combination of Battle Mountain and Hemlo Gold
in a transaction in which each holder of Hemlo
Gold Common Shares will receive 1.48
Exchangeable Shares for each Hemlo Gold Common
Share held. The Exchangeable Shares will be
securities of Hemlo Gold (which will be renamed
Battle Mountain Canada Inc.) that entitle their
holders to dividend and other rights
economically equivalent to those of the Battle
Mountain Common Stock and, through a voting
trust, to vote at meetings of stockholders of
Battle Mountain. The Exchangeable Shares are
exchangeable at the option of the holder for
Battle Mountain Common Stock on a
share-for-share basis.
THE MEETINGS
Time, Date and Place.......... The Battle Mountain Stockholders Meeting will
be held at the Doubletree Hotel at One Allen
Center, 400 Dallas Street, Houston, Texas on
July 15, 1996 at 1:30 p.m.
The Hemlo Gold Shareholders Meeting will be
held at the Civic Ballroom of the Sheraton
Centre Hotel, Toronto, Ontario on July 15, 1996
at 11:00 a.m. See "THE MEETINGS -- GENERAL
PROXY INFORMATION."
Record Dates, Shares Entitled
to Vote..................... Holders of record of Battle Mountain Common
Stock on May 28, 1996 (the "Battle Mountain
Record Date") are entitled to notice of and to
vote at the Battle Mountain Stockholders
Meeting. At
<PAGE> 10
the close of business on the Battle Mountain
Record Date, there were outstanding and
entitled to vote 81,335,448 shares of Battle
Mountain Common Stock, each of which will be
entitled to one vote on each matter to be acted
upon.
Holders of record of Hemlo Gold Common Shares
on June 13, 1996 (the "Hemlo Gold Record Date")
are entitled to notice of and to vote at the
Hemlo Gold Shareholders Meeting except to the
extent that a person has transferred Hemlo Gold
Common Shares after that date and the new
holder of such shares establishes proper
ownership and demands not later than July 5,
1996 to be included in the list of shareholders
eligible to vote at the Hemlo Gold Shareholders
Meeting. At the close of business on June 5,
1996, there were outstanding and entitled to
vote 100,066,445 Hemlo Gold Common Shares, each
of which will be entitled to five votes on each
matter to be acted upon. See "THE MEETINGS --
GENERAL PROXY INFORMATION."
Matters to be Considered at
Meetings.................... At the Battle Mountain Stockholders Meeting,
the Battle Mountain stockholders will consider
and vote upon: (i) approval of the Combination
Agreement and the transactions contemplated
thereby, including proposed amendments to the
Battle Mountain Articles to increase the number
of authorized shares of Battle Mountain Common
Stock, to increase the number of authorized
shares of Battle Mountain Preferred Stock and
to authorize one share of a new class of
capital stock designated as Special Voting
Stock; (ii) election of three directors to
Battle Mountain's Board of Directors; (iii)
approval of amendments to the Battle Mountain
Incentive Plan to be undertaken in connection
with the Combination Agreement; (iv)
ratification of the appointment of Price
Waterhouse LLP as Battle Mountain's independent
accountants for 1996; and (v) such further
business as may properly come before the Battle
Mountain Stockholders Meeting or any
adjournment or postponement thereof. Whether or
not Battle Mountain Stockholders are personally
able to attend the Battle Mountain Stockholders
Meeting, they are urged to complete, sign and
date the enclosed Battle Mountain proxy card
and return it in the enclosed envelope as soon
as possible.
At the Hemlo Gold Shareholders Meeting, the
Hemlo Gold shareholders will consider and vote
upon: (i) the Arrangement Resolution; (ii) the
election of nine directors to Hemlo Gold's
Board of Directors; (iii) a resolution to
appoint Ernst & Young, Chartered Accountants,
as Hemlo Gold's independent auditors and to
authorize the directors to fix their
remuneration; and (iv) such further business as
may properly come before the Hemlo Gold
Shareholders Meeting or any adjournment or
postponement thereof. Hemlo Gold shareholders
who are unable to attend the Hemlo Gold
Shareholders Meeting are urged to complete,
sign and date the enclosed Hemlo Gold proxy
card and return it in the enclosed envelope as
soon as possible. See "THE MEETINGS -- GENERAL
PROXY INFORMATION."
2
<PAGE> 11
Votes Required................ Approval of the Combination Agreement and the
transactions contemplated thereby, including
proposed amendments to the Battle Mountain
Articles to increase the number of authorized
shares of Battle Mountain Common Stock and to
authorize one share of a new class of capital
stock designated as Special Voting Stock, will
require the affirmative vote of the holders of
a majority of the shares of Battle Mountain
Common Stock outstanding on the Battle Mountain
Record Date. The election of directors of
Battle Mountain will be by a plurality of the
votes cast. Approval of the amendments to the
Battle Mountain Incentive Plan will require the
affirmative vote of the holders of a majority
of the shares of Battle Mountain Common Stock
represented and entitled to vote at the Battle
Mountain Stockholders Meeting. Ratification of
the appointment of Price Waterhouse LLP as
Battle Mountain's independent accountants for
1996 will require the affirmative vote of the
holders of a majority of the votes cast.
The Arrangement Resolution must be approved by
the affirmative vote of not less than
two-thirds of the votes cast in respect of that
resolution at the Hemlo Gold Shareholders
Meeting. The directors of Hemlo Gold must be
elected by a majority of the votes cast thereon
at the Hemlo Gold Shareholders Meeting. The
appointment of Ernst & Young, Chartered
Accountants, as auditors of Hemlo Gold at a
remuneration to be fixed by the Hemlo Gold
Board of Directors must be approved by the
affirmative vote of a majority of the votes
cast thereon at the Hemlo Gold Shareholders
Meeting. Noranda, as holder of approximately 44
percent of the outstanding Hemlo Gold Common
Shares, has agreed to vote its Hemlo Gold
Common Shares in favor of the Arrangement
Resolution unless there is a competing
acquisition proposal which Noranda determines
to be more favorable to it than the
Arrangement.
Recommendations of Boards of
Directors................... The Battle Mountain Board of Directors believes
that the terms of the Transaction are fair to
and in the best interests of the stockholders
of Battle Mountain and has unanimously
approved, and unanimously recommends that
stockholders of Battle Mountain vote to
approve, the Combination Agreement and the
transactions contemplated thereby, including
proposed amendments to the Battle Mountain
Articles. The Board of Directors of Battle
Mountain also recommends a vote for each of the
other proposals to be voted on at the Battle
Mountain Stockholders Meeting and for each of
the nominees for director.
The Hemlo Gold Board of Directors believes that
the terms of the Transaction are fair to and in
the best interests of the shareholders of Hemlo
Gold and has unanimously approved, and
unanimously recommends that shareholders of
Hemlo Gold vote to approve, the Arrangement.
The Hemlo Gold Board of Directors also
recommends a vote for each of the nominees for
director and for appointment of Ernst & Young
as independent auditors. See "THE
TRANSACTION -- Board Recommendations."
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Dissenters' Rights............ Hemlo Gold shareholders who oppose passage of
the Arrangement Resolution are entitled to
dissent under section 185 of the OBCA in
accordance with the Interim Order. No rights to
demand appraisal will be available with respect
to the Transaction to holders of Battle
Mountain Common Stock. See "DISSENTING
SHAREHOLDERS' RIGHTS."
THE TRANSACTION
Transaction Mechanics......... Under the terms of the Arrangement, Hemlo Gold
will issue to Battle Mountain 100 Hemlo Gold
Common Shares in consideration of the delivery
by Battle Mountain to Hemlo Gold of 148 shares
of Battle Mountain Common Stock, and each Hemlo
Gold Common Share (other than the Hemlo Gold
Common Shares held by Battle Mountain or
holders who have properly exercised their
rights of dissent and are ultimately entitled
to be paid fair value for their shares) will be
exchanged for 1.48 shares of a new class of
Exchangeable Shares of Hemlo Gold, which will
change its name to Battle Mountain Canada Inc.
In this Joint Proxy Statement, Hemlo Gold,
after the Effective Date, is referred to as
"Battle Mountain Canada." As a result of these
transactions, Battle Mountain will become the
sole beneficial owner of the outstanding Battle
Mountain Canada Common Shares. Holders of Hemlo
Gold Common Shares will be able to obtain a
certificate for the number of Exchangeable
Shares which they are entitled to receive
pursuant to the Arrangement by duly completing
and returning a Letter of Transmittal to be
delivered to registered holders of Hemlo Gold
Common Shares after the Effective Time. See
"THE TRANSACTION -- Transaction Mechanics and
Description of Exchangeable Shares" and
"-- Procedures for Exchange of Share
Certificates by Hemlo Gold Shareholders."
The Exchangeable Shares....... The Exchangeable Shares will be exchangeable,
at any time at the option of the holder, on a
one-for-one basis for shares of Battle Mountain
Common Stock. Pursuant to the Voting, Support
and Exchange Trust Agreement, the Trustee, as
holder of the share of Special Voting Stock,
will be entitled to a number of votes on all
matters on which holders of Battle Mountain
Common Stock are entitled to vote equal to the
number of Exchangeable Shares outstanding from
time to time that are not held by Battle
Mountain or certain subsidiaries of Battle
Mountain. By furnishing instructions to the
Trustee, such holders of Exchangeable Shares
will be able to exercise the same voting rights
with respect to Battle Mountain as they would
have after exchange of their Exchangeable
Shares for Battle Mountain Common Stock.
Holders of Exchangeable Shares will also be
entitled to receive dividends economically
equivalent to any dividends paid on the Battle
Mountain Common Stock. The Voting, Support and
Exchange Trust Agreement will restrict Battle
Mountain from paying dividends on the Battle
Mountain Common Stock unless equivalent
dividends are paid on the Exchangeable Shares.
Holders of Exchangeable Shares will also be
entitled to participate in any liquidation of
Battle Mountain on the same basis as holders of
Battle Mountain Common Stock.
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<PAGE> 13
See "THE TRANSACTION -- Transaction Mechanics
and Description of Exchangeable Shares."
Exchange of Exchangeable
Shares for Battle Mountain
Common Stock................... Holders of the Exchangeable Shares will be
entitled at any time following the Effective
Time, upon delivery of a certificate
representing Exchangeable Shares and a duly
executed Retraction Request, to require Battle
Mountain Canada to redeem such Exchangeable
Shares in exchange for an equivalent number of
shares of Battle Mountain Common Stock.
However, Battle Mountain Canada must deliver
all such requests for redemption to Battle
Mountain and Battle Mountain Sub, whereupon
Battle Mountain and Battle Mountain Sub,
instead of Battle Mountain Canada, have the
right to purchase the Exchangeable Shares that
are the subject of the request for redemption
in exchange for an equivalent number of shares
of Battle Mountain Common Stock. If this right
is not exercised, Battle Mountain Canada is
required to effect the requested redemption. On
any date on or after July 31, 2003 (subject to
acceleration in certain circumstances), Battle
Mountain Canada has the right, but not the
obligation, to purchase all outstanding
Exchangeable Shares in exchange for an
equivalent number of shares of Battle Mountain
Common Stock. Battle Mountain and Battle
Mountain Sub have the overriding right, but not
the obligation, to acquire the outstanding
Exchangeable Shares in exchange for an
equivalent number of shares of Battle Mountain
Common Stock on the last business day prior to
the relevant Optional Redemption Date. In
exercising such overriding right, neither
Battle Mountain nor Battle Mountain Sub will be
required to purchase Exchangeable Shares from
itself, the other or Canada Holdco. If either
Battle Mountain or Battle Mountain Sub
exercises the overriding right, Battle Mountain
Canada's right to redeem the Exchangeable
Shares on the relevant Optional Redemption Date
will terminate. See "THE TRANSACTION --
Transaction Mechanics and Description of
Exchangeable Shares."
Reasons for the Transaction... Battle Mountain and Hemlo Gold believe that the
combination of the two companies will allow
them to combine their individual resources,
assets and expertise and thereby enhance their
ability to compete within, and profit from, the
global mining industry. The combined company is
expected to rank fifth after consummation of
the Transaction among North American-based
producers in annual gold production and,
through its greater size and financial
strength, should be able to be more effective
in competing internationally for exploration,
development and acquisition opportunities than
either company could be independently. The
combined company will have a more diversified
asset base, with a total of eight producing
mines located in five countries and exploration
programs and development projects throughout
the Americas, the Western Pacific and West
Africa (with approximately 49 percent of pro
forma 1995 production generated from North
American operations). The Transaction will
bring together two large, high-quality,
low-cost flagship assets, Battle Mountain's
Kori Kollo mine in Bolivia and Hemlo Gold's
Golden Giant mine in Canada. The combined
company is expected to benefit from more
effectively utilizing each
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<PAGE> 14
company's respective strengths in exploration
and production technologies, as well as
affording the combined entity the opportunity
to utilize Battle Mountain's strength in
surface mining and Hemlo Gold's expertise in
underground mining. See "THE
TRANSACTION -- Reasons for the Transaction" for
additional information concerning the reasons
of Battle Mountain and Hemlo Gold,
respectively, for the Transaction.
Management after the
Transaction................... Pursuant to the Combination Agreement,
effective upon completion of the Transaction,
the Battle Mountain Board of Directors will be
increased to 12 members, six of whom are
currently directors of Battle Mountain and six
of whom will be designated by the Hemlo Gold
Board of Directors.
Upon completion of the Transaction, Karl E.
Elers, currently the Chairman of the Board and
Chief Executive Officer of Battle Mountain,
will be the Chairman of the Board of the
combined company, and Ian D. Bayer, currently
the President and Chief Executive Officer of
Hemlo Gold, will be the President of the
combined company, and those two officers will
establish an office of the Chief Executive of
the combined company. See "THE COMPANIES AFTER
THE TRANSACTION -- Management."
Dividend Policy............... Determinations to pay future dividends and the
amount thereof will be made by the Board of
Directors of the combined company and will
depend on its future earnings, capital
requirements, financial condition and other
relevant factors. Following consummation of the
Transaction, it is expected that most of the
earnings of the combined company will be
retained to support current operations, to fund
exploration and development projects and to
provide funds for acquiring gold properties.
Cash dividends of US$0.025 per share were paid
on shares of Battle Mountain Common Stock in
each half of fiscal 1995 and 1994. See
"COMPARATIVE MARKET PRICE DATA."
Opinions of Financial
Advisors...................... Salomon has rendered an opinion to the Board of
Directors of Battle Mountain that the Exchange
Ratio is fair to Battle Mountain's stockholders
from a financial point of view. The written
opinion of Salomon dated March 11, 1995 is
attached to this Joint Proxy Statement as Annex
G and should be read in its entirety. See "THE
TRANSACTION -- Opinions of Financial Advisors."
Dominion Securities has rendered an opinion to
the Hemlo Gold Board of Directors that the
Exchange Ratio is fair to Hemlo Gold's
shareholders from a financial point of view.
This written opinion of Dominion Securities
dated March 11, 1995 is attached to this Joint
Proxy Statement as Annex H and should be read
in its entirety. See 'THE
TRANSACTION -- Opinions of Financial Advisors."
Effective Time of the
Transaction................... It is anticipated that the Transaction will
become effective after the requisite
shareholder, court and regulatory approvals
have been obtained and are final and all other
conditions to the Transaction have been
satisfied or waived. It is presently
anticipated that the Transaction will become
effective on or about July 18, 1996. See
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<PAGE> 15
"THE TRANSACTION -- Transaction Mechanics and
Description of Exchangeable Shares."
Conditions to the
Transaction................... The obligations of Hemlo Gold and Battle
Mountain to consummate the Transaction are
subject to the satisfaction of certain
conditions, including obtaining approval of the
stockholders of Battle Mountain and the
shareholders of Hemlo Gold, expiration or
termination of waiting periods under the HSR
Act and the Competition Act, the receipt of
necessary approvals under the Investment Canada
Act, the approval (without material condition
or costs) of the Plan of Arrangement by the
Court and the receipt of certain accountants'
letters relating to the Transaction's
qualification for pooling of interests
accounting treatment. The waiting periods under
the HSR Act and the Competition Act have
terminated. See "THE TRANSACTION -- The
Combination Agreement."
Termination................... The Combination Agreement may be terminated
prior to the Effective Date, whether before or
after approval of the stockholders of Battle
Mountain or the shareholders of Hemlo Gold, in
circumstances specified in the Combination
Agreement, including (i) mutual agreement, (ii)
breaches of representations, warranties or
covenants by the other party which have a
material adverse effect, (iii) failure of the
stockholders of Battle Mountain or the
shareholders of Hemlo Gold to approve the
Transaction or the Arrangement Resolution,
respectively, (iv) failure of the conditions
precedent to closing to be satisfied by August
31, 1996 other than as a result of a breach by
the terminating party, (v) issuance of a final
and nonappealable permanent injunction or other
order preventing consummation of the
arrangement, (vi) if a party's board of
directors determines in good faith that it is
required by its fiduciary duties to recommend
to its stockholders that they vote against the
Transaction and approve instead a competing
acquisition proposal that is financially more
favorable and likely to be successful or (vii)
if the board of directors of the other party
makes a recommendation to its stockholders
against the Transaction or in support of a
competing acquisition proposal. Under certain
circumstances, Battle Mountain may be required
to pay to Hemlo Gold a termination fee of US$5
million, or Hemlo Gold may be required to pay
to Battle Mountain termination and break-up
fees of up to US$42.5 million, depending on the
circumstances of the termination. See "THE
TRANSACTION -- The Combination Agreement --
Termination."
Interests of Certain
Persons....................... Battle Mountain has entered into employment
agreements with certain officers of Hemlo Gold
whereby Battle Mountain has agreed to employ
such officers commencing on the Effective Date.
Pursuant to the Combination Agreement, Battle
Mountain has agreed to maintain in effect for a
period of at least six years from the Effective
Time all rights of indemnification existing at
the time of execution of the Combination
Agreement in favor of the directors and
officers of Hemlo Gold. As a result of the
Transaction, certain officers of Battle
Mountain will be entitled to certain benefits
pursuant to change of control provisions of
employee
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<PAGE> 16
benefit plans. Under the Combination Agreement,
Battle Mountain has agreed to provide Noranda
with both "demand" and "piggyback" registration
rights for Exchangeable Shares received in the
Arrangement and shares of Battle Mountain
Common Stock received in exchange therefor.
Battle Mountain has also agreed to enter into a
Tax Cooperation Agreement at the request of
persons who acquire more than the Minimum
Number of the Exchangeable Shares in the
Arrangement, and Noranda is expected to request
that Battle Mountain enter into such a Tax
Cooperation Agreement. See "THE
TRANSACTION -- Interests of Certain Persons in
the Transaction."
Anticipated Accounting
Treatment..................... The Transaction is intended to qualify as a
pooling of interests for accounting and
financial reporting purposes. Under this method
of accounting, the recorded assets and
liabilities of Hemlo Gold and Battle Mountain
will be carried forward to the combined company
at their recorded amounts, income of the
combined company for the fiscal year in which
the combination occurs will include income of
Hemlo Gold and Battle Mountain for such fiscal
year and the reported income of the separate
companies for prior periods will be combined
and restated as income of the combined company.
No recording nor subsequent amortization of
purchase price in excess of the carrying value
of the net assets of Hemlo Gold will be
required of Battle Mountain.
Certain Federal Income Tax
Consequences to Hemlo Gold
Shareholders................ The Transaction has been structured with the
intent that it be generally treated for
Canadian federal income tax purposes as a
reorganization of capital and for United States
federal income tax purposes as a tax-free
reorganization under Section 368(a) of the
Code. However, such tax-deferred treatment will
generally only be available for as long as
shareholders hold the Exchangeable Shares.
Shareholders will generally recognize a gain or
loss upon the exchange of their Exchangeable
Shares for shares of Battle Mountain Common
Stock. There are other conditions and
limitations on qualifying for tax deferral. The
receipt of opinions of counsel as to the tax
deferred nature of the Transaction is a
condition to Hemlo Gold's obligation to
consummate the Transaction. The opinion as to
United States tax consequences, however, need
not be unqualified. See "TAX CONSIDERATIONS TO
HEMLO GOLD SHAREHOLDERS." HEMLO GOLD
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS.
Eligibility for Investment of
Exchangeable Shares......... The Exchangeable Shares will be, on the date of
issue, 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 Toronto Stock Exchange (the "TSE")), the
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 Ancillary Rights will be foreign
8
<PAGE> 17
property under the Canadian Tax Act. Hemlo Gold
is of the view, however, that the fair market
value of these rights is generally nominal. See
"THE TRANSACTION -- Eligibility for Investment
in Canada."
STOCK EXCHANGE LISTINGS
Exchangeable Shares........... The TSE has accepted notice of the proposed
Arrangement and has conditionally approved the
listing of the Exchangeable Shares,
subject to the satisfaction of customary
requirements of the TSE. There is no current
intention to list the Exchangeable Shares on
any other stock exchange in Canada or the
United States.
Battle Mountain Common
Stock......................... The Battle Mountain Common Stock is listed on
the New York Stock Exchange (the "NYSE"), the
TSE and certain other exchanges outside the
United States. There is no current intention to
list the Battle Mountain Common Stock on any
other stock exchange in Canada or the United
States. Following consummation of the
Arrangement, Battle Mountain may consider
having the shares of its Common Stock delisted
from the TSE.
CERTAIN RELATED AGREEMENTS
Agreement to Support the
Transaction................. Battle Mountain and Noranda, as holder of
approximately 44 percent of the outstanding
Hemlo Gold Common Shares, have entered into an
agreement pursuant to which Noranda has agreed
(i) to vote its Hemlo Gold Common Shares in
favor of the Arrangement, the Combination
Agreement and the Transaction unless there is a
Hemlo Gold Competing Transaction which Noranda
determines to be more favorable to it than the
Arrangement; (ii) that it will not, directly or
indirectly, solicit, initiate, encourage or
facilitate any proposal or offer from any
person concerning the possible disposition of
all or any portion of Hemlo Gold's business,
assets or capital stock by merger, sale or
other means; and (iii) not to sell any of its
Hemlo Gold Common Shares other than to a wholly
owned subsidiary pursuant to the terms of its
Hemlo Gold Affiliate Agreement and applicable
law. See "THE TRANSACTION -- Other
Agreements -- Agreement to Support the
Transaction."
Battle Mountain Affiliate
Agreements.................. Battle Mountain and Hemlo Gold have entered
into agreements with each of the Battle
Mountain Affiliates, pursuant to which each
such Battle Mountain Affiliate has agreed that
it will not sell or otherwise dispose of any
shares of Battle Mountain Common Stock, Battle
Mountain Options or Hemlo Gold Common Shares
until such time as Battle Mountain has filed a
public report or statement containing, or
otherwise publicly released, financial results
covering at least 30 days of the combined
operating results of Hemlo Gold and Battle
Mountain. See "THE TRANSACTION -- Other
Agreements -- Affiliate Agreements."
Hemlo Gold Affiliate
Agreements.................... Battle Mountain and Hemlo Gold have entered
into agreements with each of the Hemlo Gold
Affiliates, pursuant to which each
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<PAGE> 18
such Hemlo Gold Affiliate has agreed (i) that
it will not sell or otherwise dispose of
Exchangeable Shares, shares of Battle Mountain
Common Stock, any securities paid as a dividend
thereon, or with respect thereto or issued or
delivered in exchange or substitution therefor,
any option, right or other interest with
respect to the foregoing securities, or any
Hemlo Gold Common Shares or Hemlo Gold Options
until Battle Mountain has filed a public report
or statement containing, or otherwise publicly
released, its first financial results covering
at least 30 days of the combined operating
results of Hemlo Gold and Battle Mountain and
(ii) that it will not sell, pledge or otherwise
dispose of any Exchangeable Shares received in
the Arrangement (or Battle Mountain Common
Stock received upon exchange of Exchangeable
Shares for Battle Mountain Common Stock)
unless: (a) such sale, transfer or other
disposition has been registered under the
Securities Act; (b) such sale, transfer or
other disposition is made in conformity with
the requirements of Rule 145 promulgated by the
SEC under the Securities Act; or (c) in the
opinion of counsel reasonably acceptable to
Battle Mountain, such sale, transfer or other
disposition is otherwise exempt from
registration under the Securities Act. See "THE
TRANSACTION -- Other Agreements -- Affiliate
Agreements."
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<PAGE> 19
RISK FACTORS
The following risk factors should be considered by Hemlo Gold shareholders
and Battle Mountain stockholders in evaluating whether to approve the
Transaction. Some of these risk factors relate directly to the Transaction while
others relate to the business and properties of Battle Mountain and/or Hemlo
Gold independent of the Transaction. These risk factors should be considered in
conjunction with the other information included in this Joint Proxy Statement.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The United States Private Securities Litigation Reform Act of 1995 provides
a new "safe harbor" for certain forward-looking statements. The following
factors, among others, in some cases have affected Battle Mountain's and Hemlo
Gold's actual results and could cause actual results to differ materially from
those contained in forward-looking statements made in this Joint Proxy
Statement, future filings by Battle Mountain with the SEC, in Battle Mountain's
press releases and in oral statements made by authorized officers of Battle
Mountain. When used in this Joint Proxy Statement, the words "estimate,"
"project," "anticipate," "expect," "intend," "believe" and similar expressions
are intended to identify forward-looking statements.
GOLD PRICE VOLATILITY
The profitability of both Battle Mountain and Hemlo Gold is significantly
affected by changes in the market price of gold. Gold prices can fluctuate and
may be affected by numerous factors such as expectations for inflation, levels
of interest rates, currency exchange rates, central bank sales, forward selling
by producers, demand for precious metals, global or regional political and
economic crises and production costs in major gold-producing regions such as
South Africa, the United States, Australia and the Commonwealth of Independent
States (formerly, the Soviet Union). The aggregate effect of these factors, all
of which are beyond the control of both Battle Mountain and Hemlo Gold, is
impossible for the management of either Battle Mountain or Hemlo Gold to
predict. The demand for and supply of gold affect gold prices, but not
necessarily in the same manner as supply and demand affect the prices of other
commodities. The supply of gold consists of a combination of new mine production
and existing stocks of bullion and fabricated gold held by governments, public
and private financial institutions, industrial organizations and private
individuals. As the amount produced in any single year constitutes a small
portion of the total potential supply of gold, normal variations in current
production do not necessarily have a significant impact on the supply of gold or
on its price. If gold prices decline substantially, Battle Mountain, Hemlo Gold
or the combined company would have to reevaluate the carrying values of its
properties and could determine that a write-down of values would be needed. If
gold prices decline to a point below the cash production costs of Battle
Mountain, Hemlo Gold or the combined company and remain below this level for any
substantial period, continued commercial production at any or all of their
operations could become economically unfeasible.
RESERVE ESTIMATES
The ore reserve figures presented herein are estimates, and no assurance
can be given that the indicated level of recovery of gold, silver and copper
will be realized. The open pit ore reserve figures presented herein were
calculated using a gold price ranging from US$365 to US$385 per ounce. The
underground ore reserve figures presented herein were calculated at geological
cutoff grades that are different at each operation. Market price fluctuations of
gold, silver and copper, as well as increased production costs or reduced
recovery rates, may render production of ore reserves uneconomic and may
ultimately result in a restatement of ore reserves. Additionally, changes in the
various assumptions on which the reserve estimates are based, such as the cutoff
grade, may result in increases or decreases in the reserve estimates from year
to year. Reserve estimates for properties that have not yet commenced production
may require revision based on actual production experience. Moreover, many
factors relating to each mine, such as the design of the mine plan, unexpected
operating and processing problems, increases in the stripping ratio, unforeseen
geotechnical conditions which may result in increased ground support or dilution
in underground operations, and the complexity of the metallurgy of an ore body,
may adversely affect cash production and operating costs of a
11
<PAGE> 20
project. Reserves for the Lihir project, as well as projected cost and
production estimates, are based on information provided by the manager. Such
information has been reviewed, but not independently confirmed, by Battle
Mountain. Neither reserves nor projections of future operations should be
interpreted as assurances of the economic life or profitability of future
operations.
SPECULATIVE NATURE OF MINERAL EXPLORATION AND DEVELOPMENT; REPLACEMENT OF
RESERVES
Mineral exploration, particularly for gold and other precious metals, is
highly speculative in nature, involves many risks and frequently is
nonproductive. There can be no assurance that the mineral exploration efforts of
Battle Mountain, Hemlo Gold or the combined company will be successful. Once
gold mineralization is discovered, it may take a number of years from the
initial phases of drilling until production is possible, during which time the
economic feasibility of production may change. Substantial expenditures are
required to establish ore reserves through drilling, to determine metallurgical
processes to extract the metals from the ore and, in the case of new properties,
to construct mining and processing facilities. Except to the extent that Battle
Mountain, Hemlo Gold and the combined company conduct successful exploration
activities or acquire properties containing additional ore reserves, their
reserve base will continue to decline as reserves are produced. As a result of
the uncertainties discussed above, no assurance can be given that the
exploration programs of Battle Mountain, Hemlo Gold or the combined company will
result in the replacement of current production with new reserves.
GOVERNMENTAL REGULATION
Each of Battle Mountain and Hemlo Gold is, and the combined company will
be, required to obtain a full range of environmental permits and approvals of
reclamation plans to develop new properties and to maintain such permits for
ongoing operations, reclamation, closure and post-closure activities. Existing
and possible future legislation and regulations could cause additional expense,
capital expenditures, restrictions and delays in the development, operation and
closure of the properties of Battle Mountain, Hemlo Gold and the combined
company, the extent of which cannot be predicted by management. Both Battle
Mountain and Hemlo Gold expect that environmental constraints will become
increasingly strict and that the costs of compliance with environmental
regulations will continue to grow. In the context of environmental permitting,
including the approval of reclamation and closure plans, both companies must,
and the combined company will have to, comply with standards and regulations
that may entail greater or lesser costs than currently anticipated and delays,
depending on the nature of the activity to be permitted and how stringently the
regulations are implemented by the permitting authority. It is possible that the
costs and delays associated with the compliance with such standards and
regulations could become such that Battle Mountain, Hemlo Gold or the combined
company would not proceed with the development or operation of a mine. Moreover,
Battle Mountain's Phoenix and Crown Jewel Projects and Hemlo Gold's New World
Project are presently in the permitting stage, and there can be no assurance
that permits will be obtained. In addition, in Bolivia, where Battle Mountain's
Kori Kollo Mine is located, new environmental regulations have recently become
effective, the impact of which is uncertain. See "INFORMATION CONCERNING BATTLE
MOUNTAIN" and "INFORMATION CONCERNING HEMLO GOLD."
MINING RISKS AND INSURANCE
The business of gold mining is generally subject to a number of risks and
hazards, including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geotechnical conditions, geologic formations,
rock bursts, cave-ins, flooding, periodic interruptions due to inclement or
hazardous weather conditions and gold bullion losses. Such risks could result in
damage to, or destruction of, mineral properties or producing facilities,
personal injury, environmental damage, delays in mining, monetary losses and
possible legal liability. Although both Battle Mountain and Hemlo Gold maintain
insurance within ranges of coverage consistent with industry practice, no
assurance can be given that such coverage will be adequate to cover their
liability under all circumstances or that such insurance will continue to be
available at economically feasible premiums.
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<PAGE> 21
ENVIRONMENTAL RISKS
Neither Battle Mountain nor Hemlo Gold is insured against most
environmental risks. Insurance against environmental risks (including potential
liability for pollution or other hazards as a result of the disposal of waste
products occurring from exploration and production) has not been generally
available to companies within the industry. Both Battle Mountain and Hemlo Gold
periodically evaluate the cost and coverage of the insurance against certain
environmental risks that is available to determine if it would be appropriate to
obtain such insurance. Without such insurance, if either company becomes subject
to environmental liabilities, the payment of such liabilities would reduce its
available funds. Should Battle Mountain, Hemlo Gold or the combined company be
unable to fund fully the remedial cost of an environmental problem, it might be
required to enter into interim compliance measures pending completion of the
required remedy.
Battle Mountain has investigated a discharge to groundwater of chloride
(salt) from the tailings facility at the Battle Mountain Complex. Battle
Mountain is currently evaluating mitigation alternatives to achieve applicable
water quality standards. Additionally, recent groundwater samples that were
taken from a highly mineralized area near historic copper leach activities
indicate that groundwater in this vicinity is acidic and high in metals. Due to
the preliminary nature of this investigation, it is not possible to estimate
what remediation might be required. See "BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources -- Government Regulation."
RISKS OF INTERNATIONAL OPERATIONS
Battle Mountain's international operations, which include significant
operations and investments in Latin America and Papua New Guinea, represent a
substantial part of Battle Mountain's current gross revenues and assets and are
subject to the risks normally associated with conducting business
internationally, including foreign exchange controls and currency fluctuations,
limitations on the repatriation of earnings, changes in domestic and foreign
taxation, labor disputes, civil disturbances and uncertain political and
economic environments as well as risks of war and civil disturbances or other
risks that may limit or disrupt production and markets, restrict the movement of
funds or result in the deprivation of contract rights or the taking of property
by nationalization or appropriation without fair compensation. Although Battle
Mountain has not experienced any significant problem in its international
operations arising from such risks, there can be no assurance that such a
problem will not arise in the future. For example, if there were to occur in
Bolivia a recurrence of the adverse economic conditions and high levels of
inflation that occurred prior to 1985, or if exchange controls or restrictions
on payments to non-Bolivians were imposed, Inti Raymi's ability to pay dividends
and Battle Mountain's financial condition and results of operations could be
adversely affected. International operations and investments may also be
adversely affected by laws and policies of the United States affecting foreign
trade, investment and taxation, which could affect the conduct or profitability
of these operations. The combined company will be subject to the risks above. In
addition, with the combination of Hemlo Gold's operations (principally in
Canada) with those of Battle Mountain, the combined company, relative to Battle
Mountain historically, will have a greater proportion of its operations outside
of the United States. Sales of gold production are predominately denominated in
U.S. dollars, while production costs include a significant component denominated
in local currency. As a result, the combined company, relative to Battle
Mountain historically, will have a greater portion of its costs denominated in
foreign currencies and will be exposed to the attendant risks of the U.S. dollar
depreciating against applicable foreign currencies.
UNCERTAINTY REGARDING TITLE TO PROPERTIES
The validity of unpatented mining claims, which constitute most of the
undeveloped property holdings of both Battle Mountain and Hemlo Gold in the
United States, is often uncertain and may be contested by governmental and third
parties. Although both Battle Mountain and Hemlo Gold have attempted to acquire
satisfactory title to their respective undeveloped properties, neither company,
in accordance with mining industry practice, generally obtains title opinions or
title insurance until a decision is made to develop a property, with the
attendant risk that some titles, particularly titles to undeveloped properties,
may be defective.
13
<PAGE> 22
COMPETITION
Each of Battle Mountain and Hemlo Gold competes with other mining companies
in connection with the acquisition of precious metal mining interests and in the
recruitment and retention of qualified employees. There is significant and
increasing competition for the limited number of gold acquisition opportunities
in the United States, Canada, Australia and other countries. As a result of this
competition, Battle Mountain, Hemlo Gold or the combined company may be unable
to acquire attractive gold mining properties on terms it considers acceptable.
In the pursuit of such acquisition opportunities, each of Battle Mountain and
Hemlo Gold compete, and the combined company will compete, with many companies,
some of which have substantially greater financial resources than either company
or the combined company.
COSTS OF THE TRANSACTION
Battle Mountain and Hemlo Gold estimate that costs related to the
Transaction will be approximately US$18 million. These transaction costs
principally include fees for financial advisory, accounting and legal services
and for printing and further related costs likely to be incurred in connection
with combining the operations of the respective companies. These other related
costs principally include expenses related to the relocation of personnel.
UNCERTAIN BENEFITS OF THE TRANSACTION; RISKS OF INTEGRATION
In evaluating the terms of the Transaction, Battle Mountain and Hemlo Gold
each analyzed its respective business and made certain assumptions concerning
its respective future operations and the operations of the combined company.
Among the principal assumptions were that the cash flow of the combined company
would be available to fund development projects, that the combined company would
benefit from the complementary skills and expertise of their managements and
that the combined company would achieve cost savings through, among other
things, the consolidation of headquarters operations and exploration staffs.
There can be no assurance, however, as to the amount of cash flow that will be
generated by the combined company and available to fund development projects or
that the other assumed benefits of the Transaction will be achieved. These
anticipated benefits of the Transaction will not be achieved unless the
companies are successfully combined in a timely manner. The process of combining
the organizations could cause the interruption of, or a loss of momentum in, the
activities of the combined company's operations, which could have an adverse
effect on its results. See "THE COMPANIES AFTER THE TRANSACTION -- Plans and
Proposals."
MANAGEMENT AND PERSONNEL CHANGES
As a result of the Transaction, the composition of Battle Mountain's
management will be changed. Specifically, Battle Mountain's Board of Directors
will be comprised of 12 members, six of whom are current Battle Mountain
directors and six of whom will be designated by the Hemlo Gold Board of
Directors. The current Chairman and Chief Executive Officer of Battle Mountain
will be the Chairman of Battle Mountain after the transaction and the current
President and Chief Executive Officer of Hemlo Gold will become the President of
Battle Mountain, and those two officers will establish an office of the Chief
Executive. The Board of Directors of the combined company will elect its
officers from the current officers of Battle Mountain and Hemlo Gold. Battle
Mountain and Hemlo Gold believe that the success of the combined company will
depend to a significant degree on key personnel and on its ability to continue
to retain highly-skilled personnel. The loss of key Battle Mountain and Hemlo
Gold personnel might adversely affect the combined company's future results if
the combined company could not attract suitable replacements. See "THE
TRANSACTION -- Interests of Certain Persons in the Transaction" and "THE
COMPANIES AFTER THE TRANSACTION -- Management."
SHARES ELIGIBLE FOR FUTURE SALE BY NORANDA
As a result of the Arrangement, based on Noranda's ownership of 44,082,788
Hemlo Gold Common Shares (and no shares of Battle Mountain Common Stock) as of
the date of this Joint Proxy Statement,
14
<PAGE> 23
Noranda will hold, effective upon consummation of the Arrangement, 65,242,526
Exchangeable Shares, representing approximately 28 percent of the outstanding
Battle Mountain Common Stock and Exchangeable Shares, considered as one class.
All of the Exchangeable Shares acquired by Noranda pursuant to the Arrangement
(and shares of Battle Mountain Common Stock received in exchange therefor) will
be eligible for sale in the public market pursuant to Rule 144 under the
Securities Act, subject to the restrictions of Rule 144. In addition, all of
such shares could be sold by Noranda in the public market through the exercise
of registration rights, including up to five "demand" registrations and an
unlimited number of "piggyback" registrations with respect to common equity
offerings by Battle Mountain, during the period that Noranda beneficially owns
Exchangeable Shares acquired in the Arrangement (and shares of Battle Mountain
Common Stock received in exchange therefor) constituting more than 5 percent of
the outstanding Exchangeable Shares and shares of Battle Mountain Common Stock,
considered as one class. Sales of substantial amounts of the Exchangeable Shares
or shares of Battle Mountain Common Stock by Noranda could adversely affect the
prevailing market price of the Exchangeable Shares or shares of Battle Mountain
Common Stock and impair Battle Mountain's ability to raise capital by issuing
equity securities. In connection with the intended qualification of the
Transaction as a pooling of interests for financial reporting purposes under
U.S. GAAP, Noranda has agreed in the Hemlo Gold Affiliates Agreement between
Noranda, Hemlo Gold and Battle Mountain that it will not sell any Battle
Mountain Common Stock or Exchangeable Shares for a period of time following the
Effective Date. See "THE TRANSACTION -- Interests of Certain Persons in the
Transaction -- Agreements with Noranda," "-- Other Agreements" and "-- Resale of
Exchangeable Shares and Battle Mountain Common Stock Received in the
Transaction."
ABSENCE OF APPROVAL RIGHTS WITH RESPECT TO FUTURE ISSUANCE OF AUTHORIZED SHARES
Following the Transaction, an unlimited number of Exchangeable Shares
authorized under the Battle Mountain Canada Articles, as well as the additional
shares of Battle Mountain Common Stock and Battle Mountain Preferred Stock
authorized under the proposed amendments to the Battle Mountain Articles, will
be available for issuance from time to time in the sole discretion of the Battle
Mountain Canada Board of Directors, in the case of Exchangeable Shares and the
Battle Mountain Board of Directors, in the case of Battle Mountain Common Stock,
for any proper corporate purpose. The approval of the holders of Battle Mountain
Common Stock and Exchangeable Shares will not be sought by Battle Mountain for
the issuance of Exchangeable Shares or authorized but unissued shares of Battle
Mountain Common Stock or Battle Mountain Preferred Stock (or the reissuance of
previously issued shares that have been reacquired) or securities of Battle
Mountain that are convertible into or exercisable or exchangeable for such
shares, unless deemed advisable by the Battle Mountain Board of Directors or
required by applicable laws, regulations or stock exchange requirements. See
"THE TRANSACTION -- Future Issuances of Authorized Shares."
15
<PAGE> 24
GLOSSARY OF CERTAIN TERMS RELATING TO THE TRANSACTION
Unless the context otherwise requires, the following terms shall have the
following meanings when used in this Joint Proxy Statement.
"Agreement to Support the Transaction" means the agreement by and between
Battle Mountain and Noranda dated as of March 11, 1996.
"Ancillary Rights" means any and all rights granted by Battle Mountain to
Hemlo Gold shareholders in connection with the Arrangement and the documents
related thereto (including the Voting Rights and the Exchange Rights).
"Antitrust Division" means the Antitrust Division of the United States
Department of Justice.
"Arrangement" means the proposed arrangement of Hemlo Gold under section
182 of the OBCA pursuant to the Plan of Arrangement.
"Arrangement Resolution" means the special resolution of Hemlo Gold
shareholders concerning the Arrangement in the form set out in Annex A to this
Joint Proxy Statement.
"Battle Mountain" means Battle Mountain Gold Company, a Nevada corporation.
"Battle Mountain Affiliate" means each affiliate (as such term is defined
pursuant to Rule 145 under the Securities Act) of Battle Mountain.
"Battle Mountain Affiliate Agreements" means the affiliate agreements
executed by each Battle Mountain Affiliate and agreed to and accepted by Battle
Mountain and Hemlo Gold.
"Battle Mountain Articles" means Battle Mountain's Restated Articles of
Incorporation.
"Battle Mountain Bylaws" means Battle Mountain's bylaws, as amended from
time to time.
"Battle Mountain Canada" means Hemlo Gold after the Effective Date, which
will change its name to Battle Mountain Canada Inc. as of the Effective Time.
"Battle Mountain Canada Articles" means Battle Mountain Canada's articles
of amalgamation, as amended by the Plan of Arrangement.
"Battle Mountain Canada Common Shares" means the Common Shares of Battle
Mountain Canada.
"Battle Mountain Canada Insolvency Event" means the institution by Battle
Mountain Canada of any proceeding to be adjudicated a bankrupt or insolvent or
to be dissolved or wound up, or the consent of Battle Mountain Canada 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 Battle Mountain
Canada to contest in good faith any such proceedings commenced in respect of
Battle Mountain Canada within 15 days of becoming aware thereof, or the consent
by Battle Mountain Canada to the filing of any such petition or to the
appointment of a receiver, or the making by Battle Mountain Canada of a general
assignment for the benefit of creditors, or the admission in writing by Battle
Mountain Canada of its inability to pay its debts generally as they become due,
or Battle Mountain Canada not being permitted, pursuant to solvency requirements
of applicable law, to redeem any Exchangeable Shares pursuant to the
Exchangeable Share Provisions.
"Battle Mountain Common Stock" means the common stock, par value US$0.10
per share, of Battle Mountain.
"Battle Mountain Liquidation Event" means (i) any determination by Battle
Mountain's Board of Directors to institute voluntary liquidation, dissolution or
winding up proceedings (not including a reorganization under applicable
bankruptcy laws) with respect to Battle Mountain or to effect any other
distribution of assets of Battle Mountain among its stockholders for the purpose
of winding up its affairs or (ii) receipt by
16
<PAGE> 25
Battle Mountain of notice of, or Battle Mountain otherwise becoming aware of,
any threatened or instituted claim, suit, petition or other proceeding with
respect to the involuntary liquidation, dissolution or winding up (not including
a reorganization under applicable bankruptcy laws) of Battle Mountain or to
effect any other distribution of assets of Battle Mountain among its
stockholders for the purpose of winding up its affairs.
"Battle Mountain Option" means an option to purchase shares of Battle
Mountain Common Stock.
"Battle Mountain Record Date" means May 28, 1996.
"Battle Mountain Stockholders Meeting" means the meeting of stockholders of
Battle Mountain to be held with respect to, among other things, approval by
Battle Mountain's stockholders of the Combination Agreement and the transactions
contemplated thereby.
"Battle Mountain Sub" means Battle Mountain Canada Holdco, Inc., an
indirect, wholly owned subsidiary of Battle Mountain organized under the laws of
the State of Nevada, none of the stock of which is directly owned by Battle
Mountain.
"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 U.S. dollar amount by the noon spot exchange rate on such date for U.S.
dollars expressed in Canadian dollars as reported by the Bank of Canada.
"Canadian GAAP " means generally accepted accounting principles in Canada.
"Canada Holdco" means a single wholly owned subsidiary (within the meaning
of the OBCA) of Battle Mountain incorporated under the federal laws of Canada or
a province thereof.
"Canadian Tax Act" means the Income Tax Act (Canada), as amended.
"Closing" means the closing of the transactions contemplated by the
Combination Agreement.
"Closing Date" means the date on which the Closing occurs.
"Combination Agreement" means the Combination Agreement by and between
Battle Mountain and Hemlo Gold dated as of March 11, 1996, as amended and
restated, a copy of which is attached to this Joint Proxy Statement as Annex C.
"Competition Act" means the Competition Act (Canada), as amended.
"Court" means the Ontario Court of Justice (General Division).
"Current Market Price" has the meaning set forth in Section 1.1 of the
Exchangeable Share Provisions.
"Dissent Notice" means a written objection to the Arrangement sent by a
Hemlo Gold shareholder to Hemlo Gold as described under "DISSENTING
SHAREHOLDERS' RIGHTS."
"Dominion Securities" means RBC Dominion Securities Inc., financial advisor
to Hemlo Gold.
"Effective Date" means the date shown on the certificate of arrangement
issued by the Director under the OBCA giving effect to the Arrangement.
"Effective Time" means 12:01 a.m. (Toronto time) on the Effective Date.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Ratio" means 1.48:1, being the ratio of the number of
Exchangeable Shares for which each Hemlo Gold Common Share is exchanged pursuant
to the Plan of Arrangement.
"Exchange Rights" means the optional exchange right granted to the Trustee
for the use and benefit of the holders of the Exchangeable Shares pursuant to
the Voting, Support and Exchange Trust Agreement to require Battle Mountain to
exchange Exchangeable Shares for shares of Battle Mountain Common Stock,
17
<PAGE> 26
plus an additional amount equivalent to any declared and unpaid dividends on
such Exchangeable Shares, upon the occurrence of a Battle Mountain Canada
Insolvency Event.
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares, which are attached to the
Plan of Arrangement.
"Exchangeable Share Rights" has the meaning set forth below under "THE
COMPANIES AFTER THE TRANSACTION -- Battle Mountain Canada Share
Capital -- Associated Rights."
"Exchangeable Shares" means the Exchangeable Shares of Battle Mountain
Canada.
"Final Order" means the final order of the Court approving the Arrangement.
"FTC " means the United States Federal Trade Commission and all successors
thereto.
"Hemlo Gold " means Hemlo Gold Mines Inc., an Ontario corporation, which as
of the Effective Date will change its name to Battle Mountain Canada Inc.
"Hemlo Gold Affiliate" means each affiliate (as such term is defined
pursuant to Rule 145 under the Securities Act) of Hemlo Gold.
"Hemlo Gold Affiliate Agreements" means the affiliate agreements executed
by each Hemlo Gold Affiliate and agreed to and accepted by Battle Mountain and
Hemlo Gold.
"Hemlo Gold Articles" means the Hemlo Gold articles of amalgamation.
"Hemlo Gold Bylaws" means Hemlo Gold's bylaws, as amended from time to
time.
"Hemlo Gold Common Shares" means the Common Shares of Hemlo Gold, which
after the Effective Time are referred to as Battle Mountain Canada Common
Shares.
"Hemlo Gold Options" means all outstanding options to purchase Hemlo Gold
Common Shares, including all outstanding options granted under the Hemlo Gold
Stock Option Plan.
"Hemlo Gold Record Date" means June 13, 1996.
"Hemlo Gold Shareholders Meeting" means the annual and special meeting of
shareholders of Hemlo Gold to be held with respect to, among other things, the
approval by Hemlo Gold's shareholders of the Arrangement, the election of
directors and the appointment of independent auditors.
"HSR Act" means the United States Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Interim Order" means the interim order of the Court dated June 5, 1996, a
copy of which is attached hereto in Annex B.
"IRS " means the United States Internal Revenue Service.
"Joint Proxy Statement" means this joint management information circular
and proxy statement relating to the Hemlo Gold Shareholders Meeting and the
Battle Mountain Stockholders Meeting.
"Letter of Transmittal " means the letter delivered to holders of Hemlo
Gold Common Shares, which when duly completed and returned with a certificate
for Hemlo Gold Common Shares will enable such shareholder to exchange such
certificate for a certificate for Exchangeable Shares.
"LGL" means Lihir Gold Ltd.
"Liquidation Call Right" means the overriding right of Battle Mountain and
Battle Mountain Sub, in the event of a proposed liquidation, dissolution or
winding up of Battle Mountain Canada, to purchase all of the outstanding
Exchangeable Shares (other than Exchangeable Shares held by Battle Mountain,
Battle Mountain Sub or Canada Holdco) from the holders thereof on the effective
date of any such liquidation, dissolution or winding up in exchange for shares
of Battle Mountain Common Stock, plus an additional
18
<PAGE> 27
amount equivalent to all declared and unpaid dividends on such Exchangeable
Shares, pursuant to the Exchangeable Share Provisions.
"Minimum Number" means at least that number of the Exchangeable Shares
issued by Battle Mountain Canada pursuant to the Arrangement that are
exchangeable pursuant to any provision of the Exchangeable Share Provisions or
the Voting, Support and Exchange Trust Agreement into more than 5 percent of the
number of shares of Battle Mountain Common Stock outstanding at the Effective
Time (on a non-diluted basis).
"NGCL" means the Nevada General Corporation Law, as amended.
"Noranda" means Noranda Inc., an Ontario corporation.
"OBCA" means the Business Corporations Act (Ontario), as amended.
"Optional Redemption Date" means any date established by the Battle
Mountain Canada Board of Directors for the redemption of Exchangeable Shares
pursuant to the Exchangeable Share Provisions, provided that such date will not
be earlier than July 31, 2003 unless there are less than 5,000,000 Exchangeable
Shares outstanding (other than Exchangeable Shares held by Battle Mountain and
its direct and indirect subsidiaries and subject to adjustment to such number of
shares to reflect permitted changes to the Exchangeable Shares), as described in
"THE TRANSACTION -- Transaction Mechanics and Description of Exchangeable
Shares -- Exchange and Call Right."
"PNG" refers to the nation of Papua New Guinea.
"Plan of Arrangement" means the plan of arrangement proposed under section
182 of the OBCA substantially in the form attached hereto as Annex D, as
amended, modified or supplemented from time to time in accordance with its
terms.
"Redemption Call Right" means the overriding right of Battle Mountain and
Battle Mountain Sub to purchase all of the outstanding Exchangeable Shares
(other than Exchangeable Shares held by Battle Mountain, Battle Mountain Sub or
Canada Holdco) from the holders thereof on the date fixed for redemption thereof
in exchange for shares of Battle Mountain Common Stock, plus an additional
amount equivalent to all declared and unpaid dividends on such Exchangeable
Shares, pursuant to the Exchangeable Share Provisions.
"Retraction Call Right" means the overriding right of Battle Mountain and
Battle Mountain Sub, in the event of a proposed retraction of Exchangeable
Shares by a holder thereof, to purchase from such holder on the Retraction Date
all of the Exchangeable Shares tendered for redemption in exchange for shares of
Battle Mountain Common Stock, plus an additional amount equivalent to all
declared and unpaid dividends on such Exchangeable Shares, pursuant to the
Exchangeable Share Provisions.
"Retraction Date" means a date, determined by a holder of Exchangeable
Shares, on which such holder can effect a redemption of such Exchangeable Shares
as further set out in the Exchangeable Share Provisions and described in "THE
TRANSACTION -- Transaction Mechanics and Description of Exchangeable
Shares -- Exchange and Call Right."
"Retraction Request" means a duly executed notice of retraction given by a
holder of Exchangeable Shares in the form of Schedule A to the Exchangeable
Share Provisions, or in such other form as may be acceptable to Battle Mountain
Canada.
"Salomon" means Salomon Brothers Inc, financial advisor to Battle Mountain.
"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.
"Special Voting Stock" means the special voting stock, par value US$0.10
per share, of Battle Mountain, the one share of which will be issued by Battle
Mountain and deposited with the Trustee pursuant to the Voting, Support and
Exchange Trust Agreement.
19
<PAGE> 28
"Tax Cooperation Agreement" means the tax cooperation agreement
substantially in the form of Exhibit 4.19 to the Combination Agreement.
"Transaction" means the transactions contemplated by the Combination
Agreement and by the Plan of Arrangement whereby, among other consequences,
Battle Mountain will become the sole holder, directly or indirectly, of Hemlo
Gold Common Shares.
"Trustee" means The R-M Trust Company, or any successor thereto, pursuant
to the Voting, Support and Exchange Trust Agreement.
"U.S. Code" means the United States Internal Revenue Code of 1986, as
amended.
"U.S. GAAP " means generally accepted accounting principles in the United
States.
"Voting Rights" means the rights of the holders of Exchangeable Shares
other than Battle Mountain and certain subsidiaries of Battle Mountain to direct
the votes attached to the share of Special Voting Stock in accordance with the
Voting, Support and Exchange Trust Agreement.
"Voting, Support and Exchange Trust Agreement" means the voting, support
and exchange trust agreement to be entered into between Hemlo Gold, Battle
Mountain and the Trustee, substantially in the form of Annex E hereto.
20
<PAGE> 29
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
The financial statements and the pro forma financial statements of, and the
summaries of historical and pro forma financial information concerning, Battle
Mountain contained in this Joint Proxy Statement are reported in U.S. dollars
and have been prepared in accordance with U.S. GAAP.
The financial statements of, and the summaries of financial information
concerning, Hemlo Gold contained in this Joint Proxy Statement are reported in
Canadian dollars and have been prepared in accordance with Canadian GAAP, which,
as applied to Hemlo Gold, conforms in all material respects with U.S. GAAP
except as described in Note 16 of the Notes to Hemlo Gold's Consolidated
Financial Statements.
EXCHANGE RATE OF CANADIAN AND U.S. DOLLARS
In this Joint Proxy Statement, dollar amounts are expressed either in U.S.
dollars ("US$") or Canadian dollars ("C$").
The following table sets forth, for each period indicated, the high and low
exchange rates for one Canadian dollar expressed in U.S. 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, based upon the noon buying rate in New
York City for cable transfers in Canadian dollars, as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate"):
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
High....................................... 0.8926 0.8757 0.8046 0.7632 0.7527 0.7391
Low........................................ 0.8587 0.7761 0.7439 0.7103 0.7023 0.7235
Average.................................... 0.8726 0.8235 0.7729 0.7300 0.7305 0.7298
Period End................................. 0.8652 0.7865 0.7544 0.7128 0.7323 0.7334
</TABLE>
On May 31, 1996, the exchange rate for one Canadian dollar expressed in
U.S. dollars based on the Noon Buying Rate was US$0.7297.
The following table sets forth, for each period indicated, the high and low
exchange rates for one U.S. 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, based upon the noon spot rate of the
Bank of Canada (the "Noon Spot Rate"):
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
High....................................... 1.1642 1.2887 1.3449 1.4074 1.4235 1.3860
Low........................................ 1.1200 1.1416 1.2423 1.3102 1.3282 1.3525
Average.................................... 1.1457 1.2140 1.2936 1.3698 1.3686 1.3699
Period End................................. 1.1556 1.2711 1.3240 1.4028 1.3652 1.3632
</TABLE>
On May 31, 1996, the exchange rate for one U.S. dollar expressed in
Canadian dollars was C$1.3703, based on the Noon Spot Rate.
21
<PAGE> 30
COMPARATIVE MARKET PRICE DATA
Hemlo Gold Common Shares are traded under the symbol "HEM" on the TSE, The
Montreal Exchange, the American Stock Exchange ("AMEX") and the International
Stock Exchange, London, England, and shares of Battle Mountain Common Stock are
traded under the symbol "BMG" on the NYSE, the TSE, the Australian Stock
Exchange Limited, the Swiss Stock Exchanges and the Frankfurt Stock Exchange.
The following table sets forth the high and low sales prices of Hemlo Gold
Common Shares on the TSE and the AMEX and of shares of Battle Mountain Common
Stock on the NYSE for the periods indicated. The quotations are as reported in
published financial sources. TSE quotations are expressed in C$; AMEX and NYSE
quotations are expressed in US$. On April 15, 1996, the TSE began expressing
quotations in decimals.
<TABLE>
<CAPTION>
HEMLO GOLD
------------------------------------------------- BATTLE MOUNTAIN
AVERAGE ------------------------------
DAILY AVERAGE
VOLUME DAILY
(IN VOLUME
HIGH LOW THOUSANDS) HIGH LOW (IN THOUSANDS)
------------- ------------- ---------- ---- ---- --------------
TSE AMEX TSE AMEX TSE AMEX NYSE NYSE NYSE
------ ---- ------ ---- --- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar Quarter --
1994
First Quarter..... $15 5/8 $11 7/8 $12 $ 8 7/8 78 84 $12 1/8 $10 3/8 652
Second Quarter.... 14 10 11 1/2 8 1/2 55 65 11 3/8 9 1/8 388
Third Quarter..... 15 3/4 11 3/4 11 5/8 8 1/2 68 63 12 3/4 9 5/8 432
Fourth Quarter.... 15 3/8 11 1/2 12 8 5/8 54 49 12 3/4 9 3/8 385
Calendar Quarter --
1995
First Quarter..... 14 1/4 10 1/4 11 1/2 8 1/4 67 52 12 8 7/8 744
Second Quarter.... 16 5/8 12 1/8 14 10 1/8 90 68 12 3/8 9 3/8 699
Third Quarter..... 15 3/4 11 5/8 12 3/8 9 1/4 70 63 10 7/8 9 3/8 467
Fourth Quarter.... 14 1/4 10 3/8 10 3/8 7 5/8 79 71 9 7/8 7 5/8 422
Calendar Quarter --
1996
First Quarter..... 19 3/8 14 1/4 12 7/8 9 7/16 209 181 11 5/8 8 1/2 839
Second Quarter
(through June
6)............. 19.38 14 1/4 16.34 12 67 169 9 7/8 8 1/8 675
</TABLE>
On March 8, 1996, the last full trading day prior to the joint public
announcement by Hemlo Gold and Battle Mountain of a definitive agreement with
respect to the Transaction, the last reported sales price on the TSE of Hemlo
Gold Common Shares was C$17 1/4 and the last reported sales price on the AMEX
was US$12 1/2. The last reported sales price of Battle Mountain Common Stock on
the NYSE on March 8, 1996, was US$10 3/8 (equivalent to US$15.36 per share of
Hemlo Gold Common Shares based on the 1.48 Exchange Ratio). On June 6, 1996, the
last reported sales price per share of Hemlo Gold Common Shares on the TSE and
the AMEX was C$16.55 and US$12, respectively, and the last reported sales price
of Battle Mountain Common Stock on the NYSE was US$8 1/8.
Cash dividends of US$0.025 per share were paid on shares of Battle Mountain
Common Stock in each half of fiscal 1995 and 1994. Hemlo Gold paid cash
dividends of C$0.10 per share semi-annually in 1995 and 1994 and additional
special dividends totaling C$0.15 per share in 1994.
Determinations to pay future dividends and the amount thereof will be made
by the Board of Directors of the combined company and will depend on its future
earnings, capital requirements, financial condition and other relevant factors.
Following consummation of the Transaction, it is expected that most of the
earnings of the combined company will be retained to support current operations,
to fund exploration and development projects and to provide funds for acquiring
gold properties. Battle Mountain's ability to pay dividends is subject to
certain restrictions contained in its revolving credit facility. See "BATTLE
MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Liquidity and Capital Resources" and Note 5 of Notes to Battle
Mountain Consolidated Financial Statements.
On June 5, 1996, there were 81,339,897 shares of Battle Mountain Common
Stock outstanding held of record by 18,812 stockholders.
22
<PAGE> 31
COMPARATIVE PER SHARE DATA
COMPARISON OF EARNINGS, DIVIDENDS AND BOOK VALUE
PER SHARE OF COMMON STOCK(1)
<TABLE>
<CAPTION>
PRO FORMA EARNINGS DIVIDEND
GIVING EFFECT EQUIVALENT
TO TRANSACTION(2) TO CASH
PER BATTLE MOUNTAIN PER HEMLO GOLD -------------------------------------- DIVIDEND
COMMON SHARE COMMON SHARE PER 1.48 PAID ON 1.48
YEAR ENDED ----------------------- -------------------------- PER BATTLE MOUNTAIN BATTLE MOUNTAIN BATTLE MOUNTAIN
DECEMBER 31, EARNINGS DIVIDENDS EARNINGS DIVIDENDS COMMON SHARE COMMON SHARES COMMON SHARES
- ------------ -------- ----------- ----------- ----------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995(3) US$ .09 US$ .05 C$.20 C$.20 US$ .10 US$ .15 US$ .07
1994 US$ .02 US$ .05 C$.67 C$.35 US$ .22 US$ .33 US$ .07
1993 US$ (.10) US$ .05 C$.47 C$.30 US$ .12 US$ .18 US$ .07
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 US$ (.07) US$.025 C$.13 -- US$ .01 US$ .01 US$.037
1995 US$ .01 US$.025 C$.14 -- US$ .04 US$ .06 US$.037
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA BOOK VALUE
GIVING EFFECT
TO TRANSACTION(2)
--------------------------------------
PER 1.48
PER BATTLE MOUNTAIN BATTLE MOUNTAIN
BATTLE MOUNTAIN HEMLO GOLD COMMON SHARE COMMON SHARES
--------------- ---------- ------------------- ---------------
<S> <C> <C> <C> <C>
Book Value at March 31, 1996........ US$3.14 C$3.66 US$2.23 US$3.30
</TABLE>
- ---------------
(1) This Comparison should be read in conjunction with the pro forma combined
financial statements and the separate financial statements of the respective
companies and the notes thereto appearing herein.
(2) Each Hemlo Gold Common Share at the date of the Transaction will be
exchanged for 1.48 Exchangeable Shares which can be exchanged on a
one-for-one basis for shares of Battle Mountain Common Stock. The pro forma
amounts give effect to the Transaction on a pooling of interests basis.
(3) Hemlo Gold's 1995 results were significantly impacted by a 13-week strike
and a 7-week shutdown for shaft rehabilitation at the Golden Giant Mine.
23
<PAGE> 32
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data for the
five fiscal years ended December 31, 1995 and the three month periods ended
March 31, 1996 and 1995 for Battle Mountain and Hemlo Gold. The selected
historical financial data for Battle Mountain for the five fiscal years ended
December 31, 1995 has been derived from Battle Mountain's consolidated financial
statements, which statements for the year ended December 31, 1995 have been
audited by Price Waterhouse LLP, independent accountants, and for each of the
years in the four-year period ended December 31, 1994 by Arthur Andersen LLP,
independent auditors, whose reports on certain of such financial statements are
included herein. The selected historical financial data for Hemlo Gold for each
of the years in the five-year period ended December 31, 1995 has been derived
from Hemlo Gold's consolidated financial statements, which statements have been
audited by Ernst & Young, Chartered Accountants, whose report on certain of such
financial statements is included herein. The selected historical financial data
for Battle Mountain and Hemlo Gold for the three-month periods ended March 31,
1996 and 1995 have been derived from unaudited condensed consolidated financial
statements of Battle Mountain and Hemlo Gold, and include, in the opinion of
management of Battle Mountain and Hemlo Gold, respectively, all adjustments
necessary to present fairly the results of such periods. This selected
historical financial data should be read in conjunction with the separate
consolidated financial statements and notes thereto of Battle Mountain and Hemlo
Gold, which are included elsewhere in this Joint Proxy Statement. See "INDEX TO
FINANCIAL STATEMENTS."
Hemlo Gold's financial statements are prepared in accordance with Canadian
GAAP which, as applied to Hemlo Gold, does not differ materially from U.S. GAAP
except as described in Note 16 of the Notes to Hemlo Gold's Consolidated
Financial Statements.
BATTLE MOUNTAIN
The following table sets forth certain consolidated financial data of
Battle Mountain for the respective periods presented and should be read in
conjunction with Battle Mountain's consolidated financial statements and the
related notes thereto and Battle Mountain Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(EXPRESSED IN US$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Gross revenue................... 60,239 56,120 299,295 242,984 207,251 192,190 176,464
Net revenue..................... 57,685 54,082 284,260 229,670 193,415 181,803 170,242
Operating income (loss)(1)...... (5,521) 3,420 15,984 19,942 (5,734) (45,295) (6,398)
Income (loss) before cumulative
effect of accounting
changes(1).................... (4,003) 2,482 15,245 9,572 (4,405) (34,941) (1,174)
Cumulative effects of accounting
changes (net of taxes)(2)..... -- -- -- -- -- (1,462) --
Net income (loss)(1)............ (4,003) 2,482 15,245 9,572 (4,405) (36,403) (1,174)
Preferred dividends............. 1,869 1,869 7,475 7,475 3,738 -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss) to common
shares(1)..................... (5,872) 613 7,770 2,097 (8,143) (36,403) (1,174)
======= ======= ======= ======= ======= ======= =======
Income (loss) per share before
accounting changes............ (.07) .01 .09 .02 (.10) (.44) (.02)
Cumulative effects of accounting
changes (net of taxes) per
share(2)...................... -- -- -- -- -- (.02) --
------- ------- ------- ------- ------- ------- -------
Net income (loss) per share..... (.07) .01 .09 .02 (.10) (.46) (.02)
======= ======= ======= ======= ======= ======= =======
Cash dividends per common
share......................... .025 .025 .05 .05 .05 .10 .10
======= ======= ======= ======= ======= ======= =======
</TABLE>
24
<PAGE> 33
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, -------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------- ------- ------- ------- ------- -------
(EXPRESSED IN US$ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet
Data:
Total assets...... 743,096 737,139 679,769 668,152 577,484 524,520
============ ======= ======= ======= ======= =======
Long-term debt,
less current
maturities...... 182,166 169,175 165,602 179,053 198,593 125,403
============ ======= ======= ======= ======= =======
Shareholders'
equity.......... 366,168 371,058 375,634 369,560 269,779 314,562
============ ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) In 1995, Battle Mountain wrote off US$1.4 million, net of a US$.8 million
income tax benefit related to the decommissioned and dismantled milling
facility formerly used at the depleted Fortitude mine in Nevada. In 1992,
Battle Mountain (i) wrote down US$17.6 million, net of a US$9.1 million
income tax benefit, of Battle Mountain's investment in the San Luis mine
and (ii) wrote off US$4 million, net of a US$2 million income tax benefit,
of Battle Mountain's investment in the previously closed Canyon Placer
facility, which was abandoned because of gold prices being persistently
less than needed for development. In 1991, Battle Mountain wrote down
US$4.5 million, net of a US$1.1 million income tax benefit, of Battle
Mountain's carrying value in its investment in the San Juan Project in
California. In March 1992, Battle Mountain sold its interest in the San
Juan Project.
(2) For 1992, includes Battle Mountain's adoption of SFAS No. 109, "Accounting
for Income Taxes," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions."
HEMLO GOLD
The following table sets forth certain consolidated financial data of Hemlo
Gold for the respective periods presented, and should be read in conjunction
with the consolidated financial statements and the related notes thereto and
Hemlo Gold Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ---------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- ----- -----
(EXPRESSED IN C$ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.............................. 61.0 57.5 139.9 254.5 217.1 211.9 203.3
Mining income........................ 30.6 27.4 46.7 135.4 100.5 96.5 92.7
Exploration and evaluation expense... 6.2 2.8 16.6 13.8 12.5 16.1 19.7
Gains (losses) on investments........ -- -- -- 1.5 -- (0.5) (33.6)
Earnings before taxes................ 26.6 28.4 41.1 133.1 94.1 88.3 47.0
Earnings............................. 12.6 13.6 20.2 64.5 45.6 41.9 13.7
Earnings per common share (note 1)... 0.13 0.14 0.20 0.67 0.47 0.43 0.15
Total assets (note 2)................ 537.1 573.6 535.7 593.8 502.1 521.1 500.5
Long-term debt and deferred income... -- -- -- -- 24.3 48.6 72.9
Shareholders' equity................. 366.2 365.5 352.7 351.8 282.6 265.7 241.5
Dividends declared per common
share.............................. -- -- 0.20 0.35 0.30 0.20 0.20
</TABLE>
- ---------------
NOTES:
(1) Per share data is both basic and fully diluted. Stock options have no
dilutive effect.
(2) Under U.S. GAAP, total assets would be C$558.1 million and C$594.6 million
at March 31, 1996 and 1995, respectively, and C$556.7 million and C$614.8
million at December 31, 1995 and 1994, respectively, as a result of
applying SFAS 109 to the acquisition of Freewest Resources Inc.
25
<PAGE> 34
PRO FORMA FINANCIAL INFORMATION
BATTLE MOUNTAIN AND HEMLO GOLD
The following unaudited pro forma financial statements give effect to the
Transaction to be accounted for as a pooling of interests. The unaudited pro
forma condensed statements of income give effect to the proposed Transaction by
combining the results of operations of Battle Mountain for the three years ended
December 31, 1995 and the three months ended March 31, 1996 and 1995, with the
results of operations of Hemlo Gold for the three years ended December 31, 1995
and the three months ended March 31, 1996 and 1995, on a pooling of interests
basis. The unaudited pro forma condensed balance sheet presents the combined
financial position of Battle Mountain and Hemlo Gold as of March 31, 1996,
assuming that the proposed Transaction had occurred as of March 31, 1996. Such
pro forma information is based upon the historical balance sheet data of Battle
Mountain and Hemlo Gold as of that date. These unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements and notes thereto of Battle Mountain and Hemlo Gold included
elsewhere in this Joint Proxy Statement.
26
<PAGE> 35
BATTLE MOUNTAIN AND HEMLO GOLD
PRO FORMA COMBINED INCOME STATEMENT -- UNAUDITED
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
BATTLE PRO FORMA
MOUNTAIN HEMLO GOLD COMBINED
----------- ----------- -----------
(IN THOUSANDS OF US$)
<S> <C> <C> <C>
Net revenue...................................... $57,685 $44,529 $ 102,214
Costs and expenses
Operating costs................................ 39,827 13,760 53,587
Depreciation, depletion and amortization....... 14,483 6,330 20,813
Quarter claim royalties........................ -- 1,241 1,241
Exploration, evaluation and other lease
costs....................................... 4,839 4,528 9,367
General and administrative expenses............ 3,311 839 4,150
Taxes other than income........................ 746 -- 746
------- ------- ---------
Total costs and expenses............... 63,206 26,698 89,904
------- ------- ---------
Operating (loss) income.......................... (5,521) 17,831 12,310
Investment income................................ 808 1,589 2,397
Interest (expense), net.......................... (1,687) -- (1,687)
Other (expense), net............................. (1,511) -- (1,511)
------- ------- ---------
Income(loss) before income taxes and minority
interest....................................... (7,911) 19,420 11,509
Income tax (benefit) expense..................... (2,545) 6,416 3,871
Mining taxes..................................... -- 3,832 3,832
Minority interest in net (income) loss........... 1,363 -- 1,363
------- ------- ---------
Net income (loss)................................ (4,003) 9,172 5,169
Preferred dividends.............................. 1,869 -- 1,869
------- ------- ---------
Net income (loss) to common shares............... $(5,872) $ 9,172 $ 3,300
======= ======= =========
Net income (loss) per share...................... $ (0.07) $ 0.01
======= =========
Average common shares outstanding for income per
share purposes................................. 81,251 229,226
======= =========
</TABLE>
(The accompanying notes are an integral part of these pro forma financial
statements)
27
<PAGE> 36
BATTLE MOUNTAIN AND HEMLO GOLD
PRO FORMA COMBINED INCOME STATEMENT -- UNAUDITED
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
BATTLE PRO FORMA
MOUNTAIN HEMLO GOLD COMBINED
----------- ----------- -----------
(IN THOUSANDS OF US$)
<S> <C> <C> <C>
Net revenue...................................... $54,082 $40,880 $94,962
Costs and expenses
Operating costs................................ 31,811 13,669 45,480
Depreciation, depletion and amortization....... 12,358 5,807 18,165
Quarter claim royalties........................ -- 1,054 1,054
Exploration, evaluation and other lease
costs....................................... 3,222 1,979 5,201
General and administrative expenses............ 2,709 847 3,556
Taxes other than income........................ 562 -- 562
------- ------- -------
Total costs and expenses............... 50,662 23,356 74,018
------- ------- -------
Operating income................................. 3,420 17,524 20,944
Investment income................................ 947 2,756 3,703
Interest (expense), net.......................... (1,711) (93) (1,804)
Other income, net................................ 650 -- 650
------- ------- -------
Income before income taxes and minority
interest....................................... 3,306 20,187 23,493
Income tax expense............................... 261 6,460 6,721
Mining taxes..................................... -- 4,037 4,037
Minority interest in net (income)................ (563) -- (563)
------- ------- -------
Net income....................................... 2,482 9,690 12,172
Preferred dividends.............................. 1,869 -- 1,869
------- ------- -------
Net income to common shares...................... $ 613 $ 9,690 $10,303
======= ======= =======
Net income per share............................. $ 0.01 $ 0.04
======= =======
Average common shares outstanding for income per
share purposes................................. 86,294 229,592
======= =======
</TABLE>
(The accompanying notes are an integral part of these pro forma financial
statements)
28
<PAGE> 37
BATTLE MOUNTAIN AND HEMLO GOLD
PRO FORMA COMBINED INCOME STATEMENT -- UNAUDITED
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
BATTLE PRO FORMA
MOUNTAIN HEMLO GOLD COMBINED
----------- ----------- -----------
(IN THOUSANDS OF US$)
<S> <C> <C> <C>
Net revenue...................................... $ 284,260 $ 101,882 $ 386,142
Costs and expenses
Operating costs................................ 161,372 46,116 207,488
Depreciation, depletion and amortization....... 70,752 15,868 86,620
Quarter claim royalties........................ -- 3,031 3,031
Exploration, evaluation and other lease
costs....................................... 18,032 12,067 30,099
Asset write-downs.............................. 2,222 -- 2,222
General and administrative expenses............ 13,161 2,859 16,020
Taxes other than income........................ 2,737 -- 2,737
--------- --------- ---------
Total costs and expenses............... 268,276 79,941 348,217
--------- --------- ---------
Operating income................................. 15,984 21,941 37,925
Investment income................................ 3,125 8,152 11,277
Interest (expense), net.......................... (7,424) (156) (7,580)
Other income, net................................ 6,912 -- 6,912
--------- --------- ---------
Income before income taxes and minority
interest....................................... 18,597 29,937 48,534
Income tax (benefit) expense..................... (2,804) 10,452 7,648
Mining taxes..................................... -- 4,778 4,778
Minority interest in net (income)................ (6,156) -- (6,156)
--------- --------- ---------
Net income....................................... 15,245 14,707 29,952
Preferred dividends.............................. 7,475 -- 7,475
--------- --------- ---------
Net income to common shares...................... $ 7,770 $ 14,707 $ 22,477
========= ========= =========
Net income per share............................. $ 0.09 $ 0.10
========= =========
Average common shares outstanding for income per
share purposes................................. 86,327 229,625
========= =========
</TABLE>
(The accompanying notes are an integral part of these pro forma financial
statements)
29
<PAGE> 38
BATTLE MOUNTAIN AND HEMLO GOLD
PRO FORMA COMBINED INCOME STATEMENT -- UNAUDITED
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
BATTLE PRO FORMA
MOUNTAIN HEMLO GOLD COMBINED
----------- ----------- -----------
(IN THOUSANDS OF US$)
<S> <C> <C> <C>
Net revenue...................................... $ 229,670 $ 186,360 $ 416,030
Costs and expenses
Operating costs................................ 128,970 54,200 183,170
Depreciation, depletion and amortization....... 51,247 25,185 76,432
Quarter claim royalties........................ -- 4,939 4,939
Exploration, evaluation and other lease
costs....................................... 14,542 11,294 25,836
General and administrative expenses............ 12,376 2,915 15,291
Taxes other than income........................ 2,593 -- 2,593
--------- --------- ---------
Total costs and expenses............... 209,728 98,533 308,261
--------- --------- ---------
Operating income................................. 19,942 87,827 107,769
Investment income................................ 4,149 7,625 11,774
Interest (expense), net.......................... (7,369) (324) (7,693)
Other income (expense), net...................... (244) 2,339 2,095
--------- --------- ---------
Income before income taxes and minority
interest....................................... 16,478 97,467 113,945
Income tax expense............................... 2,519 30,861 33,380
Mining taxes..................................... -- 19,396 19,396
Minority interest in net (income)................ (4,387) -- (4,387)
--------- --------- ---------
Net income....................................... 9,572 47,210 56,782
Preferred dividends.............................. 7,475 -- 7,475
--------- --------- ---------
Net income to common shares...................... $ 2,097 $ 47,210 $ 49,307
========= ========= =========
Net income per share............................. $ 0.02 $ 0.22
========= =========
Average common shares outstanding for income per
share purposes................................. 86,071 229,307
========= =========
</TABLE>
(The accompanying notes are an integral part of these pro forma financial
statements)
30
<PAGE> 39
BATTLE MOUNTAIN AND HEMLO GOLD
PRO FORMA COMBINED INCOME STATEMENT -- UNAUDITED
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
BATTLE PRO FORMA
MOUNTAIN HEMLO GOLD COMBINED
----------- ----------- -----------
(IN THOUSANDS OF US$)
<S> <C> <C> <C>
Net revenue...................................... $ 193,415 $ 168,307 $ 361,722
Costs and expenses
Operating costs................................ 133,069 57,871 190,940
Depreciation, depletion and amortization....... 41,389 24,336 65,725
Quarter claim royalties........................ -- 5,353 5,353
Exploration, evaluation and other lease
costs....................................... 9,474 11,211 20,685
General and administrative expenses............ 12,901 2,839 15,740
Taxes other than income........................ 2,316 -- 2,316
--------- --------- ---------
Total costs and expenses............... 199,149 101,610 300,759
--------- --------- ---------
Operating (loss) income.......................... (5,734) 66,697 60,963
Investment income................................ 2,689 5,655 8,344
Interest (expense), net.......................... (6,448) (934) (7,382)
Other income, net................................ 5,708 1,550 7,258
--------- --------- ---------
Income (loss) before income taxes and minority
interest....................................... (3,785) 72,968 69,183
Income tax (benefit) expense..................... (4,089) 22,844 18,755
Mining taxes..................................... -- 14,737 14,737
Minority interest in net (income)................ (4,709) -- (4,709)
--------- --------- ---------
Net income (loss)................................ (4,405) 35,387 30,982
Preferred dividends.............................. 3,738 -- 3,738
--------- --------- ---------
Net income (loss) to common shares............... $ (8,143) $ 35,387 $ 27,244
========= ========= =========
Net income (loss) per share...................... $ (0.10) $ 0.12
========= =========
Average common shares outstanding for income per
share purposes................................. 80,132 228,288
========= =========
</TABLE>
(The accompanying notes are an integral part of these pro forma financial
statements)
31
<PAGE> 40
BATTLE MOUNTAIN AND HEMLO GOLD
PRO FORMA COMBINED BALANCE SHEET -- UNAUDITED
<TABLE>
<CAPTION>
BATTLE
MOUNTAIN HEMLO GOLD
MARCH 31, MARCH 31, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
(IN THOUSANDS OF US$)
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents.......... $ 42,658 $ 97,179 $ -- $ 139,837
Accounts and notes receivable...... 27,591 4,403 -- 31,994
Product inventories................ 14,113 2,017 -- 16,130
Materials and supplies............. 29,102 5,436 -- 34,538
Other current assets............... 14,739 -- -- 14,739
--------- --------- --------- ----------
Total current assets.......... 128,203 109,035 -- 237,238
--------- --------- --------- ----------
Investments........................... 231,422 13,718 -- 245,140
Property, plant and equipment, net.... 352,152 265,572 15,406(5) 633,130
Other assets.......................... 31,319 5,671 5,960(6) 42,950
--------- --------- --------- ----------
Total assets.................. $ 743,096 $ 393,996 $ 21,366 $1,158,458
========= ========= ========= ==========
Liabilities & Shareholders' Equity
Current Liabilities
Short term borrowings.............. $ 449 $ -- $ -- $ 449
Current maturities of long
term debt........................ 13,428 -- -- 13,428
Accounts payable and accrued
liabilities...................... 24,970 9,339 -- 34,309
Other current liabilities.......... 5,047 13,930 18,000(6) 36,977
--------- --------- --------- ----------
Total current liabilities..... 43,894 23,269 18,000 85,163
--------- --------- --------- ----------
Long term debt........................ 182,166 -- -- 182,166
Deferred income and mining taxes...... 8,336 84,902 15,406(5) 108,644
Other liabilities..................... 31,565 5,404 -- 36,969
--------- --------- --------- ----------
Total liabilities............. 265,961 113,575 33,406 412,942
--------- --------- --------- ----------
Minority Interest....................... 110,967 11,813 -- 122,780
--------- --------- --------- ----------
Commitments and contingencies........... -- -- -- --
Shareholders' Equity
Preferred stock....................... 110,578 -- -- 110,578
Common stock and additional paid in
capital............................ 209,168 145,163 -- 354,331
Retained earnings..................... 45,877 140,036 (12,040)(6) 173,873
Foreign currency translation
adjustment......................... 545 (16,591) -- (16,046 )
--------- --------- --------- ----------
Total shareholders' equity.... 366,168 268,608 (12,040) 622,736
--------- --------- --------- ----------
Total liabilities and
shareholders' equity........ $ 743,096 $ 393,996 $ 21,366 $1,158,458
========= ========= ========= ==========
</TABLE>
(The accompanying notes are on integral part of these pro forma financial
statements)
32
<PAGE> 41
BATTLE MOUNTAIN AND HEMLO GOLD
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AND COMBINED STATEMENTS OF INCOME
1. The unaudited pro forma combined statements of income were prepared as if the
companies were combined as of the beginning of the periods presented.
2. The unaudited pro forma combined financial statements should be read in
conjunction with the unaudited balance sheets as of March 31, 1996, the
related statements of income for the three months ended March 31, 1996 and
1995 and the audited statements of income for each of the three years ended
December 31, 1995, of Battle Mountain and Hemlo Gold.
3. The unaudited pro forma combined statements of income are not necessarily
indicative of operating results that would have been achieved had the
Transaction been consummated at the beginning of the periods presented and
should not be construed as representative of future operations.
4. The Hemlo Gold statements of income were converted from C$ to US$ using
average exchange rates for each period presented. The balance sheet of Hemlo
Gold was converted from C$ to US$ using the exchange rate effective on the
balance sheet date.
5. Hemlo Gold's historical financial statements were prepared in accordance with
Canadian GAAP. These unaudited pro forma combined financial statements
contain an adjustment to conform Hemlo Gold's balance sheet as of March 31,
1996 to U.S. GAAP. U.S. GAAP requires under SFAS 109 that the liability
method is used in accounting for income taxes. Under this method, deferred
tax assets and liabilities are determined based on tax carry-forwards and the
differences between financial reporting and the tax basis of assets and
liabilities. Under Canadian GAAP, deferred taxes are provided based on
differences between amounts included in the income statement and amounts
included in the income tax return. An adjustment has been made to the Pro
Forma Combined Balance Sheet to conform Hemlo Gold's method of accounting for
income taxes to U.S. GAAP. This adjustment relates to the gross up of the
purchase price of Freewest Resources Inc. for related deferred income taxes
as required by SFAS 109.
6. Battle Mountain and Hemlo Gold expect to incur charges to operations
estimated to total approximately US$18 million in the period of consummation
of the Transaction. These costs are primarily related to professional
services and other merger related expenses. An estimated charge of
approximately US$12 million, net of related estimated income tax benefits, is
included in the Pro Forma Combined Balance Sheet but has not been included in
the Pro Forma Combined Statements of Income. This amount is a preliminary
estimate only and is subject to change.
7. Certain amounts have been reclassified to conform to the pro forma
presentation.
33
<PAGE> 42
SELECTED PRO FORMA OPERATING DATA
PRO FORMA NET PROVEN AND PROBABLE RESERVES (1)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------
THOUSANDS OF AVERAGE GOLD ORE CONTAINED
TONS (NET BASIS) GRADE (OUNCE PER TON) OUNCES
---------------- --------------------- ---------
<S> <C> <C> <C>
Operating Properties:
Battle Mountain (Reona)...................... 13,610 .022 295,000
Golden Giant................................. 10,968 .322 3,533,000
Kori Kollo................................... 49,421 .061 3,065,000
Pajingo/Cindy................................ 77 .217 15,000
Red Dome..................................... 1,017 .056 60,000
San Cristobal................................ 5,676 .029 165,000
San Luis..................................... 2,156 .043 95,000
Silidor...................................... 374 .137 51,000
------- ---------
Total operating properties.............. 83,311 .087 7,279,000
======= =========
Development Properties (2):
Battle Mountain (Phoenix).................... 46,600 .039 1,890,000
Crown Jewel.................................. 4,595 .182 835,000
Holloway..................................... 5,383 .197 1,061,300
Lihir........................................ 9,925 .128 1,265,000
New World.................................... 4,927 .206 1,010,100
------- ---------
Total development properties............ 71,430 .084 6,061,400
======= =========
</TABLE>
- ---------------
(1) Reflects Battle Mountain's net interest in Empresa Minera Inti Raymi S.A., a
Bolivian company ("Inti Raymi"), and Niugini Mining Limited, a Papua New
Guinea company ("Niugini Mining"), as of the date presented, and Hemlo
Gold's net interest in Crown Butte Resources Ltd., a Canadian corporation
("Crown Butte"), and the Silidor Mine as of the date presented. For more
detailed information concerning Battle Mountain's reserves and the
ownership, operation and development of Battle Mountain's properties, see
"INFORMATION CONCERNING BATTLE MOUNTAIN." For more detailed information
concerning Hemlo Gold's reserves and the ownership, operations and
development of Hemlo Gold's properties, see "INFORMATION CONCERNING HEMLO
GOLD." See also "RISK FACTORS -- Reserve Estimates" and "-- Government
Regulation."
(2) Realization of these reserves is subject to, among other things, completion
of development. In addition, realization of reserves for these properties
(other than Holloway and Lihir) is subject to obtaining permits and
approvals, and there can be no assurance that they will be obtained. See
"INFORMATION CONCERNING BATTLE MOUNTAIN," "INFORMATION CONCERNING HEMLO
GOLD" and "RISK FACTORS -- Reserve Estimates," "-- Speculative Nature of
Mineral Exploration and Development; Replacement of Reserves" and
"-- Government Regulation."
34
<PAGE> 43
PRO FORMA AGGREGATE PRODUCTION, PRICE AND COST DATA
<TABLE>
<CAPTION>
BATTLE MOUNTAIN HEMLO GOLD
YEAR ENDED DECEMBER YEAR ENDED DECEMBER PRO FORMA COMBINED
31, 31, YEAR ENDED DECEMBER 31,
------------------- ---------------------- -----------------------
1995 1994 1995 1994 1995 1994
------- ------- ---------- ------- ---------- -------
NET (1) NET (2) NET (1)(3) NET (2) NET (1)(3) NET (2)
------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Production:
Gold production (000s oz).... 579 486 264 489 843 975
Silver production (000s
oz)....................... 1,855 1,724 -- -- 1,855 1,724
Copper production (000s
lbs)...................... 5,520 6,546 -- -- 5,520 6,546
Average price realized:
Gold (US$ per oz)............ 383 385 387 383 385 385
Silver (US$ per oz).......... 5.23 5.33 NA NA 5.23 5.33
Copper (US$ per lb).......... 1.19 1.05 NA NA 1.19 1.05
Weighted average US$ cost per
equivalent gold ounce (4):
Cash production costs........ 202 203 137 109 183 157
Taxes, other than income..... 4 4 -- -- 3 2
Depreciation, depletion and
amortization.............. 92 83 63 53 83 69
------ ------ ------ ------ ------ ------
Total operating costs..... 298 290 200 162 269 228
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Includes data based on Battle Mountain's 88 percent ownership of Inti Raymi
during 1995. Gold production and gold sales each include 298,000 ounces
related to Battle Mountain's interest in Inti Raymi; silver production and
silver sales include 1,153,000 ounces and 1,154,000 ounces, respectively,
related to such interest. The information in the table also includes data
based on Battle Mountain's 50.9 percent average ownership interest in
Niugini Mining for 1995. Gold production and gold sales include 98,000
ounces and 97,000 ounces, respectively, related to Battle Mountain's
interest in Niugini Mining; silver production and silver sales include
419,000 ounces and 402,000 ounces, respectively, related to such interest;
copper production and copper sales relate only to such interest. The
information in the table also includes data based on Hemlo Gold's 55 percent
ownership interest in the Silidor Mine for 1995. Gold production and gold
sales include 30,700 ounces related to Hemlo Gold's interest in the Silidor
Mine.
(2) Includes data based on Battle Mountain's 85 percent ownership of Inti Raymi
until February 28, 1994, and 88 percent thereafter. Gold production and gold
sales include 274,000 ounces and 271,000 ounces, respectively, related to
Battle Mountain's interest in Inti Raymi, and silver production and silver
sales include 1,251,000 ounces and 1,238,000 ounces, respectively, related
to such interest. The information in the table also includes data based on
Battle Mountain's 52 percent average ownership interest in Niugini Mining
for 1994. Gold production and gold sales include 61,000 ounces and 57,000
ounces, respectively, related to Battle Mountain's interest in Niugini
Mining; silver production and silver sales include 265,000 ounces and
242,000 ounces, respectively, related to such interest; and copper
production and copper sales relate only to such interest. The information in
the table also includes data based on Hemlo Gold's 55 percent ownership
interest in the Silidor Mine for 1994. Gold production and gold sales
include 42,000 ounces related to Hemlo Gold's interest in the Silidor Mine.
(3) The above operating costs for 1995 are the costs incurred while the Golden
Giant mine was operating and exclude costs incurred during the strike and
shaft rehabilitation shut-down. See "INFORMATION CONCERNING HEMLO GOLD."
(4) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. All costs are shown
on a per equivalent gold ounce produced basis, with silver and copper
by-products converted to ounces of gold on an equivalent revenue basis. Cash
production costs include mining, processing, mine-related corporate
administrative and other direct plant costs, but exclude sales expenses,
royalties, corporate administrative expenses unrelated to a particular mine
site and other indirect costs.
35
<PAGE> 44
[MAP OF NORTH AMERICA SHOWING BATTLE MOUNTAIN AND HEMLO GOLD OFFICE AND
MINE LOCATIONS]
36
<PAGE> 45
[MAPS OF THE AUSTRAL PACIFIC, SOUTH AMERICA AND AFRICA SHOWING BATTLE MOUNTAIN
AND HEMLO GOLD OFFICE AND MINE LOCATIONS]
37
<PAGE> 46
THE MEETINGS -- GENERAL PROXY INFORMATION
BATTLE MOUNTAIN
This Joint Proxy Statement and the Battle Mountain proxy card are being
mailed to stockholders of Battle Mountain beginning on or about June 11, 1996.
They are furnished in connection with the solicitation of proxies by the Battle
Mountain Board of Directors for use at the Battle Mountain Stockholders Meeting
to be held at the time and place and for the purposes set forth in the
accompanying notice of the Battle Mountain Stockholders Meeting. In addition to
the solicitation of proxies by mail, proxies may also be solicited by telephone,
telegram or personal interview by regular employees of Battle Mountain. Battle
Mountain has retained Georgeson & Company Inc. on customary terms and at a fee
estimated not to exceed US$15,000, plus reasonable expenses, to assist in
soliciting proxies. Battle Mountain will pay all costs of soliciting proxies.
Battle Mountain will also reimburse brokers or other persons holding stock in
their names or in the names of their nominees for their reasonable expenses in
forwarding proxy material to beneficial owners of stock, in accordance with
applicable SEC and NYSE requirements.
All duly executed proxies received prior to the meeting will be voted in
accordance with the choices specified thereon. As to any matter for which no
choice has been specified in a duly executed proxy, the shares represented
thereby will be voted for the approval of the Combination Agreement and the
transactions contemplated thereby, including proposed amendments to the Battle
Mountain Articles, for the election as directors of the nominees listed herein,
for the proposal to amend the Battle Mountain Incentive Plan, for ratification
of Price Waterhouse LLP as Battle Mountain's independent accountants for 1996
and, in the discretion of the persons named in the proxy, in connection with any
other business that may properly come before the meeting. A Battle Mountain
stockholder giving a proxy may revoke it at any time before it is voted at the
meeting by filing with the Secretary of Battle Mountain at Battle Mountain's
address shown on the accompanying notice an instrument revoking the proxy, by
delivering a duly executed proxy bearing a later date or by appearing at the
Battle Mountain Stockholders Meeting and voting in person.
As of May 28, 1996, the record date for determining stockholders entitled
to vote at the Battle Mountain Stockholders Meeting, there were 81,335,448
shares of Battle Mountain Common Stock outstanding and entitled to vote. Each
holder of record of shares of Battle Mountain Common Stock is entitled to one
vote per share as to each matter presented to a vote of stockholders of Battle
Mountain. The quorum requirement for transaction of business at the Battle
Mountain Stockholders Meeting is the presence in person or by proxy of a
majority of the outstanding shares of Battle Mountain Common Stock. Shares
represented by proxies that reflect abstentions and shares referred to as
"broker non-votes" (i.e., shares held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote that the broker or nominee does not have discretionary power to
vote on a particular matter) will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
Approval of the Combination Agreement and the transactions contemplated
thereby, including proposed amendments to the Battle Mountain Articles to
increase the number of authorized shares of Battle Mountain Common Stock and to
authorize one share of a new class of capital stock designated as Special Voting
Stock, will require the affirmative vote of the holders of a majority of the
shares of Battle Mountain Common Stock outstanding on the Battle Mountain Record
Date. The election of directors will be by a plurality of the votes cast.
Approval of the proposal to amend the Battle Mountain Incentive Plan will
require the affirmative vote of the holders of a majority of the shares of
Battle Mountain Common Stock represented and entitled to vote at the Battle
Mountain Stockholders Meeting. Ratification of the appointment of Price
Waterhouse LLP as Battle Mountain's independent accountants for 1996 will
require the affirmative vote of the holders of a majority of the votes cast.
Broker non-votes and abstentions will have the same effect as a vote cast
against the proposal to approve the Combination Agreement and the transactions
contemplated thereby, and will have no effect on the outcome of the election of
directors or the ratification of the appointment of Price Waterhouse LLP as
Battle Mountain's independent accountants for 1996. With respect to the proposal
to amend the Battle Mountain Incentive Plan, abstentions will have the same
effect as a vote cast against the proposal, and broker non-votes will have no
effect on the determination of the outcome of the vote.
38
<PAGE> 47
Battle Mountain's Annual Report to Stockholders, including financial
statements, for the year ended December 31, 1995, accompanies the proxy
materials being mailed to Battle Mountain stockholders who have not previously
been sent a copy of the Annual Report. The Annual Report is not a part of this
proxy solicitation material.
HEMLO GOLD
This Joint Proxy Statement accompanies the Notice of the Hemlo Gold
Shareholders Meeting to be held on July 15, 1996, and IS FURNISHED IN CONNECTION
WITH THE SOLICITATION BY THE MANAGEMENT OF HEMLO GOLD OF PROXIES FOR USE AT THE
MEETING. The solicitation will be primarily by mail but proxies may also be
solicited by regular employees of Hemlo Gold. In addition, Hemlo Gold has
retained The Proxy Solicitation Company Ltd. on customary terms and at a fee of
C$18,000 plus out-of-pocket expenses to assist in the solicitation of proxies.
Hemlo Gold will provide proxy materials to brokers, custodians, nominees and
fiduciaries and request that such materials be promptly forwarded to the
beneficial owners of Hemlo Gold Common Shares registered in the names of such
brokers, custodians, nominees and fiduciaries. The cost of such solicitation
will be borne by Hemlo Gold.
The persons named in the form of proxy mailed to Hemlo Gold shareholders
are officers of Hemlo Gold. Shares represented by properly executed Hemlo Gold
proxies in the enclosed form deposited with The R-M Trust Company, 393
University Avenue, Fifth Floor, Toronto, Ontario, M5G 2M7 not less than 48 hours
prior to the time of the Hemlo Gold Shareholders Meeting or any adjournment
thereof will be voted for or against or withheld from voting in accordance with
the instructions of the shareholder on the proxy on any ballot that may be
called for. In the absence of any instructions on the proxy, such shares will be
voted at the Hemlo Gold Shareholders Meeting:
(i) FOR THE PASSAGE OF THE ARRANGEMENT RESOLUTION;
(ii) FOR THE ELECTION AS DIRECTORS OF HEMLO GOLD OF THE PERSONS LISTED
UNDER THE HEADING "ADDITIONAL MATTERS FOR CONSIDERATION OF HEMLO
GOLD SHAREHOLDERS -- ELECTION OF DIRECTORS"; AND
(iii) FOR THE APPOINTMENT OF ERNST & YOUNG, CHARTERED ACCOUNTANTS, AS
AUDITORS OF HEMLO GOLD AND TO AUTHORIZE THE DIRECTORS TO FIX THEIR
REMUNERATION.
The Hemlo Gold form of proxy confers discretionary authority with respect
to amendments or variations to the matters identified in the Notice of the Hemlo
Gold Shareholders Meeting and other matters that may properly come before the
Hemlo Gold Shareholders Meeting.
A Hemlo Gold shareholder who has given a proxy may revoke it by an
instrument in writing, including another proxy, executed by the shareholder or
by the shareholder's attorney authorized in writing and deposited at the
registered office of Hemlo Gold at Suite 2902, 1 Adelaide Street East, Toronto,
Ontario M5C 2Z9 prior to the day of the Hemlo Gold Shareholders Meeting, or with
the Chairman of the meeting.
At June 6, 1996 there were 100,066,445 outstanding Hemlo Gold Common Shares
entitled to be voted at the Hemlo Gold Shareholders Meeting. Each shareholder is
entitled to five votes on all matters to come before the Hemlo Gold Shareholders
Meeting for each Hemlo Gold Common Share registered in the shareholder's name in
the list of holders of Hemlo Gold Common Shares prepared as of the Hemlo Gold
Record Date, unless a person has transferred shares after such date and the new
holder of such shares establishes proper ownership and makes a request not later
than July 5, 1996 to the Corporate Secretary of Hemlo Gold to be included in the
list of holders of Hemlo Gold Common Shares eligible to vote at the Hemlo Gold
Shareholders Meeting.
The only person who, to the knowledge of the directors or officers of Hemlo
Gold, beneficially owns or exercises control or direction over more than 10
percent of the outstanding Hemlo Gold Common Shares, is Noranda. As of March 31,
1996, Noranda owned 44,082,788 Hemlo Gold Common Shares, representing 44.1
percent of the Hemlo Gold Common Shares outstanding.
39
<PAGE> 48
The Arrangement Resolution must be approved by the affirmative vote of not
less than two-thirds of the votes cast in respect of that resolution at the
Hemlo Gold Shareholders Meeting. The directors of Hemlo Gold must be elected by
a majority of the votes cast thereon at the Hemlo Gold Shareholders Meeting. The
appointment of Ernst & Young, Chartered Accountants, as auditors of Hemlo Gold
at a remuneration to be fixed by the Hemlo Gold Board of Directors, must be
approved by the affirmative vote of a majority of the votes cast thereon at the
Hemlo Gold Shareholders Meeting. Noranda has agreed to vote its Hemlo Gold
Common Shares in favor of the Combination Agreement and the Arrangement unless
there is a Hemlo Gold Competing Transaction (as defined below under "THE
TRANSACTION -- The Combination Agreement") which Noranda determines to be more
favorable to it than the Arrangement.
Hemlo Gold's Annual Report, including financial statements for the year
ended December 31, 1995, accompanies the proxy material being mailed to Hemlo
Gold shareholders who have not previously been sent a copy of the Annual Report.
The Annual Report is not part of the proxy solicitation material.
THE TRANSACTION
BACKGROUND OF THE TRANSACTION
Beginning in November 1994, Karl E. Elers, Chief Executive Officer of
Battle Mountain, and Ian D. Bayer, Chief Executive Officer of Hemlo Gold, held
preliminary discussions concerning the potential advantages of a combination of
Battle Mountain and Hemlo Gold. At that time, they concluded that such a
combination was of sufficient interest that detailed financial and operational
information concerning the two companies should be exchanged and evaluated. A
confidentiality agreement respecting the information to be exchanged was
executed by the two companies on December 1, 1994.
During the first quarter of 1995, financial and operational information was
exchanged, site visits to certain principal properties of the respective parties
took place and additional meetings at the Chief Executive Officer level were
held. In April 1995, Mr. Elers was informed by Mr. Bayer, at a meeting also
attended by David W. Kerr, President and Chief Executive Officer of Noranda and
a director of Hemlo Gold, that Noranda wished to review its alternatives and was
not in a position to support a transaction between Hemlo Gold and Battle
Mountain at that time.
In February 1996, Mr. Elers telephoned Mr. Bayer to suggest that
discussions be resumed and that Battle Mountain was willing to consider a
transaction with an exchange ratio that would afford a premium to Hemlo Gold's
shareholders. On February 16, 1996, Mr. Elers and R. Dennis O'Connell, Chief
Financial Officer of Battle Mountain, met with Alex G. Balogh, Chairman of the
Board of Hemlo Gold and Deputy Chairman of Noranda, and Mr. Kerr. The
representatives of Battle Mountain outlined in general terms a structure in
which Battle Mountain and Hemlo Gold would be combined in a transaction in which
shareholders of Hemlo Gold would receive consideration consisting of Battle
Mountain Common Stock or exchangeable shares. After consideration by the
management of Hemlo Gold, Battle Mountain and Hemlo Gold, with the assistance of
their respective financial, legal and accounting advisors, continued discussions
regarding the structure and other terms and conditions of a transaction. Further
exchanges of information also took place. The discussions culminated in a series
of meetings beginning the week of March 4, 1996 in which negotiations progressed
and issues were addressed at an increased level of detail. During that week, the
Board of Directors of Battle Mountain met on March 4, 1996 and the Board of
Directors of Hemlo Gold met on March 8, 1996 to consider the Combination
Agreement. On March 7, 1996, the Board of Directors of Noranda met and
determined that it would support the transaction, subject to satisfactory
definitive documentation, and enter into the Agreement to Support the
Transaction. The Combination Agreement was presented for consideration by the
boards of directors of the respective companies party to such agreements at
meetings held on March 11, 1996. Following approval by the respective boards of
directors, the Combination Agreement and the Agreement to Support the
Transaction were executed, and the Transaction was publicly announced, later
that day.
At the time of signing, Battle Mountain, Hemlo Gold and Noranda had under
discussion possible changes to the transaction documents relating primarily to
technical matters involving, among other things, the corporate structure of the
combined company after the Transaction and the tax treatment of the
40
<PAGE> 49
Transaction. Subsequently, Battle Mountain, Hemlo Gold and Noranda reached
agreement on amendments to the transaction documents and on April 12, 1996, the
Combination Agreement was amended and restated to implement various agreed upon
revisions, effective as of March 11, 1996, the original date of execution. On
June 7, 1996, the Combination Agreement was amended and restated to implement
additional technical revisions, effective as of March 11, 1996.
REASONS FOR THE TRANSACTION
Joint Reasons for the Transaction
Battle Mountain and Hemlo Gold believe that the combination of the two
companies will allow them to combine their individual resources, assets and
expertise to enhance their ability to compete within, and profit from, the
global mining industry. After consummation of the Transaction, the combined
company is expected to rank fifth among North American-based producers in annual
gold production and, through its greater size and financial strength, should be
able to be more effective in competing internationally for exploration,
development and acquisition opportunities than either company could be
independently. The combined company will have a more diversified asset base,
with a total of eight producing mines located in five countries and exploration
programs and development projects throughout the Americas, the South Pacific and
West Africa (with approximately 49 percent of pro forma 1995 production
generated from North American operations). The Transaction will bring together
two large, high-quality, low-cost flagship assets, Battle Mountain's Kori Kollo
mine in Bolivia and Hemlo Gold's Golden Giant mine in Canada. The combined
company is expected to benefit from more effectively utilizing each company's
respective strengths in exploration and production technologies, as well as
affording the combined entity the opportunity to utilize Battle Mountain's
strength in surface mining and Hemlo Gold's expertise in underground mining.
Battle Mountain's Reasons for the Transaction
The Board of Directors of Battle Mountain has reviewed the proposed
Transaction and has concluded that the Transaction is fair to and in the best
interests of Battle Mountain and its stockholders and has unanimously approved
the Combination Agreement and the transactions contemplated by the Combination
Agreement, including the proposed amendments to the Battle Mountain Articles.
The Board of Directors of Battle Mountain believes that the Transaction
represents a unique strategic opportunity for Battle Mountain. The combined
company is expected, following consummation of the Transaction, to be the fifth
largest precious metals mining company based in North America in terms of annual
production, with anticipated 1996 production of approximately 1 million ounces.
The Transaction presents an opportunity for Battle Mountain to diversify its
production base to include eight mines on three continents including two
flagship mines, Battle Mountain's Kori Kollo mine in Bolivia and Hemlo Gold's
Golden Giant mine in Ontario, Canada. In addition, the combined company will
have exploration and development projects in the United States, Canada, Ghana,
Australia, Indonesia, Chile and Bolivia.
The Board of Directors of Battle Mountain also considered the advantages
that would flow from the combined company's having one of the lowest average
cash cost of production among North American gold producers. The Board of
Directors of Battle Mountain believes that the larger size of the combined
company coupled with low average cash production costs will result in the
creation of a top tier "pure play" international precious metals mining company
with a critical mass that neither Battle Mountain nor Hemlo Gold would possess
independently.
The Board of Directors of Battle Mountain also considered the advantages of
a strengthened balance sheet resulting from an increase in cash and cash
equivalents and a relatively lower debt level and the availability of increased
cash flow from operations, including contributions from Hemlo Gold's Golden
Giant mine, for use, in part, to fund exploration and development projects such
as the Phoenix and Crown Jewel projects. The combined company is expected to
have a stronger credit standing than that presently held by Battle Mountain,
which should allow it to access the credit markets on more favorable terms.
41
<PAGE> 50
The Board of Directors of Battle Mountain believes the potential for future
reserve growth will be strengthened by combining the complementary exploration
programs of Battle Mountain and Hemlo Gold. The Board of Directors of Battle
Mountain also believes the combination of Battle Mountain's open pit mining
expertise with Hemlo Gold's underground mining expertise should result in a
broader skill base from which to assess and seek to capitalize on international
exploration and development opportunities.
The Board of Directors also considered potential cost savings and synergies
that may result from the combination of the two companies. In particular,
potential cost savings at the corporate level and potential synergies in
exploration efforts were considered.
In reaching its determination, the Board of Directors of Battle Mountain
also considered and evaluated information discussed with the Board by the
management of Battle Mountain with respect to the Transaction. In this regard,
the Board of Directors of Battle Mountain considered, among other things, (i)
information concerning the results of operations, performance, financial
condition and prospects of Battle Mountain and Hemlo Gold on a
company-by-company basis, and on a combined basis, (ii) the reserve levels,
asset quality and cost structure of Battle Mountain's and Hemlo Gold's
businesses, (iii) the results and scope of the due diligence review conducted by
members of Battle Mountain's management with respect to Hemlo Gold's business
and operations, (iv) information with respect to recent and historical trading
prices and trading multiples of Battle Mountain Common Stock and Hemlo Gold
Common Shares, (v) information with respect to recent and historical prices and
price trends of gold and the potential impact thereof on each of Battle
Mountain, Hemlo Gold and the combined entity, and (vi) current economic,
industry, market and world political conditions affecting Battle Mountain and
Hemlo Gold.
The Board of Directors of Battle Mountain also considered (i) the terms of
the Combination Agreement and the other agreements contemplated thereby, (ii)
the structure of the Transaction including the expectation that the Transaction
would be accounted for as a pooling of interests and therefore not result in the
recording and subsequent amortization of the purchase price in excess of the
carrying value of the net assets of Hemlo Gold, (iii) the tax consequences of
the Transaction, (iv) the presentation by, and the opinion of, Salomon as
described below, (v) the judicial and regulatory approval requirements including
approval by the Court, (vi) the fact that Battle Mountain's stockholders would,
based on the Exchange Ratio of 1.48, retain approximately 35 percent of the
equity of the combined company (and approximately 40 percent of the combined
company on a fully diluted basis), (vii) the fact that current directors of
Battle Mountain would constitute half of the Board of Directors of the combined
company after the Transaction, (ix) the fact that the headquarters of the
combined company would be in Houston, Texas, and (x) the potential impact of the
Transaction on the employees, customers and suppliers of Battle Mountain and on
the communities in which Battle Mountain operates.
Based on all of these matters, and such other matters as the members of the
Board deemed relevant, the Battle Mountain Board of Directors unanimously
approved the Combination Agreement and the transactions contemplated thereby,
including the proposed amendments to the Battle Mountain Articles.
The foregoing discussion of the information and factors considered and
given weight by the Battle Mountain Board of Directors is not intended to be
exhaustive but is believed to include all material factors considered by the
Battle Mountain Board of Directors. In addition, in reaching the determination
to approve and recommend the Combination Agreement, the Battle Mountain Board of
Directors did not assign any relative or specific weights to the foregoing
factors which were considered, and individual directors may have given differing
weights to different factors. The Battle Mountain Board of Directors is,
however, unanimous in its recommendation to the holders of Battle Mountain
Common Stock that the Combination Agreement and the transactions contemplated
thereby, including the proposed amendments to the Battle Mountain Articles, be
approved.
The Battle Mountain Board of Directors realized that there are certain
risks associated with the Transaction, including that some of the potential
benefits set forth above may not be realized or that there may be high costs
associated with realizing such benefits and also the factors set forth in this
Joint Proxy Statement under "RISK FACTORS." However, the Battle Mountain Board
of Directors believes that the positive factors should outweigh any negative
factors, although there can be no assurances in this regard.
42
<PAGE> 51
Hemlo Gold's Reasons for the Transaction
The Hemlo Gold Board of Directors has determined that the terms of the
Transaction are fair to the Hemlo Gold Shareholders and has unanimously approved
the Combination Agreement and the transactions contemplated thereby including
the Arrangement. In reaching its conclusion, the Hemlo Gold Board of Directors
considered information with respect to the business and affairs of Battle
Mountain as well as the following factors:
(a) that the combined company is expected to be the fifth largest
North American-based gold producer and, as such, should be able to compete
more effectively for exploration and development activities;
(b) that the combined company will have greater geographic
diversification in its operating and exploration properties than either
company now has by itself;
(c) that the combination will allow the anticipated cash flow from the
Golden Giant mine over its remaining life (see "INFORMATION CONCERNING
HEMLO GOLD -- Business and Property of Hemlo Gold -- Golden Giant Mine") to
be applied toward development and exploration of this more geographically
diversified group of properties, as well as other exploration and
development activities;
(d) that the Exchange Ratio represents a premium of approximately 29%
over the average ratio of the Hemlo Gold Common Shares to Battle Mountain
Common Stock for 20 trading days prior to the public announcement of the
Transaction;
(e) the pro forma increase, on a per Hemlo Gold Common Share basis, in
proven and probable reserves, projected near term production, projected
near term cash flow and net asset values based on undiscounted free cash
flows, as well as the decrease, on a pro forma per Hemlo Gold Common Share
basis, in projected near term earnings of the combined company;
(f) that holders of Hemlo Gold Common Shares will continue to own
approximately 62% of the equity of the combined company, assuming that all
options and conversion rights (other than certain "out of the money"
options and conversion rights) are exercised (and approximately 60% on a
fully diluted basis);
(g) the greater total market capitalization and liquidity of the
combined company relative to Hemlo Gold; and
(h) that Hemlo Gold and Battle Mountain have complementary
capabilities and characteristics -- for example, Battle Mountain has
expertise in surface mining while Hemlo Gold's strength is in underground
mining.
In reaching its determination, the Board of Directors of Hemlo Gold also
considered and evaluated, among other things, (i) information concerning the
results of operations, performance, financial condition and prospects of Battle
Mountain and Hemlo Gold on a company-by-company basis, and on a combined basis,
(ii) the reserve levels, asset quality and cost structure of Battle Mountain's
and Hemlo Gold's businesses, (iii) the results and scope of the due diligence
review conducted by members of Hemlo Gold's management with respect to Battle
Mountain's business and operations, (iv) information with respect to recent and
historical trading prices and trading multiples of Battle Mountain Common Stock
and Hemlo Gold Common Shares, (v) information with respect to recent and
historical prices and price trends of gold and the potential impact thereof on
each of Battle Mountain, Hemlo Gold and the combined entity, and (vi) current
economic, industry, market and world political conditions affecting Battle
Mountain and Hemlo Gold.
The Board of Directors of Hemlo Gold also considered (i) the terms of the
Combination Agreement, Plan of Arrangement and the other agreements contemplated
thereby, (ii) the structure of the Transaction including the expectation that
the Transaction would be accounted for as a pooling of interests and therefore
not result in the recording and subsequent amortization by the combined company
of purchase price in excess of the carrying value of the net assets of Hemlo
Gold, (iii) the tax consequences of the Transaction, (iv) the presentation by,
and the opinion of, Dominion Securities as described below, (v) the judicial and
regulatory
43
<PAGE> 52
approval requirements, including approval by the Court, (vi) the right of Hemlo
Gold shareholders to dissent pursuant to section 185 of the OBCA, (vii) the fact
that directors nominated by Hemlo Gold would constitute half of the Board of
Directors of the combined company after the Transaction, and (viii) the
potential impact of the Transaction on the employees, customers and suppliers of
Hemlo Gold and on the communities in which Hemlo Gold operates.
Based on all of these matters, and such other matters as the members of the
Board deemed relevant, the Board of Directors unanimously approved the
Combination Agreement and the transactions contemplated thereby, including the
proposed Arrangement.
This discussion of the information and factors considered and given weight
by the Hemlo Gold Board of Directors is not intended to be exhaustive but is
believed to include all material factors considered by the Hemlo Gold Board of
Directors. In addition, in reaching the determination to approve and recommend
the Combination Agreement and the related Arrangement, the Hemlo Gold Board of
Directors did not assign any relative or specific weights to the foregoing
factors which were considered, and individual directors may have given differing
weights to different factors. The Hemlo Gold Board of Directors is, however,
unanimous in its recommendation to the holders of Hemlo Gold Common Shares that
the Combination Agreement, the Arrangement and the transactions contemplated
thereby be approved.
The Hemlo Gold Board of Directors realized that there are certain risks
associated with the Transaction including that some of the potential benefits
set forth above may not be realized or that there may be high costs associated
with realizing such benefits and also the factors set forth in this Joint Proxy
Statement under "RISK FACTORS." However, the Hemlo Gold Board of Directors
believes that the positive factors should outweigh any negative factors,
although there can be no assurances in this regard.
BOARD RECOMMENDATIONS
THE BATTLE MOUNTAIN BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS
FAIR TO AND IN THE BEST INTERESTS OF BATTLE MOUNTAIN AND ITS STOCKHOLDERS AND
THEREFORE UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE COMBINATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED
AMENDMENTS TO THE BATTLE MOUNTAIN ARTICLES.
THE HEMLO GOLD BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS FAIR TO
AND IN THE BEST INTERESTS OF HEMLO GOLD AND ITS SHAREHOLDERS AND THEREFORE
UNANIMOUSLY RECOMMENDS A VOTE FOR PASSAGE OF THE ARRANGEMENT RESOLUTION.
OPINIONS OF FINANCIAL ADVISORS
Opinion of Salomon
At the March 11, 1996 Battle Mountain Board of Directors meeting, Salomon
delivered its written opinion (the "Salomon Opinion") to the Battle Mountain
Board of Directors that, as of such date and based upon and subject to various
considerations set forth in the Salomon Opinion, the Exchange Ratio was fair to
the stockholders of Battle Mountain from a financial point of view. The Salomon
Opinion does not constitute an opinion as to the value of the Battle Mountain
Common Stock or the Exchangeable Shares or the prices at any time at which the
Battle Mountain Common Stock or the Exchangeable Shares will trade. No
restrictions or limitations were imposed by the Battle Mountain Board of
Directors upon Salomon with respect to the investigations made or the procedures
followed by Salomon in rendering its opinion. Salomon was not requested by the
Battle Mountain Board to make any recommendation as to the form or amount of
consideration to be paid by Battle Mountain pursuant to the Combination
Agreement, which issues were resolved in arm's length negotiations between
Battle Mountain and Hemlo Gold.
A COPY OF THE SALOMON OPINION IS ATTACHED HERETO AS ANNEX G. THE BATTLE
MOUNTAIN STOCKHOLDERS ARE URGED TO READ THE SALOMON OPINION IN ITS ENTIRETY FOR
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF
THE REVIEW BY SALOMON. THE SALOMON OPINION WAS PREPARED FOR THE BATTLE MOUNTAIN
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BOARD OF DIRECTORS AND IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO,
FROM A FINANCIAL POINT OF VIEW, TO THE STOCKHOLDERS OF BATTLE MOUNTAIN AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF BATTLE MOUNTAIN AS TO HOW
TO VOTE AT THE BATTLE MOUNTAIN STOCKHOLDERS MEETING. THE SUMMARY OF THE OPINION
OF SALOMON SET FORTH IN THIS JOINT PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. SALOMON HAS PROVIDED ITS WRITTEN
CONSENT TO THE INCLUSION OF THE SALOMON OPINION AS ANNEX G HERETO.
In rendering its opinion, Salomon reviewed, among other things, certain
publicly available business and financial information relating to Battle
Mountain and Hemlo Gold, and also reviewed a draft of the Combination Agreement.
Salomon also reviewed, among other things, certain other information, including
financial forecasts and life of mine plans, provided to Salomon by Battle
Mountain and Hemlo Gold, and met with management of Battle Mountain and Hemlo
Gold to discuss the business and prospects of Battle Mountain and Hemlo Gold,
respectively.
Salomon also considered, among other things, certain financial and stock
market data of Battle Mountain and Hemlo Gold, compared that data with similar
data for the other publicly held companies in businesses similar to those of
Battle Mountain and Hemlo Gold and considered the financial terms of certain
other business combinations and other transactions which have recently been
effected. Salomon also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which it
deemed relevant.
In connection with its review and in rendering its opinion, Salomon did not
assume any responsibility for independent verification of any of the information
reviewed or considered and assumed and relied on its being complete and accurate
in all respects. With respect to the financial forecasts and life of mine plans,
Salomon assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Battle Mountain
and Hemlo Gold as to the future financial performance of Battle Mountain and
Hemlo Gold, respectively. In addition, Salomon did not make an independent
evaluation or appraisal of the assets of Battle Mountain and Hemlo Gold, nor was
Salomon furnished with any such evaluations or appraisals. The Salomon Opinion
was necessarily based upon financial, economic, market and other conditions as
they existed on March 11, 1996. It should be understood that, although
subsequent developments may affect the Salomon Opinion, Salomon does not have
any obligation to update, revise or reaffirm the Salomon Opinion. In connection
with the Salomon Opinion, Salomon did not express any opinion as to what the
value of the Battle Mountain Common Stock or the Exchangeable Shares actually
will be when issued pursuant to the Combination Agreement or the prices at which
such Battle Mountain Common Stock or the Exchangeable Shares will trade
subsequent to the Transaction. Salomon relied on advice of counsel to Battle
Mountain as to all legal matters regarding the structure and tax implications of
the Transaction and related matters. Salomon assumed that the Exchangeable
Shares will be the economic and voting equivalent of the underlying shares of
Battle Mountain Common Stock into which they are exchangeable. Salomon assumed
that the Transaction will be accounted for financial reporting purposes as a
pooling of interests under U.S. GAAP and that the Transaction will result in a
tax-free rollover of bases for U.S. and Canadian shareholders of Hemlo Gold.
The following is a brief summary of the material analyses performed by
Salomon in preparation of the Salomon Opinion. In this connection, Salomon
performed certain procedures, including each of the financial analyses described
below, and reviewed with management of Battle Mountain the assumptions on which
such analyses were based and other factors, including the current and projected
financial results of Battle Mountain and Hemlo Gold.
Transaction Analysis. Salomon reviewed publicly available information for
ten completed or pending transactions involving North American gold producers in
the period from 1988 to the present (the "Gold Transactions"). These
transactions did not constitute the complete list of gold mining transactions
which have occurred in such period. Only transactions involving gold companies
deemed relevant by Salomon were reviewed. The Gold Transactions comprise the
following companies (acquiror and target, respectively): (i) Placer Dome, Inc.
and Kiena Gold Mines Ltd.; (ii) Placer Dome, Inc. and Sigma Mines Ltd.; (iii)
Minorco SA and Freeport McMoran Copper & Gold, Inc.; (iv) LAC Minerals Ltd. and
Bond
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International Gold Inc.; (v) Homestake Mining Company and International Corona
Corporation; (vi) Hecla Mining Company and Equinox Resources Ltd.; (vii)
American Barrick Resources Corporation and LAC Minerals Ltd.; (viii) Homestake
Mining Company and Homestake Gold of Australia; (ix) Pegasus Gold, Inc. and
Zapopan NL; and (x) Coeur d'Alene Mines Corporation and Gasgoyne Gold Mines NL.
Salomon reviewed the consideration paid in such transactions in terms of
the price paid for the common stock ("Equity Value") plus total debt less cash
and equivalents ("Firm Value") of such transactions as a multiple of proven and
probable gold reserves as published in publicly available financial statements
("Reserves") and as a multiple of earnings before interest, taxes, depreciation
and amortization ("EBITDA") for the latest reported twelve months ("LTM") prior
to the announcement of such transactions.
For the Gold Transactions, the analysis of Firm Value to (i) Reserves and
(ii) EBITDA indicated high, low, mean and median values of these transactions of
(i) $445.9/oz., $65.5/oz., $194.8/oz. and $160.6/oz., and (ii) 42.2x, 5.1x,
19.7x and 17.1x, respectively, compared to the implied multiples for Hemlo Gold
(based upon the Exchange Ratio of 1.48 and Battle Mountain's closing price on
March 5, 1996 of $10.25) of $254.7/oz. and 16.6x, respectively.
Salomon also derived the percentage premium of the offer prices
(represented by the purchase price per share in cash transactions and the stock
price of the constituent securities times the exchange ratio in the case of
stock-for-stock mergers) over the target companies' trading prices one day prior
to the announcement date of the Gold Transactions. The high, low, mean and
median premiums for the Gold Transactions were 48.1%, 13.0%, 29.3% and 28.2%,
respectively. For the proposed transaction, Salomon derived premiums based on
the implied stock price for Hemlo Gold by (i) multiplying the closing stock
price of Battle Mountain on March 5, 1996 (six days before the announcement
date), times the Exchange Ratio of 1.48 and dividing that quantity by Hemlo
Gold's closing price on March 5, 1996 and (ii) multiplying Battle Mountain's 20
day average closing stock price over the period ending on March 5, 1996, times
the Exchange Ratio of 1.48 and dividing that quantity by Hemlo Gold's 20 day
average closing stock price over the same period. The implied stock price
premiums were 23.8% and 29.1%, respectively.
In using the Gold Transactions to value Battle Mountain, an analysis of the
results was not simply mathematical nor necessarily precise; rather, it involved
complex considerations and judgments concerning differences in financial and
operating characteristics of each of the constituent companies for each
transaction and other factors that affect public trading values.
Analysis of Certain Publicly Traded Companies. As a separate analysis,
Salomon compared selected historical share price and operating and financial
ratios for Hemlo Gold to the corresponding data and ratios of the following
companies whose securities are publicly traded: "Top Tier" (Over 1 million
ounces of gold produced per year) (i) Barrick Gold Corporation; (ii) Homestake
Mining Company; (iii) Newmont Mining Corporation; (iv) Placer Dome, Inc.;
"Middle Tier" (Less than 1 million ounces of gold produced per year) (v)
Agnico-Eagle Mines, Ltd.; (vi) Amax Gold Inc.; (vii) Battle Mountain; (viii)
Cambior, Inc.; (ix) Echo Bay Mines Ltd.; (x) FirstMiss Gold, Inc.; (xi) Hemlo
Gold; (xii) Kinross Gold Corporation; (xiii) Pegasus Gold, Inc.; (xiv) Royal Oak
Mines Inc.; (xv) Santa Fe Pacific Gold Corporation; and (xvi) TVX Gold, Inc.
Such analysis included, among other things, the ratios of Firm Value to
Reserves at December 31, 1995, to 1996E ounces of gold production as obtained
through press releases and other publicly available resources ("Production") and
to LTM EBITDA. Although Salomon used these companies for comparison purposes,
none of the other companies is identical to Hemlo Gold. Such analysis indicated
that the high, low and median values of Firm Value as a multiple of (i) Reserves
at December 31, 1995, (ii) 1996E Production and (iii) LTM EBITDA for Top Tier
companies were (i) $329.0/oz., $124.2/oz. and $237.8/oz, (ii) $3,503.2/oz.,
$1,744.9/oz. and $2,830.5/oz., and (iii) 35.1x, 15.7x and 21.8x, respectively,
and for Middle Tier companies were (i) $582.9/oz., $100.0/oz. and $153.0/oz.,
(ii) $3,159.6/oz., $1,008.3/oz., and $2,257.8/oz., and (iii) 34.7x, 9.2x and
19.2x, respectively. These compared to Hemlo Gold's pre-transaction multiples as
of March 5, 1996 of (i) $203.3/oz., (ii) $2,772.7/oz. and (iii) 13.3x 1996E
EBITDA (1996E EBITDA was used for Hemlo Gold because LTM EBITDA was negatively
impacted by two major non-recurring events, the strike at Golden Giant and the
temporary shaft closure for repair work). Hemlo Gold's
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implied post-transaction multiples as of March 5, 1996 were (i) $254.7/oz., (ii)
$3,473.7/oz. and (iii) 16.6x 1996E EBITDA, respectively.
Discounted Cash Flow Analyses. Salomon performed discounted cash flow
analyses for mines and development projects of both Battle Mountain and Hemlo
Gold, based upon projections provided by each company. As part of this analysis,
no value was attributed to exploration projects to which no proven and probable
reserves are presently attributed. As part of this analysis, no value was
attributed to additional "Blue Sky" exploration potential of either company.
This resulted in all exploration costs being removed from each company's
projections. The purpose of the discounted cash flow analyses was merely to
determine the relative contribution of producing mines and development projects
of both companies and was not expected to calculate the full net present value
of either company as an ongoing operation. Assuming a 4% discount rate, $400/oz.
projected gold prices and no inflation, the net present asset value (the "Net
Present Value of Projected Gold Production") for Hemlo Gold's mines and
development projects is $494.1 million based upon the aforementioned
assumptions. Adding cash and subtracting the net present value of corporate
expenses and debt from the Net Present Value of Projected Gold Production leads
to an aggregate value (the "Total Net Present Value") for Hemlo Gold of $560.4
million. Assuming a 4% discount rate, $400/oz. projected gold prices and no
inflation, the Net Present Value of Projected Gold Production for Battle
Mountain's mines and development projects is $744.5 million based upon the
aforementioned assumptions. Adding cash and subtracting the net present value of
corporate expenses and debt from the Net Present Value of Projected Gold
Production leads to a Total Net Present Value for Battle Mountain of $462.7
million. Based upon these discounted cash flow analyses, Hemlo Gold's
contribution would comprise approximately 55% of the combined entity while
Battle Mountain would contribute approximately 45%.
Stock Trading History. To provide contextual data and comparative market
data, Salomon examined the history of the trading prices and their relative
relationships for both Battle Mountain and Hemlo Gold common stock for the (i)
latest six months, (ii) latest year and (iii) latest five years. The high, low
and average exchange ratios between Battle Mountain and Hemlo Gold were (i)
1.22, 0.93 and 1.08, (ii) 1.22, 0.84 and 1.05, and (iii) 1.49, 0.82 and 1.07,
respectively. The Exchange Ratio of 1.48 times Battle Mountain's March 5, 1996
closing stock price of $10.25 represents a 20% premium to Hemlo Gold's high
stock price and a 176% premium to Hemlo Gold's low stock price during the five
years prior to March 5, 1996.
Pro Forma Merger Analysis. Salomon analyzed pro forma financial effects
resulting from the Transaction. Salomon relied upon certain assumptions
described above and projected financial information provided by the managements
of both Battle Mountain and Hemlo Gold. The pro forma dollar and percentage
accretion/(dilution) impacts for fiscal year end 1996E, 1997E and 1998E (i)
EBITDA per share, (ii) earnings per share ("EPS"), (iii) Production per 10
shares and (iv) Reserves at December 31, 1995 per 10 shares were (i) ($0.17) and
(19.0%); ($0.05) and (5.7%); and ($0.12) and (12.5%); (ii) $0.14 and NM; $0.10
and 106.5%; and $0.08 and 77.0%; (iii) ($0.025) and (36.9%); ($0.018) and
(28.7%); and ($0.034) and (38.8%); and (iv) ($0.312) and (35.5%), respectively.
The pro forma results above assume pre-tax synergies of US$7.27 million (US$4.73
after-tax) for each year mentioned. The results of the pro forma combination
analysis are not necessarily indicative of future results or financial position.
Contribution Analysis. Salomon analyzed Battle Mountain's and Hemlo Gold's
relative contribution to the combined company with respect to (i) Reserves at
December 31, 1995, (ii) 1996E, 1997E and 1998E Production, (iii) "Cash Value of
Reserves" defined as [spot price of gold - cash production cost per oz.] x
[Reserves at December 31, 1995], (iv) 1996E EBITDA; (v) 1996E net income, (vi)
total shares outstanding times closing price on March 5, 1996 ("Market
Capitalization"), (vii) Firm Value and (viii) Total Net Present Value. Such
contribution analysis indicated that Hemlo Gold would contribute (i) 42%, (ii)
41%, 46% and 38%, (iii) 52%, (iv) 52%, (v) 100%, (vi) 60%, (vii) 49% and (viii)
55%, respectively. The results of the contribution analysis are not necessarily
indicative of the contributions that the respective businesses may have in the
future.
The foregoing is a summary of certain financial analyses used by Salomon in
connection with rendering its opinion. The preparation of a fairness opinion is
a complex process and is not susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the summary set forth
above, without
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considering the analyses as a whole, could create an incomplete view of the
processes underlying the analyses considered for the Salomon Opinion. In
arriving at its opinion, Salomon considered the results of all such analyses.
Salomon has not indicated that any of the analyses had a greater significance
than any other. The analyses were prepared solely for the purposes of Salomon
providing its opinion as to the fairness of the Exchange Ratio, from a financial
point of view, to the stockholders of Battle Mountain and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. No other company used in the comparable company analysis
summarized above is identical to Battle Mountain or Hemlo Gold, and no
transaction used in the comparable transaction analysis summarized above is
identical to the Transaction. Any analysis of the fairness of the Exchange
Ratio, from a financial point of view, to the stockholders of Battle Mountain
involves complex considerations and judgments concerning differences in the
potential financial and operating characteristics of the comparable companies
and transactions and other factors in relation to the trading and acquisition
values of the comparable companies. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than those suggested by such analyses. As
described above, the Salomon Opinion and the related presentation to the Battle
Mountain Board of Directors on March 11, 1996 was one of many factors taken into
consideration by the Battle Mountain Board of Directors in making its
determination to approve the Combination Agreement. The foregoing summary does
not purport to be a complete description of the analyses performed by Salomon.
The ranges of valuations resulting from any particular analysis described
above should not be taken to be the view of Salomon of the actual values of
Battle Mountain, Hemlo Gold or the combined entity. In performing its analyses,
Salomon made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of Battle Mountain or Hemlo Gold. The analyses performed by Salomon are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Salomon's analysis of the fairness of
the Exchange Ratio, from a financial point of view, to the stockholders of
Battle Mountain. In addition, analyses relating to value of businesses do not
purport to be appraisals or to reflect the prices at which a business actually
might be sold, or the prices at which securities might trade at the present time
or at any time in the future.
Salomon Brothers is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
transactions. Battle Mountain retained Salomon based upon Salomon's expertise in
the valuation of companies, as well as its familiarity with Battle Mountain and
other gold mining companies. In the ordinary course of its business, Salomon may
actively trade the debt and/or equity securities of Battle Mountain and Hemlo
Gold for its own account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities. In addition,
Salomon has previously rendered investment banking and financial advisory
services to Battle Mountain for which it received customary compensation.
Pursuant to a letter agreement, dated February 22, 1996, Battle Mountain
agreed to pay Salomon fees of US$150,000 payable upon signing the letter
agreement, US$300,000 payable upon public announcement of the combination
between Battle Mountain and Hemlo Gold and an additional US$4,550,000 payable
upon consummation of such transaction, for rendering its financial advisory
services, including its opinion. As of the date of this joint proxy statement,
US$450,000 has been paid to Salomon. Battle Mountain has also agreed to
reimburse Salomon for its out-of-pocket expenses, including the reasonable fees
and disbursements of counsel, and to indemnify Salomon and certain related
persons against certain liabilities in connection with the engagement of
Salomon, including certain liabilities under the federal securities laws.
Opinion of Dominion Securities
Hemlo Gold retained Dominion Securities to act as its financial advisor in
connection with the Combination Agreement and to provide an opinion with respect
to the fairness of the transaction to the Hemlo Gold shareholders. Dominion
Securities orally advised the Hemlo Gold Board of Directors on March 8, 1996
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that the terms of the transaction between Battle Mountain and Hemlo Gold
contemplated by the Combination Agreement were fair to the Hemlo Gold
shareholders from a financial point of view. Dominion Securities has delivered
to the Hemlo Gold Board of Directors its written opinion dated March 11, 1996
(the "Dominion Securities Opinion"), a copy of which is attached as Annex H to
the Joint Proxy Statement and incorporated herein by reference. Hemlo Gold
shareholders are urged to read the full text of the Dominion Securities Opinion
for a complete description of the factors considered, the assumptions made and
the limitations on the review undertaken by Dominion Securities in rendering its
opinion.
The Dominion Securities Opinion addresses only the fairness of the
Transaction from a financial point of view and does not constitute a
recommendation to any Hemlo Gold shareholder as to how to vote at the Hemlo Gold
Shareholders Meeting. The summary of the Dominion Securities Opinion set forth
in this Joint Proxy Statement is qualified in its entirety by reference to the
full text of such opinion.
In connection with rendering its opinion, Dominion Securities reviewed and
relied upon, among other things, the Combination Agreement; certain publicly
available business and financial information relating to Hemlo Gold and Battle
Mountain; life of mine operating and financial projections for the principal
operations of Hemlo Gold and Battle Mountain prepared by their respective
managements; discussions with senior management of Hemlo Gold and Battle
Mountain with respect to current operations, financial condition and future
prospects of their respective companies; publicly available information relating
to the business operations, financial performance and stock trading history of
Hemlo Gold, Battle Mountain and other selected public companies; and information
with respect to other transactions of a comparable nature and relied upon or
carried out such other information, investigations and analyses as Dominion
Securities considered necessary or appropriate in the circumstances.
Dominion Securities relied upon and assumed the completeness, accuracy and
fair representation of the foregoing information and has not attempted to verify
independently its accuracy or completeness. The Dominion Securities Opinion is
rendered on the basis of securities markets, economic and general business and
financial conditions prevailing as at March 11, 1996 and the condition and
prospects, financial and otherwise, of Hemlo Gold and Battle Mountain as they
were reflected in the information and documents reviewed and as they were
represented to Dominion Securities in discussions with their respective
managements.
In connection with rendering its opinion Dominion Securities considered,
among other things, the following: that the Exchange Ratio results in a premium
of approximately 20 percent based on the closing market prices of Hemlo Gold
Common Shares and Battle Mountain Common Stock prior to the public announcement
of the Transaction and represents a premium of approximately 29% based on the
ratio of the average of the closing market prices of the respective shares for
the 20 trading days prior to such announcement; the pro forma increase, on a per
Hemlo Gold Common Share basis, in proven and probable reserves, near term
production, near term cash flow and net asset values based on undiscounted free
cash flows; the pro forma decrease, on a per Hemlo Gold Common Share basis, in
near term earnings; the benefits of holding shares in a larger company with a
more diversified asset base, particularly the reduction in the proportion of
gold produced from a single mine from more than 80 percent to less than 40
percent; the increase in the proportion of reserves and production derived from
non-North American operations; the increases in total market capitalization and
liquidity of the combined company relative to Hemlo Gold; that Hemlo Gold
shareholders will continue to own approximately 62% of the equity of the
combined company, assuming that all options and conversion rights (other than
certain "out of the money" options and conversion rights) are exercised; and
that Hemlo Gold and Battle Mountain have a number of complementary capabilities
and characteristics.
Pursuant to the terms of the engagement letter dated March 11, 1996 between
Hemlo Gold and Dominion Securities, Hemlo Gold agreed to pay Dominion
Securities, in connection with the Transaction, a monthly work fee of C$50,000
for each 30-day period commencing February 16, 1996 and ending upon the closing
or termination of the Transaction; an opinion fee of C$150,000, payable upon
delivery of the Dominion Securities Opinion to the Hemlo Gold Board of
Directors; a fee of C$1,000,000, payable upon approval of the Transaction by the
Hemlo Gold Board of Directors and the Battle Mountain Board of Directors and
mailing of
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the Joint Proxy Statement to the Hemlo Gold shareholders; and a fee of
C$3,300,000, payable upon consummation of the Transaction. In addition, Hemlo
Gold agreed to reimburse Dominion Securities for any reasonable out-of-pocket
expenses, including the fees and disbursements of legal counsel, and to
indemnify Dominion Securities and certain related persons against certain
liabilities in connection with the engagement.
None of Dominion Securities, its associates or affiliates is an insider,
associate or affiliate (as those terms are defined in the Securities Act
(Ontario)) of Hemlo Gold or Noranda or any of their respective associates or
affiliates. Dominion Securities has not provided any financial advisory services
or participated in financings involving Hemlo Gold or Noranda within the past
two years. However, within the last two years, Dominion Securities has
participated in, but not led, two financings for affiliates of Noranda. In
addition, Dominion Securities has in the past been engaged to provide financial
advisory services to certain companies affiliated, associated or related to
Noranda. None of the fees received by Dominion Securities in respect of such
engagements has been material to Dominion Securities. There are no
understandings, agreements or commitments between Dominion Securities and Hemlo
Gold or Noranda with respect to any future business dealings. Dominion
Securities may in the future, in the ordinary course of its business, perform
financial advisory or investment banking services for Hemlo Gold or Noranda or
any of their respective associates or affiliates.
Dominion Securities acts as a trader and dealer, both as principal and
agent, in all major North American financial markets and as such may have had
and may in the future have positions in the securities of Hemlo Gold, Noranda or
Battle Mountain and, from time to time, may have executed or may execute
transactions on behalf of such companies or clients for which it receives
compensation.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Employment Agreements with Certain Officers of Hemlo Gold
Battle Mountain has entered into an employment agreement with Ian Bayer
whereby Battle Mountain has agreed to employ Mr. Bayer commencing on the
Effective Date. Under this agreement Mr. Bayer will be employed at Battle
Mountain's headquarters in Houston as President of Battle Mountain with an
annual base salary, bonus program and other benefits on the same basis as other
comparable executives of Battle Mountain including a severance agreement in a
form substantially similar to those entered into with other executives of Battle
Mountain.
Battle Mountain has also entered into an employment agreement with each of
Ian Atkinson, Joseph Baylis, John Keyes, Michael Power and Michael Proctor with
terms substantially similar to those of Mr. Bayer's agreement, except that each
of these individuals will be employed as an executive officer of Battle Mountain
in a position to be mutually agreed upon.
Indemnification of Hemlo Gold Officers and Directors
The Combination Agreement provides that all rights to indemnification for
Hemlo Gold directors and officers will survive the Arrangement and remain in
full force and effect for at least six years from the Effective Time. Battle
Mountain has also agreed to maintain insurance for Hemlo Gold's directors and
officers equivalent to Hemlo Gold's current directors' and officers' liability
insurance for at least six years after the Effective Time.
Change of Control Provisions Applicable to Officers of Battle Mountain
Consummation of the Transaction will constitute a change of control under
severance agreements between Battle Mountain and each of Karl E. Elers, Kenneth
R. Werneburg, R. Dennis O'Connell, Joseph L. Mazur, Robert J. Quinn and Fred B.
Reisbick. As a result, in the event the employment of any of these officers
terminates in specified circumstances following the Transaction, the officer
would receive a cash payment equal to two times the sum of his annual salary and
bonus and special incentive payments during the prior twelve months. A covered
officer, under the agreement, would receive such payment only as a result of
involuntary termination or specified changes in duties, responsibilities or
benefits within three years of the date
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of consummation of the Transaction or voluntary termination during a 120-day
period commencing 120 days following such date. The agreements also provide for
continuation of group life, medical and dental insurance benefits for a period
of 30 months after a covered termination on the same contributory basis as such
benefits are provided to active employees of Battle Mountain. If a covered
termination were to occur, cash payments under the foregoing provisions of the
severance agreements for each of Battle Mountain's executive officers, based on
1995 salaries and covered incentive compensation, would be approximately
US$1,626,238 for Mr. Elers, US$1,295,916 for Mr. Werneburg, US$719,548 for Mr.
O'Connell, US$676,900 for Mr. Mazur, US$635,436 for Mr. Quinn and US$417,958 for
Mr. Reisbick. Battle Mountain has not been notified by any of the covered
officers of any intention to terminate employment pursuant to a severance
agreement.
Consummation of the Transaction will also constitute a change of control
under the terms of outstanding performance unit awards under the 1988 Long-Term
Performance Unit Plan and the 1994 Long-Term Incentive Plan which will result in
the awards becoming immediately payable at the credited value if the units have
already been valued or at the target value of US$1.00 per unit if the units have
not been valued. Payments under these plans in respect of the outstanding
performance units would be approximately as follows: US$471,436 for Mr. Elers,
US$375,629 for Mr. Werneburg, US$188,574 for Mr. O'Connell, US$178,841 for Mr.
Mazur, US$167,892 for Mr. Quinn and US$132,045 for Mr. Reisbick. Although Battle
Mountain's 1985 Stock Option Plan and 1994 Long-Term Incentive Plan contain
provisions for acceleration of vesting of options granted to these officers in
the event of a change of control and payment in cash of the then appreciated
value of the options, no such options are currently outstanding that have not
vested.
The above described severance agreements and performance unit awards also
provide for tax gross-up payments designed to make the officers whole against
any excise or other tax above the rate ordinarily applicable that is occasioned
by the Transaction, pursuant to the provisions of Section 280G of the U.S. Code
or otherwise.
In addition, after the Transaction, Battle Mountain will become obligated,
by reason of the occurrence of a change of control, to continue making premium
payments under Battle Mountain's split-dollar life insurance program until each
executive officer reaches age 65, whether the officer remains employed by Battle
Mountain or not, or until death if earlier. Such annual premium amounts are
approximately $104,000 in the case of Mr. Elers, $55,000 in the case of Mr.
Werneburg, $52,000 in the case of Mr. Mazur, $20,000 in the case of Mr.
O'Connell, $7,000 in the case of Mr. Quinn and $62,000 in the case of Mr.
Reisbick (the aggregate of such premium amounts to be refundable to Battle
Mountain at age 65 or upon death, if earlier). Further, under Battle Mountain's
Supplemental Executive Retirement Plan ("SERP"), the SERP benefits described
below under "INFORMATION CONCERNING BATTLE MOUNTAIN -- Executive Compensation"
will be recalculated so that the "prior benefit" will be fully vested and the
"current benefit" will also be fully vested and credit given for four additional
years of benefit accrual. Based on current covered compensation, the annual
retirement benefit under the SERP after giving effect to such recalculation
would be approximately $173,000 for Mr. Elers, $137,000 for Mr. Werneburg,
$81,000 for Mr. Mazur, $85,000 for Mr. O'Connell, $76,000 for Mr. Quinn and
$62,000 for Mr. Reisbick.
See "INFORMATION CONCERNING BATTLE MOUNTAIN -- Executive Compensation" for
additional information concerning the foregoing plans and compensation
arrangements.
Agreements with Noranda
In the Combination Agreement, Battle Mountain agreed to provide Noranda
with registration rights under United States law and secondary offering
cooperation rights under Canadian law with respect to the Exchangeable Shares
issuable to it in the Arrangement or the Battle Mountain Common Stock issuable
in exchange therefor (the "Registration Rights"). The Registration Rights will
include up to five "demand" registrations, subject to separation requirements,
blackout periods and postponement rights, and an unlimited number of "piggyback"
registrations with respect to common equity offerings by Battle Mountain. The
Registration Rights will survive so long as Noranda owns Exchangeable Shares
acquired in the Arrangement or Battle Mountain Common Stock issued in exchange
therefor entitling Noranda to beneficial ownership of
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more than 5 percent of the outstanding Exchangeable Shares and shares of Battle
Mountain Common Stock, considered as one class.
The Combination Agreement provides that Battle Mountain will, upon request,
enter into a Tax Cooperation Agreement with any person who acquires in the
Arrangement more than the Minimum Number of the Exchangeable Shares issued by
Battle Mountain Gold in the Arrangement. The purpose of the Tax Cooperation
Agreement is to set forth terms on which a person party to such an agreement is
to be informed of circumstances that could result in Battle Mountain's becoming
a "United States real property holding corporation" within the meaning of
Section 897 of the U.S. Code. It is expected that Noranda will enter into a Tax
Cooperation Agreement with Battle Mountain. See "TAX CONSIDERATIONS TO HEMLO
GOLD SHAREHOLDERS."
TRANSACTION MECHANICS AND DESCRIPTION OF EXCHANGEABLE SHARES
The following description is qualified in its entirety by reference to the
full text of the Combination Agreement, which is attached as Annex C to this
Joint Proxy Statement and is incorporated herein by reference.
The Arrangement
Pursuant to the terms of the Plan of Arrangement, at the Effective Time,
Hemlo Gold will undergo a reorganization of capital whereby:
(a) Hemlo Gold will amend its articles of incorporation to, among
other things, (i) replace the rights, privileges, restrictions and
conditions attaching to the Hemlo Gold Common Shares with those set forth
in Appendix A to the Plan of Arrangement, (ii) authorize an unlimited
number of Exchangeable Shares and (iii) change its name to Battle Mountain
Canada Inc.;
(b) Hemlo Gold will issue 100 Hemlo Gold Common Shares to Battle
Mountain in exchange for the delivery by Battle Mountain to Hemlo Gold of
148 shares of Battle Mountain Common Stock; and
(c) each existing Hemlo Gold Common Share (other than Hemlo Gold
Common Shares held by Battle Mountain or holders who have properly
exercised their rights of dissent and are ultimately entitled to be paid
fair value for their shares) will be exchanged for 1.48 Exchangeable
Shares.
As a result of the foregoing, immediately following the Effective Time, Battle
Mountain Canada's outstanding capital stock will consist of 100 Battle Mountain
Canada Common Shares held by Battle Mountain and the Exchangeable Shares held by
the former holders of Hemlo Gold Common Shares.
No fractional Exchangeable Shares will be delivered in exchange for Battle
Mountain Canada Common Shares pursuant to the Arrangement. In lieu of such
fractional Exchangeable Shares, each former holder of Hemlo Gold Common Shares
who otherwise would be entitled to receive a fraction of an Exchangeable Share
will receive an amount of cash (rounded to the nearest whole cent), without
interest, equal to the Canadian Dollar Equivalent of the Current Market Price of
Battle Mountain Common Stock. Payments to former holders of Hemlo Gold Common
Shares with registered addresses in the United States in respect of fractional
interests in Exchangeable Shares will be made in United States dollars, rather
than the Canadian Dollar Equivalent thereof.
See "-- Procedures for Exchange of Share Certificates by Hemlo Gold
Shareholders" for procedures to be followed in order to obtain certificates
representing the Exchangeable Shares issuable in the Arrangement.
The Exchangeable Shares are subject to adjustment or modification in the
event of a stock split or other changes to the capital structure of Battle
Mountain so as to maintain the initial one-to-one relationship between the
Exchangeable Shares and shares of Battle Mountain Common Stock. Each
Exchangeable Share issued in the Arrangement will have an associated right
entitling the holder of such Exchangeable Share to acquire additional
Exchangeable Shares in certain circumstances (including acquisitions of
beneficial ownership of Battle Mountain Common Stock or Exchangeable Shares in
excess of specified percentages or
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certain tender or exchange offers). The rights associated with the Exchangeable
Shares are intended to have characteristics essentially equivalent in economic
effect to rights associated with the Battle Mountain Common Stock under Battle
Mountain's Rights Agreement. See "THE COMPANIES AFTER THE TRANSACTION -- Battle
Mountain Canada Share Capital" and "-- Voting, Support and Exchange Trust
Agreement."
Retraction, Redemption and Call Rights
Holders of the Exchangeable Shares will be entitled at any time following
the Effective Time to retract (i.e., require Battle Mountain Canada to redeem)
any or all such Exchangeable Shares owned by them and to receive an equivalent
number of shares of Battle Mountain Common Stock, plus an additional amount
equivalent to the full amount of all declared and unpaid dividends on such
Exchangeable Shares, subject to the Retraction Call Rights of Battle Mountain
and Battle Mountain Sub described below. Holders of the Exchangeable Shares may
effect such retraction by presenting a certificate or certificates to Battle
Mountain Canada or its transfer agent representing the number of Exchangeable
Shares the holder desires to retract, together with a duly executed statement in
the form of Schedule A to the Exchangeable Share Provisions or in such other
form as may be acceptable to Battle Mountain Canada (the "Retraction Request")
specifying the number of Exchangeable Shares the holder wishes to retract and
such other documents as may be required to effect the retraction of the
Exchangeable Shares. Former holders of Hemlo Gold Common Shares who desire to
obtain Battle Mountain Common Stock following the consummation of the
Transaction without receiving the Exchangeable Share certificates issuable to
such holder under the Arrangement may do so in connection with the exchange of
certificates for Hemlo Gold Common Shares that will occur after the consummation
of the Transaction. See "-- Procedures for Exchange of Share Certificates by
Hemlo Gold Shareholders." The retraction will become effective five business
days after the request is received by Battle Mountain Canada (the "Retraction
Date").
Upon receipt of the certificate for Exchangeable Shares, the Retraction
Request and other required documentation from the holder thereof, Battle
Mountain Canada is required to immediately notify Battle Mountain and Battle
Mountain Sub of such Retraction Request. Battle Mountain or Battle Mountain Sub
will thereafter have two business days in which to exercise its Retraction Call
Right to purchase all of the Exchangeable Shares submitted by the holder thereof
by the delivery of an equivalent number of shares of Battle Mountain Common
Stock, plus an additional amount equivalent to the full amount of all declared
and unpaid dividends on the Exchangeable Shares, to the transfer agent for
delivery to such holder on the Retraction Date. In the event neither Battle
Mountain nor Battle Mountain Sub determines to exercise its Retraction Call
Right and provided that the Retraction Request is not revoked in accordance with
the Exchangeable Share Provisions, Battle Mountain Canada is obligated to
deliver to the holder the number of shares of Battle Mountain Common Stock equal
to the number of Exchangeable Shares submitted by the holder for retraction,
plus an additional amount equivalent to the full amount of all declared and
unpaid dividends on such Exchangeable Shares.
Subject to applicable law and the Redemption Call Right of Battle Mountain
and Battle Mountain Sub described below, on any Optional Redemption Date, Battle
Mountain Canada may redeem all of the then outstanding Exchangeable Shares in
exchange for an equal number of shares of Battle Mountain Common Stock, plus an
additional amount equivalent to the full amount of all declared and unpaid
dividends on such Exchangeable Shares. Notwithstanding any proposed redemption
of the Exchangeable Shares by Battle Mountain Canada, Battle Mountain and Battle
Mountain Sub will have the overriding right to purchase on the Optional
Redemption Date all of the outstanding Exchangeable Shares (other than
Exchangeable Shares held by Battle Mountain, Battle Mountain Sub or Canada
Holdco) in exchange for one share of Battle Mountain Common Stock for each such
Exchangeable Share, plus an additional amount equivalent to the full amount of
all declared and unpaid dividends on such Exchangeable Share. In exercising the
Redemption Call Right, neither Battle Mountain nor Battle Mountain Sub will be
required to purchase Exchangeable Shares from itself, the other or Canada
Holdco. If either Battle Mountain or Battle Mountain Sub exercises such
Redemption Call Right, Battle Mountain Canada's right to redeem the Exchangeable
Shares on such Optional Redemption Date will terminate. Battle Mountain Canada
will, at least 120 days before any Optional Redemption Date, provide the
registered holders of Exchangeable Shares with written notice of the proposed
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redemption of the Exchangeable Shares by Battle Mountain Canada. If the
Redemption Call Right is exercised, Battle Mountain Canada may elect to redeem
all then outstanding Exchangeable Shares on a subsequent Optional Redemption
Date. For a more detailed description of the Call Rights in connection with the
Exchangeable Shares, see "THE COMPANIES AFTER THE TRANSACTION -- Battle Mountain
Canada Share Capital -- Exchangeable Shares of Battle Mountain Canada."
Voting, Dividend and Liquidation Rights of Holders of Exchangeable Shares
On the Effective Date, Battle Mountain, Hemlo Gold and the Trustee will
enter into the Voting, Support and Exchange Trust Agreement in substantially the
form attached hereto as Annex E. Pursuant to the terms of the Voting, Support
and Exchange Trust Agreement, Battle Mountain will on the Effective Date deposit
with the Trustee the share of Special Voting Stock, which will entitle the
Trustee to a number of votes equal to the number of Exchangeable Shares
outstanding from time to time that are not held by Battle Mountain or certain
subsidiaries of Battle Mountain. With respect to any matter as to which holders
of shares of Battle Mountain Common Stock are entitled to vote, each holder of
an Exchangeable Share will have the right to instruct the Trustee as to the
manner of voting for one of the votes attached to the share of Special Voting
Stock for each Exchangeable Share owned by such holder.
In the event of the liquidation, dissolution or winding up of Battle
Mountain Canada or any other proposed distribution of the assets of Battle
Mountain Canada among its shareholders for the purpose of winding up its
affairs, holders of the Exchangeable Shares will have preferential rights to
receive from Battle Mountain Canada one share of Battle Mountain Common Stock
for each Exchangeable Share they hold, plus an additional amount equivalent to
the full amount of any declared and unpaid dividends on each such Exchangeable
Share. Upon the occurrence of such liquidation, dissolution or winding up,
Battle Mountain and Battle Mountain Sub will have the right to purchase all of
the outstanding Exchangeable Shares (other than Exchangeable Shares held by
Battle Mountain, Battle Mountain Sub or Canada Holdco) from the holders thereof
on the effective date of such liquidation, dissolution or winding up in exchange
for one share of Battle Mountain Common Stock for each such Exchangeable Share,
plus an additional amount equivalent to the full amount of all declared and
unpaid dividends on such Exchangeable Share. Upon the occurrence of a Battle
Mountain Canada Insolvency Event, the trustee under the Voting, Support and
Exchange Trust Agreement on behalf of the holders of Exchangeable Shares will
have the right to require Battle Mountain to purchase any Exchangeable Share
then outstanding (other than Exchangeable Shares held by Battle Mountain and
certain of its subsidiaries) in exchange for one share of Battle Mountain Common
Stock for each Exchangeable Share, plus an additional amount equivalent to the
full amount of all declared and unpaid dividends on the Exchangeable Share.
Upon the occurrence of a Battle Mountain Liquidation Event, in order for
the holders of the Exchangeable Shares to participate on a pro rata basis with
the holders of Battle Mountain Common Stock, on the fifth business day prior to
the effective date of the liquidation, dissolution or winding up contemplated by
a Battle Mountain Liquidation Event, Battle Mountain will purchase all
Exchangeable Shares (other than Exchangeable Shares held by Battle Mountain,
Battle Mountain Sub or Canada Holdco) in exchange for an equivalent number of
shares of Battle Mountain Common Stock, plus an additional amount equivalent to
the full amount of all declared and unpaid dividends on such Exchangeable
Shares. For a more detailed description of the Exchange Rights in connection
with the Exchangeable Shares, see "THE COMPANIES AFTER THE TRANSACTION -- Battle
Mountain Canada Share Capital -- Exchangeable Shares of Battle Mountain Canada"
and "-- Voting, Support and Exchange Trust Agreement."
Battle Mountain Support Obligation
Pursuant to the Voting, Support and Exchange Trust Agreement, Battle
Mountain will make the following covenants regarding the Exchangeable Shares:
(i) Battle Mountain will not declare or pay dividends on the Battle Mountain
Common Stock unless Battle Mountain Canada is able to pay and simultaneously
pays an equivalent dividend on the Exchangeable Shares; (ii) Battle Mountain
will advise Battle Mountain Canada in advance of the declaration of any dividend
on the Battle Mountain Common Stock and ensure that
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the declaration date, record date and payment date for dividends on the
Exchangeable Shares are the same as that for the Battle Mountain Common Stock
and that such dates will correspond with any requirement of the stock exchange
on which the Exchangeable Shares are then listed; (iii) Battle Mountain will
ensure that the record date for any dividend declared on the Battle Mountain
Common Stock is not less than 10 business days after the declaration date of
such dividend or such shorter period within which applicable law may be complied
with; (iv) Battle Mountain will take all actions and do all things necessary to
ensure that Battle Mountain Canada is able to pay to the holders of the
Exchangeable Shares the equivalent number of shares of Battle Mountain Common
Stock, plus an additional amount equivalent to the full amount of all declared
and unpaid dividends on the Exchangeable Shares, in the event of a liquidation,
dissolution or winding up of Battle Mountain Canada, a retraction request by a
holder of Exchangeable Shares or a redemption of Exchangeable Shares by Battle
Mountain Canada; (v) Battle Mountain will not vote or otherwise take any action
or omit to take any action causing the liquidation, dissolution or winding up of
Battle Mountain Canada; and (vi) Battle Mountain will enable Battle Mountain
Canada to maintain a listing for the Exchangeable Shares on a Canadian stock
exchange.
Battle Mountain Canada is required to notify Battle Mountain of the
occurrence of certain events, such as the liquidation, dissolution or winding up
of Battle Mountain Canada, and Battle Mountain Canada's receipt of a Retraction
Request from a holder of Exchangeable Shares. See "THE COMPANIES AFTER THE
TRANSACTION -- Voting, Support and Exchange Trust Agreement."
Amendments to Battle Mountain's Restated Articles of Incorporation
An amendment to the Battle Mountain Articles, to be filed with the
Secretary of State of the State of Nevada on the Effective Date, will increase
the number of shares of Battle Mountain Common Stock authorized for issuance
from 200,000,000 to 500,000,000, increase the number of shares of Battle
Mountain Preferred Stock authorized for issuance from 20,000,000 to 50,000,000
and create a new class of stock consisting of one share of Special Voting Stock.
Hemlo Gold Options
At the Effective Time, Battle Mountain will issue to each holder of a Hemlo
Gold Option, in exchange for such Hemlo Gold Option, Battle Mountain Options as
follows: each Hemlo Gold Option will be exchanged for a Battle Mountain Option
exercisable for a number of whole shares of Battle Mountain Common Stock or, at
the option of the holder, a number of Exchangeable Shares, equal in either case
to the number of Hemlo Gold Common Shares subject to the Hemlo Gold Option at
the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares, at an exercise price per share of Battle Mountain Common
Stock or Exchangeable Shares, as applicable, equal to the exercise price per
share of such Hemlo Gold Option immediately prior to the Effective Time divided
by the Exchange Ratio. Battle Mountain will cause the Exchangeable Shares and
Battle Mountain Common Stock issuable upon exercise of the Battle Mountain
Options to be registered on Form S-8 promulgated by the SEC, and will use its
best efforts to maintain the effectiveness of such registration statement for so
long as such options remain outstanding.
THE COMBINATION AGREEMENT
Representations and Covenants
The Combination Agreement contains certain customary representations and
warranties of each of Hemlo Gold and Battle Mountain relating to, among other
things, their respective organization, good standing, qualification, capital
structure, accuracy of securities filings, operations, taxes, restrictions on
business activities, material contracts, insurance, proposed accounting
treatment of the Transaction, fairness opinions relating to the Transaction,
financial condition, reserves, title to assets, litigation, environmental
matters, compliance with necessary regulatory or governmental authorities and
other matters, including their authority to enter into the Combination Agreement
and to consummate the Transaction. Pursuant to the Combination Agreement, each
party has covenanted, among other things, that, until the Effective Time, it
will: maintain its business; not take certain actions outside the ordinary
course without the other's consent; not undertake certain matters respecting
changes to its capital structure or dividends; not allow certain dispositions of
its or
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its subsidiaries' securities; not authorize capital expenditures or make any
material investments or acquisitions, other than in the ordinary course; not
enter into certain employee arrangements; not change its accounting principles;
not take actions to affect adversely the treatment of the Transaction as a
"pooling of interests" under U.S. GAAP; and use its commercially reasonable
efforts to satisfy the conditions precedent to the Transaction. Each party has
also agreed to advise the other of material changes and to allow the other
access to its information and properties. Further, the parties have agreed: to
apply for and use their commercially reasonable efforts to obtain all regulatory
and other consents and approvals; to use their commercially reasonable efforts
to cause to be executed certain affiliate agreements required for the
consummation of the transactions contemplated by the Combination Agreement; to
use their commercially reasonable efforts to effect the transactions
contemplated by the Combination Agreement, including the preparation and mailing
of this Joint Proxy Statement; to provide promptly such information as is
necessary for inclusion in this Joint Proxy Statement; and, as applicable, to
hold the Hemlo Gold Shareholders Meeting and the Battle Mountain Stockholders
Meeting, recommending the approval of the Combination Agreement, the Transaction
and related matters to the shareholders thereat. Battle Mountain additionally
agreed (i) that all rights to indemnification for directors and officers of
Hemlo Gold will survive the Arrangement and remain in full force and effect for
at least six years from the Effective Time, (ii) to assume all of Hemlo Gold's
obligations in respect of such indemnification rights and (iii) to maintain
insurance for Hemlo Gold's directors and officers that provides coverage
equivalent to Hemlo Gold's current directors' and officers' liability insurance
for at least six years from the Effective Time. See "-- Interests of Certain
Persons in the Transaction -- Indemnification of Hemlo Gold Officers and
Directors." Battle Mountain also agreed to list the Battle Mountain Common Stock
issuable upon exchange of the Exchangeable Shares on the NYSE, to cause the
Exchangeable Shares to be listed on the TSE or other Canadian securities
exchange on the Effective Date and that it currently has no plans to liquidate
or otherwise dispose of Battle Mountain Canada or its stock. The listing of the
Exchangeable Shares on the TSE on the Effective Date is subject to the
satisfaction of the requirements of the TSE.
The Combination Agreement also provides that until the earlier of the
Effective Time or the termination of the Combination Agreement, Hemlo Gold and
its subsidiaries will not (and they will use their best efforts to see that none
of their officers, directors, employees, agents, investment bankers,
representatives or affiliates will) directly or indirectly: (i) solicit,
initiate or engage in discussions or negotiations with any person, encourage
submission of any inquiries, proposals or offers by or take any other action
intended or designed to facilitate the efforts of any person, other than Battle
Mountain, relating to the possible acquisition of, or business combination with,
Hemlo Gold or any of its subsidiaries or any material portion of its or their
capital stock or assets by any person other than Battle Mountain (a "Hemlo Gold
Competing Transaction"); (ii) provide non-public information with respect to
Hemlo Gold or any of its subsidiaries or afford access to the properties, books
or records of Hemlo Gold or its subsidiaries to any person other than Battle
Mountain relating to a possible Hemlo Gold Competing Transaction; (iii) make or
authorize any statement, recommendation or solicitation in support of any
possible Hemlo Gold Competing Transaction; or (iv) enter into an agreement
providing for a possible Hemlo Gold Competing Transaction. Notwithstanding the
foregoing, prior to the approval of the Arrangement at the Hemlo Gold
Shareholders Meeting, the Hemlo Gold Board of Directors and its agents are not
prohibited from engaging in discussions or negotiations with a party concerning
an unsolicited proposal for a Hemlo Gold Competing Transaction, providing
non-public information with respect to Hemlo Gold or any of its subsidiaries
that has been provided to Battle Mountain, or making any statement or
recommendation in support of a Hemlo Gold Competing Transaction, in each case if
Hemlo Gold's directors determine in good faith, after consultation with and
receiving advice from its outside legal counsel, that such actions are required
by reason of the Hemlo Gold Board of Directors' fiduciary duties to Hemlo Gold's
shareholders under applicable law and Hemlo Gold first notifies Battle Mountain
of such determination, provides Battle Mountain with the fact that it is
furnishing information to or entering into discussions or negotiations with a
person respecting a Hemlo Gold Competing Transaction and keeps Battle Mountain
informed of the status (but not the identity or terms) of any such discussions
or negotiations. The Combination Agreement also provides that Hemlo Gold will
immediately notify Battle Mountain of any unsolicited offer or proposal to enter
into negotiations relating to a Hemlo Gold Competing Transaction. The
Combination Agreement also provides that, at any time prior to the Hemlo Gold
Shareholders Meeting,
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Battle Mountain may, in its sole discretion, increase the consideration payable
to Hemlo Gold's shareholders by amending the Plan of Arrangement under certain
conditions.
The Combination Agreement also provides that, notwithstanding any other
provisions thereof, Hemlo Gold will not (i) enter into a Hemlo Gold Competing
Transaction until at least two business days following the first notification by
Hemlo Gold to Battle Mountain that it has entered into discussions with a third
party in respect of such Hemlo Gold Competing Transaction, (ii) for a period of
10 business days following termination of the Combination Agreement by Hemlo
Gold pursuant to the determination of the Hemlo Gold Board of Directors
respecting the recommendation of a Hemlo Gold Competing Transaction that the
Hemlo Gold Board of Directors determines that its fiduciary duties require it to
recommend to the Hemlo Gold shareholders and that, among other things, is
financially more favorable to the Hemlo Gold shareholders than the Arrangement
(see "-- Termination"), grant or agree to grant to any third party, in
connection with a Hemlo Gold Competing Transaction, an option to purchase
treasury securities or assets of Hemlo Gold or any of its subsidiaries, pay or
agree to pay to any such third-party termination, expense reimbursement,
"topping" or similar fees in the event of non-consummation of such Hemlo Gold
Competing Transaction in an amount greater than US$42.5 million, or (iii)
otherwise commit to any inducement to any such third party which is not
contemplated in the Combination Agreement in favor of Battle Mountain.
The Combination Agreement also provides that until the earlier of the
Effective Time or the termination of the Combination Agreement, Battle Mountain
and its subsidiaries will not (and they will use their best efforts to ensure
that none of their officers, directors, employees, investment bankers, agents,
representatives or affiliates will) directly or indirectly: (i) solicit,
initiate or engage in discussions or negotiations with any person, encourage
submission of any inquiries, proposals or offers by or take any other action
intended or designed to facilitate the efforts of any person, other than Hemlo
Gold, relating to the possible acquisition of, or business combination with,
Battle Mountain or any of its subsidiaries or any material portion of its or
their capital stock or assets by any person other than Hemlo Gold (a "Battle
Mountain Competing Transaction"); (ii) provide non-public information with
respect to Battle Mountain or any of its subsidiaries or afford access to the
properties, books or records of Battle Mountain or its subsidiaries to any
person other than Hemlo Gold in connection with a possible Battle Mountain
Competing Transaction; (iii) make or authorize any statement, recommendation or
solicitation in support of any possible Battle Mountain Competing Transaction;
or (iv) enter into an agreement providing for a possible Battle Mountain
Competing Transaction. Notwithstanding the foregoing, prior to the approval of
the Combination Agreement and the proposed amendments to the Battle Mountain
Articles at the Battle Mountain Stockholders Meeting, the Board of Directors of
Battle Mountain and its agents are not prohibited from engaging in discussions
or negotiations with a party concerning an unsolicited proposal for a Battle
Mountain Competing Transaction, providing non-public information with respect to
Battle Mountain or any of its subsidiaries that has been provided to Hemlo Gold,
or making any statement or recommendation in support of a Battle Mountain
Competing Transaction, in each case if Battle Mountain's directors determine in
good faith, after consultation with and receiving advice from its outside legal
counsel, that such actions are required by reason of the Battle Mountain Board
of Directors' fiduciary duties to Battle Mountain's shareholders under
applicable law and Battle Mountain first notifies Hemlo Gold of such
determination and provides Hemlo Gold the fact that it is furnishing information
to or entering into discussions or negotiations with a person respecting a
Battle Mountain Competing Transaction and keeps Hemlo Gold informed of the
status (but not the identity or terms) of any such discussions or negotiations.
The Combination Agreement also provides that Battle Mountain will immediately
notify Hemlo Gold of any unsolicited offer or proposal to enter into
negotiations relating to a Battle Mountain Competing Transaction. In addition,
and notwithstanding the foregoing, the Board of Directors of Battle Mountain (or
its agents pursuant to its instructions) is not prohibited from (i) engaging in
discussions with or soliciting or initiating such discussions or negotiations or
encouraging inquiries from a party concerning a Battle Mountain Competing
Transaction, (ii) providing information with respect to Battle Mountain or the
Battle Mountain Subsidiaries in connection therewith or (iii) making any
statement or recommendation in support of any Battle Mountain Competing
Transaction, in each case if the Board of Directors of Battle Mountain has
received a bona fide unsolicited proposal with respect to another Battle
Mountain Competing Transaction which the Board of Directors of Battle Mountain
has determined in good faith, after consultation with its outside financial
advisors, creates a substantial risk that the Arrangement will not be
consummated
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and the Board of Directors of Battle Mountain thereafter in good faith
determines that taking such action is an appropriate response to such proposal
and is required by its fiduciary duties under applicable law, and provided that,
if Battle Mountain or any of its Subsidiaries receives any unsolicited offer or
proposal to enter into negotiations relating to a Battle Mountain Competing
Transaction, Battle Mountain will immediately notify Hemlo Gold thereof.
The Combination Agreement also provides that Battle Mountain will, prior to
the Effective Date, take the necessary action so that its bylaws will provide,
on the date specified therein, that the provisions of the NGCL described below
under "COMPARISON OF STOCKHOLDER RIGHTS -- Anti-takeover Provisions and
Interested Stockholder Transactions" will not apply to the acquisition by
Noranda of up to 65,242,526 Exchangeable Shares in the Arrangement (including
shares of Battle Mountain Common Stock issuable upon exchange for such
Exchangeable Shares).
The Combination Agreement also provides (a) that upon the Effective Time,
the Battle Mountain Board will consist of twelve persons, six of whom will be
members of Battle Mountain's current Board of Directors and six of whom will be
designated by Hemlo Gold's current Board of Directors, such allocation to be
applicable as nearly as practicable on a proportionate basis to directors of
each of the three classes into which the Battle Mountain Board of Directors is
divided, and (b) that following the Effective Time, Karl E. Elers will be
Chairman and Ian D. Bayer will be President of Battle Mountain, which two
officers will establish an office of the Chief Executive with officers from
Battle Mountain and Hemlo Gold to manage Battle Mountain, Battle Mountain Canada
and their respective subsidiaries.
The Combination Agreement also provides that under certain circumstances
and subject to certain limitations, Battle Mountain will provide Noranda with
certain registration rights under United States law and secondary offering
cooperation rights under Canadian law with respect to the Exchangeable Shares
acquired by Noranda in the Arrangement or the Battle Mountain Common Stock
issuable upon exchange for such Exchangeable Shares. The Registration Rights
will include up to five "demand" registrations, subject to separation
requirements, blackout periods and postponement rights, and an unlimited number
of "piggyback" registrations with respect to common equity offerings by Battle
Mountain. The Registration Rights will survive so long as Noranda owns
Exchangeable Shares acquired in the Arrangement or Battle Mountain Common Stock
issued in exchange therefor entitling Noranda to beneficial ownership of more
than 5 percent of the outstanding Exchangeable Shares and shares of Battle
Mountain Common Stock, considered as one class. See "RISK FACTORS -- Shares
Eligible for Future Sale by Noranda."
The Combination Agreement provides that Battle Mountain will, upon request,
enter into a Tax Cooperation Agreement with any person who acquires in the
Arrangement more than the Minimum Number of the Exchangeable Shares issued by
Battle Mountain Canada in the Arrangement. The purpose of the Tax Cooperation
Agreement is to set forth terms on which a person party to such an agreement is
to be informed by Battle Mountain of circumstances that could result in Battle
Mountain's becoming a "United States real property holding corporation" within
the meaning of Section 897 of the U.S. Code (a "USRPHC"). It is expected that
Noranda will enter into a Tax Cooperation Agreement with Battle Mountain. The
form of Tax Cooperation Agreement requires Battle Mountain to, among other
things, provide information to enable a party to such an agreement to determine
whether Battle Mountain is a USRPHC and to promptly inform the party of certain
anticipated transactions, events or other information that could reasonably be
expected to cause Battle Mountain to become a USRPHC.
Conditions to Closing
The Combination Agreement provides that the respective obligations of each
party to complete the Transaction are subject to a number of conditions,
including the following material conditions: (a) the Combination Agreement and
the Arrangement shall have been approved and adopted by the required vote of the
holders of Hemlo Gold Common Shares; (b) the Combination Agreement and the
proposed amendments to the Battle Mountain Articles shall have been approved by
the holders of Battle Mountain Common Stock; (c) all orders, including the Final
Order, and orders from the Ontario Securities Commission and other relevant
Canadian securities regulatory authorities that are legally required for the
consummation of the
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transactions contemplated by the Combination Agreement, shall have occurred,
been filed or been obtained, in the case of the Final Order, without material
conditions or costs; (d) approval under the Investment Canada Act shall have
been given or deemed to have been given; (e) all regulatory permits and
authorizations shall have been obtained, and regulatory authorities shall have
taken all action, in each case required to consummate the Arrangement and the
Transaction, including requirements relating to the expiration or termination of
applicable waiting periods (including any extensions thereof) under the HSR Act
and the Competition Act; (f) no order, decree or ruling or statute, rule,
regulation or order shall be threatened, enacted, entered or enforced by any
governmental agency that prohibits or renders illegal the consummation of the
Arrangement; (g) there shall be no temporary restraining order, preliminary
injunction, permanent injunction or other order preventing the consummation of
the Arrangement issued by any Canadian or U.S. federal, provincial or state
court remaining in effect, nor shall any proceeding that is reasonably likely to
succeed seeking any of the foregoing be pending; (h) the representations and
warranties of the parties shall be true and accurate as of the Closing Date as
though made at and as of the Closing Date except to the extent the failure of
such representations and warranties to be true and accurate has not and would
not be reasonably likely to have a Material Adverse Effect (as defined in the
Combination Agreement) on Battle Mountain or Hemlo Gold, as the case may be; (i)
the parties shall have performed in all material respects all agreements and
covenants to be performed by them under the Combination Agreement; (j) there
shall not have been any event or change, or events or changes, that has or have
an effect on either of the parties that is materially adverse to such party's
condition (financial or otherwise), properties, assets, liabilities, businesses,
operations, results of operations or prospects involving or reasonably likely to
involve, in the aggregate, more than US$50,000,000 (not including effects
resulting from any change in the market value of Battle Mountain Common Stock or
Hemlo Gold Common Shares or changes in general economic conditions or conditions
generally affecting gold prices); (k) Battle Mountain shall have received an
opinion from Price Waterhouse LLP to the effect that the Transaction will
qualify for pooling of interests accounting treatment under U.S. GAAP and Hemlo
Gold shall have received an opinion from Ernst & Young, Chartered Accountants,
that no matters have come to their attention as a result of performing certain
agreed upon procedures that would preclude Battle Mountain from accounting for
the Transaction as a pooling of interests under U.S. GAAP; (l) the Battle
Mountain Board of Directors shall have been restructured to consist of twelve
persons, six of whom shall be members of Battle Mountain's current Board of
Directors and six of whom shall be designated by Hemlo Gold's current Board of
Directors, and Karl E. Elers and Ian D. Bayer shall have been appointed,
effective as of the Closing of the Transaction, as Chairman and President,
respectively, of Battle Mountain (a condition precedent to Hemlo Gold's
obligations only); (m) holders of no more than 8 percent of the Hemlo Gold
Common Shares shall have notified Hemlo Gold of their intention to dissent from
the Transaction and the transactions contemplated by the Combination Agreement
(a condition precedent to Battle Mountain's obligations only); (n) Hemlo Gold
shall have received tax opinions dated as of the Closing Date as to certain
United States and Canadian tax consequences of the Transaction, which, in the
case of opinions as to United States tax consequences, need not be unqualified
(a condition precedent to Hemlo Gold's obligations only); (o) a registration
statement on SEC Form F-4, Form S-3 or such other Form as may be applicable, if
filed, shall have been declared effective under the Securities Act, and such
Form, if any, and this Joint Proxy Statement shall not be the subject of any
stop-order or proceedings seeking a stop-order; and (p) Battle Mountain shall
have received executed originals of the Hemlo Gold Affiliate Agreements (a
condition precedent to Battle Mountain's obligations only).
Termination
The Combination Agreement may be terminated by mutual agreement of the
parties at any time prior to the Effective Time. Also, either party may
terminate the Combination Agreement prior to the Effective Time if: (i) there
has been a breach of any representation, warranty, covenant or agreement
contained in the Combination Agreement on the part of the other party that has
or is likely to have a Material Adverse Effect (as defined in the Combination
Agreement) on the breaching party, and such breach has not been cured within 15
business days after notice thereof; (ii) all conditions for closing the
Arrangement have not been satisfied or waived by 5:00 p.m., Houston time, on
August 31, 1996 (other than as a result of a breach of the Combination Agreement
by the terminating party, or in the case of termination by Hemlo Gold, other
than as
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a result of a breach by Noranda of the Agreement to Support the Transaction or
in the case of either party, other than as a result of a breach by its
affiliates of the Affiliate Agreements); (iii) any required approval of the
shareholders of Hemlo Gold or the stockholders of Battle Mountain shall not have
been obtained; or (iv) any permanent injunction or other order of a court has
been issued and become final and nonappealable which would prohibit or otherwise
restrain consummation of the Arrangement, prohibit Battle Mountain's ownership
or operation of all or any material portion of the business or assets of Hemlo
Gold or compel Battle Mountain to dispose of or hold separate all or any
material portion of the business or assets of Hemlo Gold.
The Combination Agreement may be terminated by Battle Mountain if: (i) the
Board of Directors of Hemlo Gold shall have made any recommendation to the
shareholders of Hemlo Gold against the Arrangement or in support of a Hemlo Gold
Competing Transaction (a "Hemlo Gold Competing Transaction Termination"), or
(ii) the Board of Directors of Battle Mountain determines in good faith, after
consultation with its outside legal counsel, that it is required by its
fiduciary duties to recommend to the Battle Mountain stockholders that they vote
against the issuance of Battle Mountain Common Stock issuable upon exchange of
the Exchangeable Shares as contemplated by the Combination Agreement and approve
instead a Battle Mountain Competing Transaction (a) in which a third party is to
acquire all or substantially all of the business of Battle Mountain, (b) that
requires that Battle Mountain terminate the Combination Agreement as a condition
of the consummation of such transaction, (c) that the Battle Mountain Board of
Directors determines in good faith, after consultation with its outside
financial advisors, is financially more favorable to the Battle Mountain
stockholders than the Transaction and (d) that is the subject of a firm written
offer from a third party that is capable of consummating such alternative
transaction and is likely to be successful (each an "Inconsistent Transaction"
and the termination of the Combination Agreement under such circumstances an
"Inconsistent Transaction Termination"). The Combination Agreement may be
terminated by Hemlo Gold if (i) the Board of Directors of Hemlo Gold determines
in good faith, after consultation with its outside legal counsel, that it is
required by its fiduciary duties to recommend to the Hemlo Gold Shareholders
that they vote against the Arrangement and approve instead a Hemlo Gold
Competing Transaction that the Hemlo Gold Board of Directors has determined in
good faith, after consultation with its outside financial advisors, is
financially more favorable to the Hemlo Gold Shareholders than the Transaction
(including any adjustment to the terms and conditions of the Transaction
proposed by Battle Mountain in response to such Hemlo Gold Competing
Transaction), is the subject of a firm written offer from a third party that is
capable of consummating such Hemlo Gold Competing Transaction and is likely to
be successful, taking into account any amendments to the Plan of Arrangement
effected by Battle Mountain to increase the consideration offered to the Hemlo
Gold Shareholders, the Agreement to Support the Transaction and the valid and
binding character thereof (a "Superior Proposal Termination"), or (ii) the Board
of Directors of Battle Mountain shall have made any recommendation to the
stockholders of Battle Mountain against the Arrangement or in support of a
Battle Mountain Competing Transaction (a "Battle Mountain Competing Transaction
Termination").
In the event the Combination Agreement is terminated (a) by either party as
a result of the failure of Hemlo Gold's shareholders to approve the Arrangement;
(b) by Battle Mountain pursuant to a Hemlo Gold Competing Transaction
Termination; (c) by Battle Mountain as a result of a breach by Hemlo Gold of any
representation, warranty, covenant or agreement set forth in the Combination
Agreement on the part of Hemlo Gold having or likely to have a Material Adverse
Effect; or (d) by Hemlo Gold pursuant to a Superior Proposal Termination, then
Hemlo Gold will pay to Battle Mountain a fee of US$5 million within two business
days of the delivery of the notice of termination. Battle Mountain is not
entitled to receive any such payment if it is in material breach of the
Combination Agreement at the time of delivery of the applicable notice of
termination or if its stockholders have disapproved the Combination Agreement
and the proposed amendments to the Battle Mountain Articles.
In the event the Combination Agreement is terminated (a) by either party as
a result of the failure of Battle Mountain's stockholders to approve the
Combination Agreement and the proposed amendments to the Battle Mountain
Articles; (b) by Battle Mountain pursuant to an Inconsistent Transaction
Termination; (c) by Hemlo Gold as a result of a breach by Battle Mountain of any
representation, warranty, covenant or agreement set forth in the Combination
Agreement on the part of Battle Mountain having or likely to have a
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Material Adverse Effect; or (d) by Hemlo Gold pursuant to a Battle Mountain
Competing Transaction Termination, then Battle Mountain will pay to Hemlo Gold a
fee of US$5 million. Hemlo Gold is not entitled to receive any such payment if
it is in material breach of the Combination Agreement at the time of delivery of
the applicable notice of termination or if its shareholders have disapproved the
Arrangement.
The Combination Agreement also provides that if there is a Hemlo Gold
Competing Transaction Termination or a Superior Proposal Termination, Hemlo Gold
will pay to Battle Mountain an additional fee of US$20 million within two days
of the recommendation by the Hemlo Gold Board of Directors that results in such
termination. The Combination Agreement also provides that if a Hemlo Gold
Competing Transaction is consummated within the period commencing on the date of
the Combination Agreement and ending 12 months after any Hemlo Gold Competing
Transaction Termination or Superior Proposal Termination, Hemlo Gold will pay to
Battle Mountain an additional fee of US$42.5 million less any US$5 million or
US$20 million fee previously or simultaneously paid as aforesaid. Battle
Mountain will not, however, be entitled to receive such fees if it is in
material breach of the Combination Agreement at the time of delivery of an
applicable notice of termination or if Battle Mountain's stockholders have
disapproved the Combination Agreement and the proposed amendments to the Battle
Mountain Articles.
Upon any termination of the Combination Agreement resulting in payment or
payments described above by Hemlo Gold to Battle Mountain, or by Battle Mountain
to Hemlo Gold, under the circumstances described above, such payment or payments
will be the exclusive remedy of the terminating party.
OTHER AGREEMENTS
Agreement to Support the Transaction
Battle Mountain and Noranda, as holder of approximately 44 million Hemlo
Gold Common Shares, have entered into the Agreement to Support the Transaction
pursuant to which Noranda has agreed (i) to vote its Hemlo Gold Common Shares in
favor of the Arrangement, the Combination Agreement and the Transaction unless
there is a Hemlo Gold Competing Transaction which Noranda determines in it sole
discretion, acting in good faith, after consultation with its outside financial
advisors, to be more favorable to it than the Arrangement; (ii) that it will
not, directly or indirectly, solicit, initiate, encourage or facilitate any
proposal or offer from any person concerning the possible disposition of all or
any portion of Hemlo Gold's business, assets or capital stock by merger, sale or
other means; and (iii) not to sell any of its Hemlo Gold Common Shares other
than to a wholly owned subsidiary pursuant to the terms of its Affiliate
Agreement and applicable law.
Affiliate Agreements
Battle Mountain and Hemlo Gold have entered into agreements (the "Hemlo
Gold Affiliate Agreements") with each of the Hemlo Gold Affiliates pursuant to
which such Hemlo Gold Affiliate has agreed that it (i) will not sell, transfer
or otherwise dispose of Battle Mountain Common Stock delivered to them or
Exchangeable Shares issued to them in the Arrangement (or obtained upon exchange
or conversion of the Exchangeable Shares for Battle Mountain Common Stock)
unless (A) such sale, transfer or other disposition has been registered under
the Securities Act; (B) such sale, transfer or other disposition is made in
conformity with the requirements of Rule 145 promulgated under the Securities
Act; or (C) in the opinion of counsel reasonably acceptable to Battle Mountain,
such sale, transfer or other disposition is otherwise exempt from registration
under the Securities Act; and (ii) will not, until such time as results covering
at least 30 days of combined operations of Hemlo Gold and Battle Mountain have
been published by Battle Mountain, in the form of a quarterly earnings report,
an effective registration statement filed with the SEC, a report to the SEC on
Form 10-K, 10-Q or 8-K, or any other public filing or announcement which
includes the combined results of operations, engage in any sale, exchange,
transfer, pledge, disposition of or grant of any option, the establishment of
any "short" or put-equivalent position with respect to or the entry into any
similar transaction intended to reduce the risk of their risk of ownership of or
investment in (A) any shares of the Battle Mountain Common Stock or Exchangeable
Shares or any securities which may be paid as a dividend or otherwise
distributed thereon or with respect thereto or issued or delivered in exchange
or substitution therefor, or any option, right or other interest with respect to
any of the foregoing securities; (B) any Hemlo
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Gold Common Share or Hemlo Gold Option owned at the time of execution of the
applicable Hemlo Gold Affiliate Agreement; or (C) any Hemlo Gold Common Shares
or other Hemlo Gold equity securities which they may acquire after the execution
of the applicable Affiliate Agreement.
Battle Mountain and Hemlo Gold have also entered into agreements (the
"Battle Mountain Affiliate Agreements") with each of the Battle Mountain
Affiliates, pursuant to which such Battle Mountain Affiliate has agreed that it
will not, until such time as results covering at least 30 days of combined
operations of Hemlo Gold and Battle Mountain have been published by Battle
Mountain, in the form of a quarterly earnings report, an effective registration
statement filed with the Commission, a report to the Commission on Form 10-K,
10-Q or 8-K, or any other public filing or announcement which includes the
combined results of operations, engage in any sale, exchange, transfer, pledge,
disposition of or grant of any option, the establishment of any "short" or
put-equivalent position with respect to or the entry into any similar
transaction intended to reduce the risk of their risk of ownership of or
investment in any Battle Mountain Common Stock, Battle Mountain Option or Hemlo
Gold Common Shares.
COURT APPROVAL OF THE ARRANGEMENT AND COMPLETION OF THE TRANSACTION
An arrangement of a corporation under the OBCA requires approval by both
the Court and the shareholders of the subject corporation. Prior to the mailing
of this Joint Proxy Statement, Hemlo Gold obtained the Interim Order providing
for the calling and holding of the Hemlo Gold Shareholders Meeting and other
procedural matters. A copy of the Interim Order is attached hereto in Annex B.
The Notice of Motion for the Final Order also appears in Annex B.
Subject to the approval of the Arrangement by the Hemlo Gold shareholders
at the Hemlo Gold Shareholders Meeting, the hearing in respect of the Final
Order is scheduled to take place on July 18, 1996 at 10:00 a.m. (Toronto time)
in the Court at 145 Queen Street West, Toronto, Ontario. All Hemlo Gold
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 Motion for the Final Order and satisfy any other requirements.
At the hearing of the motion in respect of the Final Order, the Court will
consider, among other things, the fairness and reasonableness of the
Arrangement. The Court may approve the Arrangement as proposed or as amended in
any manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit.
Assuming the Final Order is granted and the other conditions to the
Combination Agreement are satisfied or waived, it is anticipated that the
following will occur substantially simultaneously: Articles of Arrangement will
be filed with the Director under the OBCA to give effect to the Arrangement, the
Voting, Support and Exchange Trust Agreement will be executed and delivered, and
the various other documents necessary to consummate the transactions
contemplated under the Combination Agreement will be executed and delivered.
Subject to the foregoing, it is presently anticipated that the Effective
Time will occur on or about July 18, 1996.
ANTICIPATED ACCOUNTING TREATMENT
The Transaction is intended to qualify as a pooling of interests for
accounting and financial reporting purposes under U.S. GAAP. Under this method
of accounting, the recorded assets and liabilities of Hemlo Gold and Battle
Mountain will be carried forward to the combined company at their recorded
amounts, income of the combined company for the fiscal year in which the
combination occurs will include income of Hemlo Gold and Battle Mountain for
such fiscal year and the reported income of the separate companies for prior
periods will be combined and restated as income of the combined company. No
recognition of purchase price in excess of the carrying value of the net assets
of Hemlo Gold is required of Battle Mountain. Consummation of the Transaction is
conditioned upon the receipt at Closing of an opinion from Price Waterhouse LLP
to Battle Mountain to the effect that the Transaction will qualify for pooling
of interests treatment and an opinion from Ernst & Young that no matters have
come to its attention as a result of
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performing certain agreed upon procedures that would preclude the combined
company from accounting for the Transaction as a pooling of interests.
Battle Mountain has entered into affiliate agreements with each Hemlo Gold
Affiliate and Battle Mountain Affiliate. See "-- Other Agreements -- Affiliate
Agreements." Such agreements relate to the ability of Battle Mountain to account
for the Transaction as a pooling of interests under U.S. GAAP.
PROCEDURES FOR EXCHANGE OF SHARE CERTIFICATES BY HEMLO GOLD SHAREHOLDERS
As soon as practicable after the Effective Time, a Letter of Transmittal
will be delivered to the registered holders of Hemlo Gold Common Shares. The
Letter of Transmittal, when duly completed and returned together with a
certificate for Hemlo Gold Common Shares, will enable each Hemlo Gold
shareholder to obtain a certificate for that number of Exchangeable Shares equal
to the number of Hemlo Gold Common Shares previously held by such shareholder
multiplied by the Exchange Ratio (subject to adjustment for fractional shares,
as discussed below). Incorporated into the Letter of Transmittal will be a form
of a Retraction Request, which when duly completed and returned with a Letter of
Transmittal and a certificate for Hemlo Gold Common Shares, will enable holders
of Hemlo Gold Common Shares to retract any or all of the Exchangeable Shares
which they are entitled to receive pursuant to the Arrangement and receive an
equivalent number of shares of Battle Mountain Common Stock. See "-- Transaction
Mechanics and Description of Exchangeable Shares."
No certificates representing fractional Exchangeable Shares will be issued.
In lieu of fractional Exchangeable Shares, each holder of a Hemlo Gold Common
Share who would otherwise be entitled to receive a fraction of an Exchangeable
Share will be paid by Battle Mountain Canada an amount of cash (rounded to the
nearest whole cent) equal to the Canadian Dollar Equivalent of the product of
(i) such fraction, multiplied by (ii) the Current Market Price of the Battle
Mountain Common Stock. Payments to holders of Hemlo Gold Common Shares with
registered addresses in the United States in respect of fractional interests in
Exchangeable Shares will be made in United States dollars, rather than the
Canadian Dollar Equivalent thereof.
Any use of the mails to transmit a certificate for Hemlo Gold Common Shares
and a related Letter of Transmittal is at the risk of the Hemlo Gold
shareholder. If these documents are mailed, it is recommended that registered
mail, with return receipt requested, properly insured, be used.
Certificates representing the appropriate number of Exchangeable Shares
issuable to a former holder of Hemlo Gold Common Shares who has complied with
the procedures set out above, together with a check in the amount, if any,
payable in lieu of fractional Exchangeable Shares will, as soon as practicable
after the date of receipt of a certificate for Hemlo Gold Common Shares and a
related Letter of Transmittal, be (a) forwarded to the holder at the address
specified in the Letter of Transmittal by first class mail or (b) made available
at the offices of The R-M Trust Company for pick up by the holder, if requested
by the holder in the Letter of Transmittal.
Where a certificate for Hemlo Gold Common Shares has been destroyed, lost
or mislaid, the registered holder of that certificate should immediately contact
The R-M Trust Company regarding the issuance of a replacement certificate upon
the holder satisfying such requirements as may be imposed by Hemlo Gold in
connection with issuance of the replacement certificate.
STOCK EXCHANGE LISTINGS
Exchangeable Shares
The TSE has accepted notice of the proposed Arrangement and has
conditionally approved the listing of the Exchangeable Shares, subject to the
satisfaction of the customary requirements of the TSE. There is no current
intention to list the Exchangeable Shares on any other stock exchange in Canada
or the United States.
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Battle Mountain Common Stock
The Battle Mountain Common Stock is listed on the NYSE, the TSE and certain
other exchanges outside the United States. Battle Mountain has agreed that the
shares of Battle Mountain Common Stock issuable from time to time in exchange
for the Exchangeable Shares will be listed on the NYSE. There is no current
intention to list the Battle Mountain Common Stock on any other stock exchange
in Canada or the United States. Following consummation of the Arrangement,
Battle Mountain may consider having the shares of Battle Mountain Common Stock
delisted from the TSE.
ELIGIBILITY FOR INVESTMENT IN CANADA
In the opinion of McCarthy Tetrault, counsel to Hemlo Gold, if the
Arrangement were to become effective on the date hereof, the Exchangeable Shares
would not be precluded as investments under or by the following statutes (and,
where applicable, the regulations thereunder):
<TABLE>
<S> <C>
Insurance Companies Act (Canada) Loan and Trust Corporations Act (Ontario)
Pension Benefits Standards Act, 1985 (Canada) Supplemental Pensions Act (Quebec)
Trust and Loan Companies Act (Canada) An Act respecting insurance (Quebec)
Pension Benefits Act (Ontario)
</TABLE>
subject to compliance with the prudent investment standards and general
investment provisions and restrictions of the statutes referred to above (and,
where applicable, the regulations thereunder) and, in certain cases, subject to
the satisfaction of additional requirements relating to investment or lending
policies or goals and, in certain cases, the filing of such policies or goals.
Provided they are listed on a prescribed stock exchange in Canada (which
currently includes the TSE), the 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
Ancillary Rights will be foreign property under the Canadian Tax Act. However,
Hemlo Gold is of the view that the fair market value of such rights is generally
nominal. Battle Mountain Common Stock will be foreign property under the
Canadian Tax Act.
Provided they are listed on a prescribed stock exchange in Canada (which
currently includes the TSE), the Exchangeable Shares will be a qualified
investment under the Canadian Tax Act for trusts governed by registered
retirement savings plans, registered retirement income funds and deferred profit
sharing plans. (In certain other circumstances, such shares may also be
qualified investments even if not so listed.) Battle Mountain Common Stock will
be a qualified investment under the Canadian Tax Act for such plans provided
such shares remain listed on the NYSE (or are listed on another prescribed stock
exchange). The Ancillary Rights will not be qualified investments under the
Canadian Tax Act. However, Hemlo Gold is of the view that the fair market value
of such rights is generally nominal.
REGULATORY MATTERS
Hart-Scott-Rodino Act
Under the HSR Act and the rules promulgated thereunder by the FTC, certain
transactions, including the Transaction, may not be consummated unless
notification has been given and certain information has been furnished to the
FTC and the Antitrust Division and certain waiting period requirements have been
satisfied. Pursuant to the HSR Act, on April 29, 1996, Battle Mountain and Hemlo
Gold each filed a Notification and Report Form with the FTC and the Antitrust
Division for review in connection with the Transaction. On May 8, 1996, Noranda
filed a Notification and Report Form with the FTC and the Antitrust Division for
review with respect to its acquisition of Exchangeable Shares in the
Transaction. The FTC has notified Battle Mountain, Hemlo Gold and Noranda that
their respective requests for early termination of the waiting period under the
HSR Act have been granted and that the waiting period has been terminated.
Notwithstanding any termination of the HSR Act waiting period, at any time
before or after the Effective Time, the FTC, the Antitrust Division or private
parties and state attorneys general could take action under the antitrust laws,
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including seeking to enjoin the consummation of the Transaction or seeking the
divestiture by Battle Mountain of all or any part of the stock or assets of
Hemlo Gold. Although Battle Mountain and Hemlo Gold know of no grounds for such
injunction or divestiture, there can be no assurance that a challenge to the
Transaction on antitrust grounds will not be made or that, if such a challenge
is made, it would not be successful.
Certain shareholders of Hemlo Gold, in addition to Noranda, may be
individually subject to the notification and waiting-period requirements of the
HSR Act if they receive Exchangeable Shares in the Transaction having a value of
more than US$15 million or representing 15 percent or more of the voting
securities of Battle Mountain. Determination of whether notification is required
in a particular case will necessitate, among other things, consideration of
potentially applicable exemptions and application of a jurisdictional test
relating to such holder's revenue and assets.
Competition Act (Canada)
Unless the Director of Investigation and Research of the Bureau of
Competition Policy issues an advance ruling certificate under the Competition
Act in respect of a proposed transaction, that Act requires a notification
filing to be submitted to the Director in respect of a transaction that
surpasses certain prescribed size and other thresholds. The combination of
Battle Mountain and Hemlo Gold exceeds the relevant thresholds.
Under the Competition Act, a notifiable transaction may not be completed
prior to the expiration or earlier termination of the applicable waiting period
prescribed under that Act. The waiting period may be seven or 21 days after the
day on which a complete notification filing is received by the Director,
depending upon the type of information required by the Director in connection
with such filing. The waiting period is intended to afford the Director an
opportunity to review a proposed transaction in order to determine whether it
gives rise to substantive competition law concerns.
On May 1, 1996, Battle Mountain and Hemlo Gold each made a prenotification
filing with the Director pursuant to the Competition Act. On May 9, 1996, Battle
Mountain was advised that the Director does not intend at this time to initiate
proceedings to challenge the completion of the Transaction under the merger
provisions of the Competition Act. Notwithstanding the issuance of the letter
referred to above, the Director may bring an application to challenge the
Transaction under the merger provisions of the Competition Act within three
years of completion of the Transaction if he determines that it prevents or
lessens or is likely to prevent or lessen competition substantially.
Investment Canada Act
The Investment Canada Act is Canada's statute of general application
governing the acquisition of control of Canadian businesses by non-Canadians. An
acquisition of a Canadian business by an offeror is reviewable if the value of
the assets acquired is equal to or greater than C$168 million (for transactions
that close in 1996). The Arrangement exceeds this threshold and is, therefore,
reviewable. A reviewable investment is one for which the acquiror must submit an
application for review with prescribed information to Investment Canada.
Before a reviewable investment may be completed, the Minister of the
federal Cabinet responsible for Investment Canada must determine that the
investment is likely to be of "net benefit to Canada." The Minister has an
initial 45-day period to make his determination. The Minister may extend the
period for a further 30 days by giving notice to the prospective acquiror. If
the Minister is not satisfied that the investment is likely to be of net benefit
to Canada, he must send a notice to that effect to the prospective acquiror, and
the acquiror has 30 days to make representations and submit undertakings to the
Minister in an attempt to change his decision.
An application for review under the Investment Canada Act was filed on May
6, 1996. The initial 45-day review period will expire on June 20, 1996. Although
Battle Mountain and Hemlo Gold believe that the approval of the Minister will be
obtained, there can be no assurance of this result.
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Securities Act (Ontario and Quebec)
The Transaction is a related party transaction for the purposes of Policy
9.1 of the Ontario Securities Commission and Policy Q-27 of the Quebec
Securities Commission in that Exchangeable Shares will be issued to Noranda and
Noranda is a related party (as defined in such policies) of Hemlo Gold and/or as
a consequence of the purchase or other acquisition by Hemlo Gold of Hemlo Gold
Common Shares. See "Comparison of Stockholder Rights -- Anti-Takeover Provisions
and Interested Stockholder Transactions." The Transaction is, however, exempt
from the valuation and minority approval requirements of such policies based on
the arm's length negotiation that took place to establish the terms of the
Transaction.
RESALE OF EXCHANGEABLE SHARES AND BATTLE MOUNTAIN COMMON STOCK RECEIVED IN THE
TRANSACTION
United States
The issuance of Exchangeable Shares to holders of Hemlo Gold Common Shares
will not be registered under the Securities Act. Such shares will instead be
issued in reliance upon the exemption provided by Section 3(a)(10) of the
Securities Act. Section 3(a)(10) exempts securities issued in exchange for one
or more outstanding securities from the general requirement of registration
where the terms and conditions of the issuance and exchange of such securities
have been approved by any 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
Court is authorized to conduct a hearing to determine the fairness of the terms
and conditions of the Arrangement, including the proposed issuance of securities
in exchange for other outstanding securities. The Court entered the Interim
Order on June 5, 1996 and subject to the approval of the Arrangement by the
Hemlo Gold shareholders, a hearing on the fairness of the Arrangement will be
held on July 18, 1996 by the Court. See "-- Court Approval of the Arrangement
and Completion of the Transaction."
The Exchangeable Shares received in exchange for Hemlo Gold Common Shares
in the Arrangement will be freely transferable under U.S. federal securities
laws, except Exchangeable Shares held by Hemlo Gold Affiliates. 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, such
issuer and may include certain officers and directors of such issuer as well as
principal shareholders of such issuer.
Battle Mountain has entered into affiliate agreements with each of the
Hemlo Gold Affiliates restricting such persons in connection with the
requirements for pooling of interests accounting treatment (see "-- Anticipated
Accounting Treatment") and restricting the sale, pledge or other disposal of
Exchangeable Shares, Battle Mountain Options, Battle Mountain Common Stock
acquired thereby or any securities paid as a dividend thereon or with respect
thereto. See "-- Other Agreements -- Affiliate Agreements."
The issuance of shares of Battle Mountain Common Stock from time to time in
exchange for the Exchangeable Shares will be registered under the Securities Act
prior to the Effective Time.
Canada
Battle Mountain, Battle Mountain Sub and Hemlo Gold have applied for
rulings or orders of certain provincial securities regulatory authorities in
Canada to permit the issuance to Hemlo Gold shareholders of the Exchangeable
Shares. Application has also been made to permit resale of those shares in such
provinces without 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.
Battle Mountain, Battle Mountain Sub and Hemlo Gold have also applied for
rulings or orders of certain provincial securities regulatory authorities in
Canada to permit the issuance of Battle Mountain Common
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Stock to holders of Exchangeable Shares, and to permit the resale of Battle
Mountain Common Stock by such holders on the same terms as set out above with
respect to the Exchangeable Shares.
ONGOING CANADIAN REPORTING OBLIGATIONS
Upon completion of the Arrangement, Hemlo Gold, under its new name, Battle
Mountain Canada Inc., will continue to be a reporting issuer in certain Canadian
provinces. Application has also been made for certain exemptions from statutory
financial and other reporting requirements, including exempting insiders of
Hemlo Gold from the requirement of filing reports with respect to trades of
Hemlo Gold securities, in those Canadian provinces on the condition that Battle
Mountain files with the relevant provincial securities regulatory authorities
copies of certain of its reports filed with the SEC and that holders of
Exchangeable Shares receive certain materials that are sent to holders of Battle
Mountain Common Stock.
FUTURE ISSUANCES OF AUTHORIZED SHARES
Following the Transaction, the Battle Mountain Canada Articles will
authorize an unlimited number of Exchangeable Shares and the Battle Mountain
Articles will authorize additional shares of Battle Mountain Common Stock and
Battle Mountain Preferred Stock, to be available for issuance for general
corporate purposes, including, but not limited to, acquisitions, financings and
stock dividends and splits. The Exchangeable Shares and the additional shares of
Battle Mountain Common Stock and Battle Mountain Preferred Stock that would be
authorized could be issued, without approval of holders of shares of Battle
Mountain Common Stock or Exchangeable Shares, at such time or times, to such
persons and for such consideration as Battle Mountain may determine, except as
may otherwise be required by applicable laws, regulations or stock exchange
requirements. The NYSE, on which the Battle Mountain Common Stock now trades,
and the TSE, on which the Exchangeable Shares will trade, currently require
stockholder approval of the issuance of shares in certain instances, including
with respect to the NYSE, transactions where the issuance could increase the
number of outstanding shares by 20 percent or more and, with respect to the TSE,
transactions where the issuance could increase the number of outstanding shares
by 25 percent or more.
The Battle Mountain Articles authorize the Board of Directors to issue
shares of Battle Mountain Preferred Stock in one or more series and to fix and
state the designations, powers, preferences, qualifications, limitations,
restrictions and relative rights of the shares of each such series. The Battle
Mountain Board of Directors may determine, without any vote or action by
stockholders, among other things, the payment dates and rates of dividends, if
any, whether dividends are to be cumulative or noncumulative, whether the series
is subject to redemption and, if so, the manner of redemption and the redemption
price, the preference of any series over any other series of Battle Mountain
Preferred Stock or Battle Mountain Common Stock on liquidation or dissolution of
Battle Mountain, any sinking fund or other retirement provisions for the series
and any conversion or exchange rights or other privilege of the holders to
acquire shares of any other series of Battle Mountain Preferred Stock or of
Battle Mountain Common Stock. The Battle Mountain Board of Directors may also
determine the number of shares in each series, the stated value for which the
series may be issued and the voting rights of each series. The shares of each
series of Battle Mountain Preferred Stock may rank prior to the Battle Mountain
Common Stock in respect of dividends and rights in liquidation.
Other than pursuant to the Arrangement, upon exchange of Exchangeable
Shares and pursuant to employee benefit plans, Battle Mountain has no present
understanding or agreement with respect to the issuance for any purpose of any
additional Exchangeable Shares or shares of Battle Mountain Common Stock and
Battle Mountain Preferred Stock that will be authorized for issuance under the
proposed amendments to the Battle Mountain Articles. Although the Battle
Mountain Board of Directors has no present intention of doing so, the additional
Exchangeable Shares, shares of Battle Mountain Common Stock or shares of Battle
Mountain Preferred Stock that will be authorized for issuance could be issued in
one or more transactions (within limitations imposed by applicable law) that
would make a takeover of Battle Mountain more difficult and, therefore, less
likely, even though such a takeover might be economically beneficial to Battle
Mountain and holders of Battle Mountain Common Stock and Exchangeable Shares.
The Battle Mountain Board of Directors and management of Battle Mountain have no
knowledge of any person or entity that intends to seek a controlling interest
in, or to make a takeover proposal with respect to, Battle Mountain.
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THE COMPANIES AFTER THE TRANSACTION
THE COMBINATION -- GENERAL
Upon completion of the Transaction, the parent company of the combined
entity will be Battle Mountain Gold Company, which will continue to be a
corporation governed by the NGCL, and its principal executive office will
continue to be located at 333 Clay Street, 42nd Floor, Houston, Texas 77002
(telephone number (713) 650-6400). After the Effective Time, Battle Mountain
will own all of the voting securities of Hemlo Gold, which under its new name,
Battle Mountain Canada Inc., will continue to be a corporation governed by the
OBCA. Battle Mountain Canada's registered office will continue to be located at
1 Adelaide Street, Suite 2902, Toronto, Ontario, Canada M5C 2Z9 (telephone
number (416) 982-7116).
MANAGEMENT
Directors
Pursuant to the Combination Agreement, effective upon completion of the
Transaction, the Battle Mountain Board of Directors will be increased to 12
members, six of whom are current directors of Battle Mountain and six of whom
will be designated by the Hemlo Gold Board of Directors.
The following persons are expected to serve as directors of Battle Mountain
following the Effective Time.
NAME, AGE AND BUSINESS EXPERIENCE
ALEX G. BALOGH has served as Deputy Chairman of the Board of Noranda (resource
company) since November 1994. From January 1991 to November 1994, Mr. Balogh
served as President and Chief Executive Officer of Noranda Minerals Inc.
("Noranda Minerals"). Prior thereto, he served as President and Chief Executive
Officer of Falconbridge Limited ("Falconbridge") (mining company). Mr. Balogh
has been a director with Hemlo Gold since 1991. He also serves as Chairman of
the Board of Hemlo Gold. Mr. Balogh is 63 years old.
IAN D. BAYER has served as President and Chief Executive Officer of Hemlo Gold
and Chairman of Crown Butte since July 1991. Prior thereto, Mr. Bayer served as
President and Chief Executive Officer of Kerr Addison Mines Limited (mining
company) and its then subsidiary Minnova, Inc. (mining company). Mr. Bayer has
been a director of Hemlo Gold since 1991. He is 57 years old.
DOUGLAS J. BOURNE was Chairman of the Board and Chief Executive Officer of
Battle Mountain until his retirement in April 1990. Mr. Bourne has been a
director of Battle Mountain since its formation, and his present term expires in
1997. He is 73 years of age and is also a director of Potash Corporation of
Saskatchewan, Inc.
DAVID L. BUMSTEAD has served as Executive Vice President of Noranda since
January 1, 1995 prior to which he served as Executive Vice President, Marketing
and Finance, of Noranda Minerals. He has also served as Chairman of Kerr Addison
Mines Limited since May 1992 and of Rudolf Wolff & Co. Ltd. (metals brokerage)
since January 1, 1994; as President of Brenda Mines Ltd. (mining company) since
November 1992; and as a Director of Falconbridge since October 1989. Mr.
Bumstead is 54 years old.
DELO H. CASPARY has been engaged for more than five years in managing his
personal investments. He became a director of Battle Mountain in 1985, and his
present term expires in 1997. Mr. Caspary is also a director of Caspen, plc., a
British company, and Victoria Bank and Trust. He is 70 years old.
CHARLES E. CHILDERS has served as Chairman of the Board, President and Chief
Executive Officer of Potash Corporation of Saskatchewan, Inc. (mining and
processing of potash) since 1990. From 1987 through 1990, Mr. Childers served as
President and Chief Executive Officer of that corporation. Mr. Childers is also
a director of Kap Resources Ltd. (resource company). He became a director of
Battle Mountain in 1993 and is a nominee for election as a director of Battle
Mountain at the Battle Mountain Stockholders Meeting. He is 63 years old.
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KARL E. ELERS is Chairman of the Board and Chief Executive Officer of Battle
Mountain. From April 1988 until April 1990, he was President and Chief Operating
Officer of Battle Mountain. From May 1987 until April 1988, Mr. Elers was
Executive Vice President of Battle Mountain. Mr. Elers became a director in 1987
and is a nominee for election as a director of Battle Mountain at the Battle
Mountain Stockholders Meeting. He is 57 years old.
DAVID W. KERR has served as Chairman and Chief Executive Officer of Noranda
since April 1995. Prior thereto, he served as President and Chief Executive
Officer of Noranda. Mr. Kerr has been a director of Hemlo Gold since 1986. He is
52 years old.
JAMES W. MCCUTCHEON, Q.C., has been counsel, in Toronto, with the law firm of
McCarthy Tetrault since July 1990. Mr. McCutcheon has been a director of Hemlo
Gold since 1992 and is also a director of Noranda and CAE Industries Inc. and
Chairman of Empire Life Insurance Company. He is 59 years old.
MARY MOGFORD is a corporate director and has been a partner with Mogford
Campbell Associates Inc. (consultants on finance, business and public policy)
since August 1989. Prior to this date, she was Deputy Minister of Treasury &
Economics (Finance) and Deputy Minister of Natural Resources for the Province of
Ontario. Ms. Mogford has been a director of Hemlo Gold since April 1992 and is
also a director of Falconbridge, Credit Suisse Canada, Teranet Land Information
Systems and Altamira Advisory Council. She is 52 years of age.
TED H. PATE was President and Chief Operating Officer of Battle Mountain until
April 1988. Mr. Pate became a director of Battle Mountain in 1985, and his
present term expires in 1998. He is 69 years of age.
WILLIAM A. WISE has served as Chairman of the Board, President and Chief
Executive Officer of El Paso Natural Gas Company, an integrated natural gas
company, since January 1994. From April 1989 through January 1990, Mr. Wise was
President and Chief Operating Officer of that corporation. He became Chief
Executive Officer in January 1990. Mr. Wise has been a director of Battle
Mountain since 1994, and his present term expires in 1998. He is 50 years old.
The Battle Mountain Articles provide for the classification of its Board of
Directors into three classes having staggered terms of three years each. Messrs.
Bourne, Caspary, McCutcheon and Bumstead will be members of the class of
directors standing for election in 1997, Messrs. Pate, Wise and Kerr and Ms.
Mogford will be members of the class of directors standing for election in 1998,
and Messrs. Elers, Childers, Bayer and Balogh will be members of the class of
directors standing for election in 1999.
For information concerning the committees of the Battle Mountain Board of
Directors and compensation of directors, see "ADDITIONAL MATTERS FOR
CONSIDERATION OF BATTLE MOUNTAIN STOCKHOLDERS -- Election of Three Directors and
Director Compensation."
Executive Officers
Upon completion of the Transaction, Karl E. Elers, currently the Chairman
of the Board and Chief Executive Officer of Battle Mountain, will be the
Chairman of the Board of the combined company, and Ian D. Bayer, currently the
President and Chief Executive Officer of Hemlo Gold, will be the President of
the combined company, and those two officers will establish a joint office of
the Chief Executive of the combined company.
In addition to Messrs. Elers and Bayer, the following persons are expected
to serve as officers of the combined company following the Effective Time.
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NAME, AGE AND BUSINESS EXPERIENCE
R. DENNIS O'CONNELL -- EXECUTIVE VICE PRESIDENT, FINANCE AND CORPORATE
DEVELOPMENT. Mr. O'Connell has served as Vice President, Finance and Chief
Financial Officer of Battle Mountain since July 1992. From May 1992 until July
1992 he served as Vice President of Battle Mountain. Prior to joining Battle
Mountain in May 1992, Mr. O'Connell served as Assistant Controller, Worldwide
Exploration and Production for Marathon Oil Company since January 1991. He is 49
years of age.
IAN ATKINSON -- SENIOR VICE PRESIDENT, EXPLORATION. Mr. Atkinson has served
as Senior Vice President of Hemlo Gold since February 1996. From September 1991
to February 1996, he served as Vice President -- Exploration of Hemlo Gold.
Prior thereto he served as Assistant Regional Manager -- Ontario and N.W.
Quebec, of Noranda Exploration Company, Limited (No Personal Liability)
("Norex"). He is 46 years of age.
JOHN A. KEYES -- SENIOR VICE PRESIDENT, OPERATIONS. Mr. Keyes has served as
Vice President -- Operations of Hemlo Gold since September 1995. He served as
Mine Manager -- Golden Giant Mine of Hemlo Gold from March 1992 to September
1995. Prior thereto he served as Mine Manager of the Geco Mine of Noranda. He is
52 years of age.
JOSEPH J. BAYLIS -- PRESIDENT, BATTLE MOUNTAIN AUSTRALIA. Mr. Baylis has
served as Vice President -- Investor Relations and General Counsel of Hemlo Gold
since September 1991. He served as Vice President. Business and Corporate
Development of Hemlo Gold from October 1990 to September 1991, Secretary of
Norex from November 1986 to July 1991, and Senior Counsel of Noranda Minerals
from March 1990 to July 1991. He is 39 years of age.
JOSEPH L. MAZUR -- VICE PRESIDENT, ADMINISTRATION AND COMMUNICATIONS. Mr.
Mazur has served as Vice President, Administration and Communications of Battle
Mountain since 1985. He is 57 years of age.
MICHAEL E. POWER -- VICE PRESIDENT, CORPORATE DEVELOPMENT. Mr. Power has
served as Vice President -- Corporate Development of Hemlo Gold since February
1993. He served as Director -- Corporate Development of Hemlo Gold from
September 1991 to February 1993 and Senior Analyst of Noranda prior thereto. He
is 54 years of age.
MICHAEL C. PROCTOR -- VICE PRESIDENT, FINANCE, BATTLE MOUNTAIN CANADA. Mr.
Proctor has served as Vice President -- Finance of Hemlo Gold since September
1991. He served as Vice President and Comptroller of Noranda Minerals prior
thereto. He is 53 years of age.
ROBERT J. QUINN -- VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY.
Mr. Quinn has served as Vice President, General Counsel and Secretary of Battle
Mountain since 1989. He is 40 years of age.
FRED B. REISBICK -- VICE PRESIDENT, EXPLORATION. Mr. Reisbick has served as
Vice President, Exploration of Battle Mountain since November 1992. He served as
General Manager, North America Exploration prior thereto. He is 58 years of age.
PLANS AND PROPOSALS
Battle Mountain and Hemlo Gold believe that the Transaction represents an
excellent opportunity to create a precious metals mining company that will enjoy
benefits of increased size, a more diversified asset base, low cash production
costs and good positioning to take advantage of opportunities for growth.
Following consummation of the Transaction, attributable annual gold
production from the new Battle Mountain is expected to rank fifth among
companies based in North America. The combined company will have eight operating
mines located in Australia, Bolivia, Canada, Chile and the United States.
Approximately 70 percent of pro forma 1996 attributable production is expected
to come from the low-cost Golden Giant and Kori Kollo mines. On a pro forma
basis as of December 31, 1995, proven and probable attributable reserves of the
combined company aggregated approximately 13,310,600 contained ounces of which
7,279,000 ounces were attributed to operating mines, 2,326,300 ounces to mines
under development for which permitting is
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complete and 3,705,300 ounces are attributable to development projects that
remain subject to permitting. See "SELECTED PRO FORMA OPERATING DATA -- Pro
Forma Net Proven and Probable Reserves."
Although the principal benefits of the transaction are related to size,
diversification of assets and greater financial strength, Battle Mountain and
Hemlo also expect annual cost savings in the range of $3-5 million. These
savings are expected to be achieved primarily through reduced general and
administrative expenses resulting from consolidation of headquarters operations
and exploration staffs, improved access to capital markets and the advantage of
size in achieving potentially more favorable terms from suppliers of goods and
services. These savings are expected to be realized over time as the
consolidation is completed. There is no assurance that all of the anticipated
cost savings will prove to be achievable or that the cost savings that are
realized will not be offset by increases in other costs.
Battle Mountain and Hemlo Gold also believe that the combined company will
benefit from the complementary skills and expertise of their managements in open
pit mining and underground mining, respectively. The Battle Mountain
organization will also contribute its international mining expertise.
On a pro forma basis as of December 31, 1995, the combined company would
have a ratio of consolidated net debt to consolidated total capitalization of 9
percent. Battle Mountain and Hemlo Gold believe these measures reflect financial
strength that will help position the combined company to complete development of
projects currently identified, to fund a strong exploration effort and otherwise
to take advantage of new opportunities as they arise. Following consummation of
the Transaction, cash flow from the combined company, including that
attributable to Hemlo Gold's Golden Giant mine, will be available for, among
other things, funding existing development projects, including Battle Mountain's
Phoenix and Crown Jewel projects.
The combined company is expected to have an exploration program with
activity spanning four continents, with emphasis in North and South America, the
Austral Pacific and West Africa. The exploration budget of the combined
companies for 1996 is expected to be approximately $35 million. Exploration
activities are expected to range from greenfield projects to acquisitions of
undeveloped properties and will be conducted both directly and through joint
ventures with others. Specific areas of near-term interest are expected to
include the Tupiza region in Bolivia, Southern Chile, the Kuiri area of Irian
Jaya, Moyagee in Western Australia, Vera in Queensland, Australia and Dunkwa in
Ghana. In addition, exploration efforts are expected to continue near existing
operating properties such as Golden Giant and Holloway in Ontario, Kori Kollo in
Bolivia and the Battle Mountain Complex in Nevada.
Following consummation of the Transaction, it is expected that some
technical, data processing and research services presently provided by Noranda
to Hemlo Gold will continue to be used by Battle Mountain Canada during a
transition period. The amount paid to Noranda for services in these categories
was C$1.0 million during the 1995 calendar year.
PRINCIPAL HOLDERS OF SECURITIES
Based on Noranda's ownership of 44,082,788 Hemlo Gold Common Shares (and no
shares of Battle Mountain Common Stock) as of the date of this Joint Proxy
Statement, after giving effect to the Transaction Noranda will be the beneficial
owner of 65,242,526 Exchangeable Shares, which will represent approximately 28
percent of the aggregate outstanding shares of Battle Mountain Common Stock and
the Exchangeable Shares following consummation of the Transaction.
To the knowledge of Hemlo Gold and its directors and officers, other than
Noranda, there are no persons who, had the Transaction occurred on May 31, 1996,
would beneficially own, directly or indirectly, or exercise control or direction
over, in excess of 5 percent of the outstanding shares of Battle Mountain Common
Stock. With respect to Battle Mountain, to its knowledge and to the knowledge of
its directors and officers, there are no persons who, had the Transaction
occurred on May 31, 1996, would beneficially own, directly or indirectly, or
exercise control or direction over, in excess of 5 percent of the outstanding
shares of Battle Mountain Common Stock.
See "INFORMATION CONCERNING HEMLO GOLD -- Directors and Officers" and
"INFORMATION CONCERNING BATTLE MOUNTAIN -- Security Ownership" for information
with
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respect to securities of Hemlo Gold and Battle Mountain currently owned by
certain directors and officers of Hemlo Gold and Battle Mountain, respectively.
BATTLE MOUNTAIN CAPITAL STOCK
The Battle Mountain Articles currently authorize 200,000,000 shares of
Battle Mountain Common Stock and 20,000,000 shares of Battle Mountain Preferred
Stock. If the proposal amending the Restated Articles of Incorporation is
approved at the Battle Mountain Stockholders Meeting, the authorized number of
shares of Battle Mountain Common Stock will be increased to 500,000,000, the
authorized number of shares of Battle Mountain Preferred Stock will be increased
to 50,000,000 and one share of Special Voting Stock will be authorized.
Battle Mountain Common Stock
Subject to the prior rights of any shares of Battle Mountain Preferred
Stock that may from time to time be outstanding, holders of Battle Mountain
Common Stock are entitled to share ratably in such dividends as may be lawfully
declared by the Board of Directors and paid by Battle Mountain and, in the event
of liquidation, dissolution or winding up of Battle Mountain, are entitled to
share ratably in all assets available for distribution.
The Battle Mountain Common Stock is entitled to one vote per share held of
record on each matter submitted to a vote of stockholders. The holders of Battle
Mountain Common Stock have no preemptive rights to purchase any securities of
Battle Mountain or cumulative voting rights. Preferred stock purchase rights are
issuable in respect of all shares of Battle Mountain Common Stock issued prior
to certain events. See "-- Battle Mountain Preferred Stock -- Series A Preferred
Stock." All outstanding shares of Battle Mountain Common Stock are validly
issued, fully paid and nonassessable. Battle Mountain is not prohibited by the
Battle Mountain Articles from repurchasing shares of its Common Stock. Any such
repurchases would be subject to any limitations on the amount available for such
purpose under applicable corporate law, any applicable restrictions under the
terms of any outstanding Battle Mountain Preferred Stock or indebtedness and, in
the case of market purchases, such restrictions on the timing, manner and amount
of such purchases as might apply in the circumstances under applicable
securities laws.
Battle Mountain Special Voting Stock
A single share of Battle Mountain Special Voting Stock will be authorized
for issuance and a single share will be outstanding having a par value of
US$0.10 per share. Except as otherwise required by law or the Battle Mountain
Articles, the Special Voting Share will be entitled to a number of votes equal
to the number of outstanding Exchangeable Shares from time to time not owned by
Battle Mountain or certain subsidiaries of Battle Mountain, and may be voted in
the election of directors and on all other matters submitted to a vote of
stockholders of Battle Mountain. The holders of Battle Mountain Common Stock and
the holder of the Special Voting Share 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 Battle Mountain Articles. In the event of any liquidation,
dissolution or winding up of Battle Mountain, the holder of the Special Voting
Share will not be entitled to receive any assets of Battle Mountain available
for distribution to its stockholders. The holder of the Special Voting Share
will not be entitled to receive dividends. Pursuant to the Combination
Agreement, the Special Voting Share will be issued to the Trustee appointed
under the Voting, Support and Exchange Trust Agreement. See "-- Voting, Support
and Exchange Trust Agreement." At such time as the Special Voting Share has no
votes attached to it because there are no Exchangeable Shares outstanding not
owned by Battle Mountain or certain subsidiaries of Battle Mountain, and there
are no shares of stock, debt, options or other agreements of Battle Mountain
Canada that could give rise to the issuance of any Exchangeable Shares to any
person (other than Battle Mountain or certain subsidiaries of Battle Mountain),
the Special Voting Share will be cancelled.
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Battle Mountain Preferred Stock
Battle Mountain's Board of Directors is authorized, without any further
vote or action by Battle Mountain's stockholders, to divide the Battle Mountain
Preferred Stock into series and, with respect to each series, to determine the
dividend rights, dividend rates, conversion rights, voting rights (which may be
greater or lesser than the voting rights of the Battle Mountain Common Stock),
redemption rights and terms, liquidation preferences, sinking fund rights and
terms, the number of shares constituting the series and the designation of each
series.
Convertible Preferred Stock. Holders of shares of Battle Mountain's US$3.25
Convertible Preferred Stock (the "Convertible Preferred Stock") are entitled to
receive, when, as and if declared by the Board of Directors of Battle Mountain,
an annual cash dividend of US$3.25 per share, payable in equal quarterly
installments. Except as required by law or as described in the next sentence,
holders of shares of Convertible Preferred Stock have no voting rights. Whenever
dividends on the Convertible Preferred Stock are in arrears for at least six
full quarterly dividends, holders of the Convertible Preferred Stock will be
entitled (voting separately as a class together with holders of shares of any
one or more other series of capital stock of Battle Mountain ranking on a parity
with the Convertible Preferred Stock as to dividends and having like voting
rights) to elect two additional directors until such dividend arrearage is
eliminated. Each share of Convertible Preferred Stock is convertible at any
time, at the option of the holder, into shares of Battle Mountain Common Stock
at a conversion rate of 4.762 shares of Battle Mountain Common Stock for each
share of Convertible Preferred Stock, subject to adjustment under certain
circumstances. The Convertible Preferred Stock is redeemable at any time on and
after May 15, 1996, at the option of Battle Mountain, in whole or in part, in
exchange for shares of Battle Mountain Common Stock at a redemption price of
US$52.275 per share of Convertible Preferred Stock, and thereafter at prices
decreasing ratably annually to US$50.00 per share on or after May 15, 2003, plus
accrued and unpaid dividends. The number of shares of Battle Mountain Common
Stock to be issued upon the redemption of any share of Convertible Preferred
Stock will be equal to the then-current redemption price divided by the lower of
(i) the average of the daily closing prices of the Battle Mountain Common Stock
for the 20 consecutive trading days immediately preceding the first business day
immediately preceding the date of any applicable redemption notice or (ii) the
closing price of the Battle Mountain Common Stock on the trading day immediately
preceding the first business day immediately preceding the date of any
applicable redemption notice. At no time is the Convertible Preferred Stock
redeemable for cash.
In the event of any liquidation, dissolution or winding up of Battle
Mountain, the holders of shares of Convertible Preferred Stock are entitled to
receive a liquidation preference of US$50.00 per share, plus an amount equal to
any accrued and unpaid dividends to the date of payment, before any distribution
of assets is made to holders of Common Stock or any other stock that ranks
junior to the Convertible Preferred Stock as to liquidation rights. The holders
of Convertible Preferred Stock and all series or classes of Battle Mountain's
stock that rank on a parity as to liquidation rights with the Convertible
Preferred Stock are entitled to share ratably, in accordance with the respective
preferential amounts payable on such stock, in any distribution which is not
sufficient to pay in full the aggregate of the amounts payable thereon.
The Convertible Preferred Stock is listed for trading on the New York Stock
Exchange. The registrar, transfer agent, conversion agent and dividend
disbursing agent for the Convertible Preferred Stock is The Bank of New York.
Series A Preferred Stock. On November 10, 1988, the Board of Directors of
Battle Mountain declared a dividend of one Right (a "Right") for each
outstanding share of Battle Mountain Common Stock to stockholders of record at
the close of business on November 21, 1988. Rights are issuable in respect of
all shares of Battle Mountain Common Stock issued after such record date but
prior to the earliest of (i) the Distribution Date (as defined below), (ii) the
date on which the Rights are redeemed as provided below and (iii) November 10,
1998. Each Right entitles the registered holder to purchase from Battle Mountain
a unit consisting of one one-hundredth of a share (a "Unit") of Battle
Mountain's Series A Junior Participating Preferred Stock (the "Series A
Preferred Stock"), at a purchase price of US$60 per Unit, subject to adjustment
(the "Purchase Price").
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The Rights are now attached to all Battle Mountain Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates have been distributed. The Rights will separate from the Battle
Mountain Common Stock and a "Distribution Date" will occur upon the earlier of
(i) 10 days following a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 20 percent or more of the outstanding
shares of Battle Mountain Common Stock (the date of the announcement being the
"Stock Acquisition Date") or (ii) 10 business days (or such later date as may be
determined by Battle Mountain's Board of Directors before the Distribution Date
occurs) following the commencement of a tender offer or exchange offer that
would result in a person or group beneficially owning 30 percent or more of such
outstanding shares of Battle Mountain Common Stock. In connection with the
Transaction, the Rights Agreement specifying the terms of the Rights (the
"Rights Agreement") will be supplemented by Battle Mountain pursuant to the
terms thereof to provide that Noranda will not be an Acquiring Person unless and
until it or any of its affiliates or associates (as defined) purchase or
otherwise become the beneficial owner of Exchangeable Shares or shares of Battle
Mountain Common Stock in addition to that acquired by it in the Transaction or
any other person or persons who is (or collectively are) the beneficial owners
of any Exchangeable Shares or shares of Battle Mountain Common Stock become an
affiliate or associate of Noranda unless (x) in either such case, Noranda,
together with all of its affiliates and associates, is not then the beneficial
owner of 20 percent or more of the Exchangeable Shares or shares of Battle
Mountain Common Stock then outstanding, considered as one class, or (y) in case
Noranda becomes the beneficial owner of such additional shares as a result of
the acquisition of another person or becomes an affiliate or associate of
another person as a result of a bona fide transaction undertaken primarily for
another purpose not related to the acquisition of beneficial ownership of
Exchangeable Shares or shares of Battle Mountain Common Stock and not for any
purpose or with any effect of changing or influencing control of Battle
Mountain, Noranda promptly divests or causes to be divested such additional
shares or the shares owned beneficially by such affiliate or associates. The
supplement to the Rights Agreement will also provide a customary "inadvertence"
exception in the definition of Acquiring Person (conditional on prompt
divestiture) and may also make such other changes as the Battle Mountain Board
of Directors, with the consent of Hemlo Gold which shall not be unreasonably
withheld, shall determine to be appropriate following consultation with counsel.
For purposes of the Rights, beneficial ownership of Exchangeable Shares will be
treated as beneficial ownership of Battle Mountain Common Stock and calculations
of percentage ownership, the number of shares outstanding and related provisions
will be made on a basis that treats the Battle Mountain Common Stock and
Exchangeable Shares as though they are the same security. The Rights are not
exercisable until the Distribution Date and will expire at the close of business
on November 10, 1998, unless earlier redeemed by Battle Mountain as described
below.
The Rights Agreement provides that in the event that (i) Battle Mountain is
the surviving corporation in a merger with an Acquiring Person and the Battle
Mountain Common Stock is not changed or exchanged, (ii) a person becomes the
beneficial owner of 30 percent or more of the then outstanding shares of Battle
Mountain Common Stock (except pursuant to a tender or exchange offer for all
outstanding shares of Battle Mountain Common Stock at a price and on terms that
a majority of the independent directors of Battle Mountain determines to be fair
to and otherwise in the best interests of Battle Mountain and its stockholders),
(iii) an Acquiring Person engages in one or more "self-dealing" transactions as
set forth in the Rights Agreement or (iv) during such time as there is an
Acquiring Person, an event involving Battle Mountain or a subsidiary of Battle
Mountain occurs that results in such Acquiring Person's ownership interest being
increased by more than one percent (e.g., a reverse stock split), at any time
following the Distribution Date, each holder of a Right will thereafter have the
right to receive, upon exercise, Battle Mountain Common Stock (or, in certain
circumstances, cash, property or other securities of Battle Mountain) having a
value equal to two times the exercise price of the Right. The exercise price is
the Purchase Price multiplied by the number of Units issuable upon exercise of
the Right prior to the event described in this paragraph (initially, one).
Notwithstanding any of the foregoing, following the occurrence of any of the
events set forth in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person (or by certain related parties) will be null and void. However,
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Rights are not exercisable following the occurrence of any of the events set
forth above until such time as the Rights are no longer redeemable by Battle
Mountain as set forth below.
In the event that, on or after the Stock Acquisition Date, (i) Battle
Mountain is acquired in a merger or other business combination transaction
(other than a merger described in the preceding paragraph or a merger which
follows an offer described in the preceding paragraph) or (ii) 50 percent or
more of Battle Mountain's assets or earning power is sold or transferred, each
holder of a Right (except Rights which previously have been voided as set forth
above) will thereafter have the right to receive, upon exercise, common stock of
the acquiring company having a value equal to two times the exercise price of
the Right.
At any time until 10 days following the Stock Acquisition Date, Battle
Mountain may redeem the Rights in whole, but not in part, at a price of US$0.01
per Right, payable, at the option of Battle Mountain, in cash, shares of Battle
Mountain Common Stock or such other consideration as the Board of Directors may
determine. The Rights may have certain antitakeover effects, including deterring
someone from acquiring control of Battle Mountain in a manner or on terms not
approved by the Board of Directors of Battle Mountain. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors of Battle Mountain.
Any shares of Series A Preferred Stock that may be issued upon exercise of
the Rights will be nonredeemable. The holders of shares of Series A Preferred
Stock will be entitled to receive, when, as and if declared, a preferential
quarterly dividend in an amount per share effectively equal to the greater of
US$2.00 per share or 100 times any cash or noncash dividend or other
distribution declared on the Battle Mountain Common Stock (other than dividends
payable in shares of Battle Mountain Common Stock), in like kind. In the event
of liquidation, the holders of the Series A Preferred Stock will be entitled to
receive a liquidation payment per share in an amount effectively equal to the
greater of US$100 per share or 100 times the per share amount distributed to
holders of Battle Mountain Common Stock. In the event of any merger,
consolidation or other transaction in which shares of Battle Mountain Common
Stock are exchanged, the holder of the shares of Series A Preferred Stock will
be entitled to receive per share 100 times the amount received per share of
Battle Mountain Common Stock. Holders of Series A Preferred Stock will have 100
votes per share of Series A Preferred Stock and, except as otherwise provided in
the Restated Articles of Incorporation of Battle Mountain or required by law,
will vote together with holders of Battle Mountain Common Stock as a single
class. The rights of the Series A Preferred Stock as to dividends, liquidation
and voting are protected by antidilution provisions. Whenever dividend payments
on the Series A Preferred Stock are in arrears, Battle Mountain will not (i)
purchase or redeem any shares of Series A Preferred Stock or shares ranking on a
parity with respect to the Series A Preferred Stock except in accordance with a
purchase offer to all holders, (ii) declare or pay dividends on or purchase or
redeem any shares of stock ranking junior to the Series A Preferred Stock or
(iii) declare or pay dividends on or purchase or redeem any shares of stock
ranking on a parity with the Series A Preferred Stock except dividends paid
ratably on the Series A Preferred Stock and all such parity stock and except
purchases or redemptions of such parity stock in exchange for junior stock. If
dividend payments on the Series A Preferred Stock are in arrears for six
quarters, the holders of the Series A Preferred Stock (altogether with holders
of any other Preferred Stock with similar rights) will have the right to elect
two directors of Battle Mountain.
BATTLE MOUNTAIN CANADA SHARE CAPITAL
In the event of the consummation of the Transaction, the share capital of
Battle Mountain Canada after the Effective Time will have the rights and
preferences summarized below. Such summary is qualified in its entirety by
reference to the Plan of Arrangement, which is attached as Annex D hereto.
Battle Mountain Canada Common Shares
The holders of Battle Mountain Canada Common Shares are entitled to receive
notice of and to attend all meetings of the shareholders of Battle Mountain
Canada and are entitled to one vote for each share held of record on all matters
submitted to a vote of holders of Battle Mountain Canada Common Shares. Subject
to the prior rights of the holders of the Exchangeable Shares and any other
shares ranking senior to the Common
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Shares with respect to priority in the payment of dividends, the holders of
Battle Mountain Canada Common Shares are entitled to receive such dividends as
may be declared by the Battle Mountain Canada Board of Directors out of funds
legally available therefor. Holders of Battle Mountain Canada Common Shares are
entitled upon any liquidation, dissolution or winding up of Battle Mountain
Canada, subject to the prior rights of the holders of the Exchangeable Shares
and to any other shares ranking senior to the Battle Mountain Canada Common
Shares, to receive the remaining property and assets of Battle Mountain Canada.
Battle Mountain Canada Preferred Shares
The Preferred Shares of Battle Mountain Canada are issuable in series. The
directors are empowered to fix the number of shares in and the designation and
attributes of each series.
Battle Mountain Canada Subordinate Shares
The Subordinate Shares of Battle Mountain Canada are issuable in series.
The directors will be empowered to fix the number of shares in and the
designation and attributes of each series. The Subordinate Shares of Battle
Mountain Canada will rank junior to the Exchangeable Shares to the same extent
as the Battle Mountain Canada Common Shares.
Battle Mountain Canada Exchangeable Shares
Ranking. The Exchangeable Shares will rank prior to the Battle Mountain
Canada Common Shares, Subordinate Shares and any other shares ranking junior to
the Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of liquidation, dissolution or winding up of
Battle Mountain Canada.
Dividends. Holders of Exchangeable Shares will be entitled to receive
dividends equivalent to dividends paid from time to time by Battle Mountain on
shares of Battle Mountain Common Stock. The declaration date, record date and
payment date for dividends on the Exchangeable Shares will be the same as that
for the corresponding dividends on the Battle Mountain Common Stock.
Certain Restrictions. Except as provided in the next sentence, Battle
Mountain Canada will not without the approval of the holders of the Exchangeable
Shares as set forth below under "-- Amendment and Approval":
(a) pay any dividend on the Battle Mountain Canada Common Shares,
Subordinate Shares or any other shares ranking junior to the Exchangeable
Shares, other than stock dividends payable in Battle Mountain Canada Common
Shares, Subordinate Shares or any such other shares ranking junior to the
Exchangeable Shares, as the case may be;
(b) redeem, purchase or make any capital distribution in respect of
Battle Mountain Canada Common Shares, Subordinate Shares or any other
shares ranking junior to the Exchangeable Shares;
(c) redeem or purchase any other shares of Battle Mountain Canada
ranking equally with the Exchangeable Shares with respect to the payment of
dividends or on any liquidation distribution; or
(d) issue any shares other than Exchangeable Shares, Battle Mountain
Canada Common Shares, Subordinate Shares, Preferred Shares issuable in
connection with the exercise of rights associated with Exchangeable Shares
having terms substantially the same as the Rights issued under the Rights
Agreement and any other shares not ranking superior to the Exchangeable
Shares.
The restrictions in clauses (a), (b) and (c) above will not apply at any
time when the dividends on the outstanding Exchangeable Shares corresponding to
dividends declared on the Battle Mountain Common Stock have been declared and
paid in full.
Liquidation of Battle Mountain Canada. In the event of the liquidation,
dissolution or winding up of Battle Mountain Canada or any other proposed
distribution of the assets of Battle Mountain Canada among its shareholders for
the purpose of winding up it affairs, a holder of Exchangeable Shares will be
entitled to
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receive for each Exchangeable Share on the effective date of such liquidation,
dissolution or winding up (the "Liquidation Date") an amount to be satisfied by
issuance of one share of Battle Mountain Common Stock, plus an additional amount
equivalent to the full amount of all declared and unpaid dividends on the
Exchangeable Share (the "Liquidation Amount") .
On or after the Liquidation Date, a holder of Exchangeable Shares may
surrender certificates representing such Exchangeable Shares, together with such
other documents as may be required, to Battle Mountain Canada's registered
office or the office of the transfer agent. Upon receipt of the certificates and
other documents and subject to the exercise by Battle Mountain and Battle
Mountain Sub of its Liquidation Call Right, Battle Mountain Canada will deliver
the Liquidation Amount to such holder at the address recorded in the securities
register or by holding the Liquidation Amount for pick up by the holder at
Battle Mountain Canada's registered office or the office of the transfer agent,
as specified by Battle Mountain Canada in a notice to such holders.
Upon the occurrence of a liquidation, dissolution or winding up of Battle
Mountain Canada, Battle Mountain Sub and Battle Mountain will have the right to
purchase all but not less than all of the Exchangeable Shares then outstanding
(other than Exchangeable Shares held by Battle Mountain, Battle Mountain Sub or
Canada Holdco) at a purchase price per share equal to the Liquidation Amount
and, upon the exercise of the Liquidation Call Right, the holders thereof will
be obligated to sell such shares to Battle Mountain Sub or Battle Mountain, as
applicable. The purchase by Battle Mountain Sub or Battle Mountain of all of the
outstanding Exchangeable Shares upon the exercise of the Liquidation Call Right
will occur on the Liquidation Date.
The Liquidation Call Right may, in general, be exercised, at the election
of Battle Mountain, by either Battle Mountain or Battle Mountain Sub, but with
respect to a holder who acquires in the Arrangement at least the Minimum Number
of Exchangeable Shares and has requested that Battle Mountain execute and
deliver a Tax Cooperation Agreement, in accordance with the Combination
Agreement, may be exercised only by Battle Mountain Sub unless certain
conditions have occurred.
Upon the occurrence of a Battle Mountain Canada Insolvency Event, the
trustee under the Voting, Support and Exchange Trust Agreement on behalf of the
holders of Exchangeable Shares will have the right to require Battle Mountain to
purchase any or all of the Exchangeable Shares then outstanding (other than
Exchangeable Shares held by Battle Mountain and certain of its subsidiaries) for
the Liquidation Amount as described under "-- Voting, Support and Exchange Trust
Agreement -- Optional Exchange Right."
Automatic Exchange on Liquidation of Battle Mountain. In the event of a
Battle Mountain Liquidation Event, Battle Mountain will be required to purchase
each outstanding Exchangeable Share (other than Exchangeable Shares held by
Battle Mountain, Battle Mountain Sub or Canada Holdco) and holders of
Exchangeable Shares will be required to sell the Exchangeable Shares held by
them at that time, by exchanging one share of Battle Mountain Common Stock for
each such Exchangeable Share, plus an additional amount equivalent to the full
amount of all declared and unpaid dividends on the Exchangeable Share.
Upon a holder's request and surrender of Exchangeable Share certificates,
duly endorsed in blank and accompanied by such instrument of transfer as Battle
Mountain may reasonably require, Battle Mountain will deliver to such holder
certificates representing an equivalent number of shares of Battle Mountain
Common Stock plus a check in the amount equivalent to the full amount of all
declared and unpaid dividends on the Exchangeable Shares.
Retraction of Exchangeable Shares by Holders. A holder of Exchangeable
Shares will be entitled at any time to require Battle Mountain Canada to redeem
any or all of the Exchangeable Shares held by such holder for a retraction price
per share to be satisfied by issuance of a share of Battle Mountain Common
Stock, plus an additional amount equivalent to the full amount of all declared
and unpaid dividends on the Exchangeable Shares, subject to the Retraction Call
Rights of Battle Mountain and Battle Mountain Sub described below. Holders of
the Exchangeable Shares may effect such retraction by presenting a certificate
or certificates to Battle Mountain Canada or its transfer agent representing the
number of Exchangeable Shares the holder desires to retract, together with a
duly executed Retraction Request specifying the number of Exchangeable Shares
the holder wishes to retract and such other documents as may be required to
effect the retraction of the
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Exchangeable Shares. The retraction will become effective five business days
after the date on which Battle Mountain Canada receives the Retraction Request
from the holder.
When a holder requests Battle Mountain Canada to redeem the Exchangeable
Shares, Battle Mountain Sub or Battle Mountain will have an overriding
Retraction Call Right to purchase all but not less than all of the Exchangeable
Shares that the holder has requested Battle Mountain Canada to redeem at a
purchase price per share equal to one share of Battle Mountain Common Stock,
plus an additional amount equivalent to the full amount of all declared and
unpaid dividends on the Exchangeable Share.
At the time of a Retraction Request by a holder of Exchangeable Shares,
Battle Mountain Canada will immediately notify Battle Mountain and Battle
Mountain Sub. Battle Mountain or Battle Mountain Sub must then advise Battle
Mountain Canada within two business days as to whether the Retraction Call Right
will be exercised. If either Battle Mountain or Battle Mountain Sub so advises
Battle Mountain Canada within such two business day period, Battle Mountain
Canada will notify the holder as soon as possible thereafter that the Retraction
Call Right will be exercised. A holder may revoke his or her Retraction Request
at any time prior to the close of business on the business day preceding the
Retraction Date, in which case the holder's Exchangeable Shares will neither be
purchased by Battle Mountain or Battle Mountain Sub nor be redeemed by Battle
Mountain Canada. If the holder does not revoke his or her Retraction Request, on
the Retraction Date the Exchangeable Shares that the holder has requested Battle
Mountain Canada to redeem will be purchased by Battle Mountain or Battle
Mountain Sub or redeemed by Battle Mountain Canada, as the case may be, in each
case at a purchase price per share equal to one share of Battle Mountain Common
Stock, plus an additional amount equivalent to the full amount of all declared
and unpaid dividends on the Exchangeable Share.
The Retraction Call Right may, in general, be exercised, at the election of
Battle Mountain, by either Battle Mountain or Battle Mountain Sub, but with
respect to a holder who acquires in the Arrangement at least the Minimum Number
of Exchangeable Shares and has requested that Battle Mountain execute and
deliver a Tax Cooperation Agreement in accordance with the Combination
Agreement, may be exercised only by Battle Mountain Sub unless certain
conditions have occurred.
If, as a result of solvency provisions of applicable law, Battle Mountain
Canada is not permitted to redeem all Exchangeable Shares tendered by a
retracting holder, Battle Mountain Canada will redeem only those Exchangeable
Shares tendered by the holder (rounded down to a whole number of shares) as
would not be contrary to such provisions of applicable law. The holder of any
Exchangeable Shares not redeemed by Battle Mountain Canada will be deemed to
have required Battle Mountain to purchase such unretracted shares in exchange
for Battle Mountain Common Stock on the retraction date pursuant to the optional
Exchange Right. See "-- Exchange Rights."
Redemption of Exchangeable Shares. Subject to applicable law and the
Redemption Call Right of Battle Mountain or Battle Mountain Sub, on any Optional
Redemption Date, Battle Mountain Canada will redeem all but not less than all of
the then outstanding Exchangeable Shares for a redemption price per share equal
to a share of Battle Mountain Common Stock, plus an additional amount equivalent
to the full amount of all declared and unpaid dividends on the Exchangeable
Shares (the "Redemption Price"). Battle Mountain Canada will, at least 120 days
prior to the relevant Optional Redemption Date, provide the registered holders
of the Exchangeable Shares with written notice of the proposed redemption of the
Exchangeable Shares by Battle Mountain Canada. On or after the date such
proposed redemption is exercised, upon the holder's presentation and surrender
of the certificates representing the Exchangeable Shares and such other
documents as may be required at the office of the transfer agent or the
registered office of Battle Mountain Canada, Battle Mountain Canada will deliver
the Redemption Price to the holder at the address of the holder recorded in the
securities register or by holding the Redemption Price for pick up by the holder
at the registered office of Battle Mountain Canada or the office of the transfer
agent as specified in the written notice.
Battle Mountain and Battle Mountain Sub will be granted a Redemption Call
Right, notwithstanding a proposed redemption of the Exchangeable Shares by
Battle Mountain Canada on the Optional Redemption Date pursuant to the
Exchangeable Share Provisions, to purchase on such Optional Redemption Date all
but not less than all of the Exchangeable Shares then outstanding (other than
Exchangeable Shares held by Battle
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Mountain, Battle Mountain Sub or Canada Holdco) in exchange for the Redemption
Price and, upon the exercise of the Redemption Call Right, the holders thereof
will be obligated to sell such shares to Battle Mountain Sub or Battle Mountain,
as applicable. If either Battle Mountain or Battle Mountain Sub exercises the
Redemption Call Right, Battle Mountain Canada's right to redeem the Exchangeable
Shares on such Optional Redemption Date will terminate.
The Redemption Call Right may, in general, be exercised, at the election of
Battle Mountain, by either Battle Mountain or Battle Mountain Sub, but with
respect to a holder who acquires in the Arrangement at least the Minimum Number
of Exchangeable Shares and has requested that Battle Mountain execute and
deliver a Tax Cooperation Agreement in accordance with the Combination
Agreement, may be exercised only by Battle Mountain Sub unless certain
conditions have occurred. If the Redemption Call Right is exercised, Battle
Mountain Canada may elect to redeem all then outstanding Exchangeable Shares on
a subsequent Optional Redemption Date.
Voting Rights. Except as required by applicable law, the holders of the
Exchangeable Shares are not entitled as such to receive notice of or attend any
meeting of the shareholders of Battle Mountain Canada or to vote at any such
meeting.
Amendment and Approval. The rights, privileges, restrictions and conditions
attaching to the Exchangeable Shares may be changed only with the approval of
the holders thereof. Any such approval or any other approval or consent to be
given by the holders of the Exchangeable Shares will be sufficiently given if
given in accordance with applicable law and subject to a minimum requirement
that such approval or consent be evidenced by a resolution passed by not less
than two-thirds of the votes cast thereon (other than shares beneficially owned
by Battle Mountain, Battle Mountain Sub or any of their direct or indirect
subsidiaries) at a meeting of the holders of Exchangeable Shares duly called and
held at which holders of at least 50 percent of the then outstanding
Exchangeable Shares are present or represented by proxy. In the event that no
such quorum is present at such meeting within one-half hour after the time
appointed therefor, then the meeting will be adjourned to such place and time
(not less than 10 days later) as may be determined at the original meeting and
the holders of Exchangeable Shares present or represented by proxy at the
adjourned meeting will constitute a quorum thereat and may transact the business
for which the meeting was originally called. At the adjourned meeting, a
resolution passed by the affirmative vote of not less than two-thirds of the
votes cast thereon will constitute the approval or consent of the holders of the
Exchangeable Shares.
Actions by Battle Mountain Canada under Voting, Support and Exchange Trust
Agreement. Under the Exchangeable Share Provisions, Battle Mountain Canada will
agree to take all such actions and do all such things as are necessary or
advisable to perform and comply with its obligations under, and to ensure the
performance and compliance by Battle Mountain with its obligations under, the
Voting, Support and Exchange Trust Agreement.
Associated Rights
Each Exchangeable Share issued in the Arrangement will have an associated
right (an "Exchangeable Share Right") entitling the holder of such Exchangeable
Share Right to acquire additional Exchangeable Shares on terms substantially the
same as the terms and conditions upon which the Rights entitle a holder of a
Right to acquire either a Unit of Series A Preferred Stock (essentially the
economic equivalent of a share of Battle Mountain Common Stock) or, in certain
circumstances, shares of Battle Mountain Common Stock (with the definitions of
beneficial ownership, the calculation of percentage ownership and the number of
shares outstanding and related provisions applying, as appropriate, to Battle
Mountain Common Stock and Exchangeable Shares as though they were the same
security). The Exchangeable Share Rights are intended to have characteristics
essentially equivalent in economic effect to the Rights. See "THE COMPANIES
AFTER THE TRANSACTION -- Battle Mountain Capital Stock -- Battle Mountain
Preferred Stock -- Series A Preferred Stock."
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VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
The following is a summary description of the material provisions of the
Voting, Support and Exchange Trust Agreement and is qualified in its entirety by
reference to the full text of the Voting, Support and Exchange Trust Agreement
which appears as Annex E hereto.
Voting Rights
Pursuant to the Voting, Support and Exchange Trust Agreement, Battle
Mountain will issue the Special Voting Share to the Trustee for the benefit of
the holders (other than Battle Mountain and certain subsidiaries of Battle
Mountain) of the Exchangeable Shares. The Special Voting Share will have a
number of votes, which may be cast at any meeting at which Battle Mountain
stockholders are entitled to vote, equal to the number of outstanding
Exchangeable Shares (other than shares held by Battle Mountain and certain
subsidiaries of Battle Mountain). With respect to any written consent sought
from the Battle Mountain stockholders, the Special Voting Share will have a like
number of votes.
Each such holder of an Exchangeable Share on the record date for any
meeting at which Battle Mountain stockholders are entitled to vote will be
entitled to instruct the Trustee to exercise one of the votes attached to the
Special Voting Share for such Exchangeable Share. The Trustee will exercise each
vote attached to the Special Voting Share only as directed by the relevant
holder and, in the absence of instructions from a holder as to voting, will not
exercise such votes. A holder may, upon instructing the Trustee, obtain a proxy
from the Trustee entitling the holder to vote directly at the relevant meeting
the votes attached to the Special Voting Share to which the holder is entitled.
The Trustee will send to the holders of the Exchangeable Shares the notice
of each meeting at which the Battle Mountain stockholders are entitled to vote,
together with the related meeting materials and a statement as to the manner in
which the holder may instruct the Trustee to exercise the votes attaching to the
Special Voting Share, at the same time as Battle Mountain sends such notice and
materials to the Battle Mountain stockholders. The Trustee will also send to the
holders copies of all information statements, interim and annual financial
statements, reports and other materials sent by Battle Mountain to the Battle
Mountain stockholders at the same time as such materials are sent to the Battle
Mountain stockholders. To the extent such materials are provided to the Trustee
by Battle Mountain, the Trustee will also send to the holders all materials sent
by third parties to Battle Mountain stockholders, including dissident proxy
circulars and tender and exchange offer circulars, as soon as possible after
such materials are first sent to Battle Mountain stockholders.
All rights of a holder of Exchangeable Shares to exercise votes attached to
the Special Voting Share will cease upon the exchange of all of such holder's
Exchangeable Shares for shares of Battle Mountain Common Stock.
Optional Exchange Right in case of a Battle Mountain Canada Insolvency Event.
Upon the occurrence and during the continuance of a Battle Mountain Canada
Insolvency Event, a holder of Exchangeable Shares will be entitled to instruct
the Trustee to exercise the optional Exchange Right with respect to any or all
of the Exchangeable Shares held by such holder, thereby requiring Battle
Mountain to purchase such Exchangeable Shares from the holder. Immediately upon
the occurrence of a Battle Mountain Canada Insolvency Event or any event which
may, with the passage of time or the giving of notice, become a Battle Mountain
Canada Insolvency Event, Battle Mountain Canada and Battle Mountain will give
written notice thereof to the Trustee. As soon as practicable thereafter, the
Trustee will then notify each holder of Exchangeable Shares of such event or
potential event and will advise the holder of its rights with respect to the
optional Exchange Right.
The purchase price payable by Battle Mountain for each Exchangeable Share
to be purchased under the optional Exchange Right will be satisfied by issuance
of one share of Battle Mountain Common Stock plus an additional amount
equivalent to the full amount of all declared and unpaid dividends on the
Exchangeable Share.
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If, as a result of solvency provisions of applicable law, Battle Mountain
Canada is unable to redeem all of the Exchangeable Shares tendered for
retraction by a holder in accordance with the Exchangeable Share Provisions, the
holder will be deemed to have exercised the optional Exchange Right with respect
to the unredeemed Exchangeable Shares and Battle Mountain will be required to
purchase such shares from the holder in the manner set forth above.
Battle Mountain Support Obligation
Under the Voting, Support and Exchange Trust Agreement, Battle Mountain
will agree that: (i) it will not declare or pay dividends on the Battle Mountain
Common Stock unless Battle Mountain Canada is able to and simultaneously pays an
equivalent dividend on the Exchangeable Shares; (ii) it will advise Battle
Mountain Canada in advance of the declaration of any dividend on the Battle
Mountain Common Stock and ensure that the declaration date, record date and
payment date for dividends on the Exchangeable Shares are the same as that for
the Battle Mountain Common Stock and that such dates will correspond with any
requirement of the stock exchange on which the Exchangeable Shares are then
listed; (iii) it will ensure that the record date for any dividend declared on
the Battle Mountain 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; (iv) it will take all actions and do all
things necessary to ensure that Battle Mountain Canada is able to pay to the
holders of the Exchangeable Shares the equivalent number of shares of Battle
Mountain Common Stock plus any additional amount equivalent to the full amount
of all unpaid dividends on the Exchangeable Shares in the event of a
liquidation, dissolution or winding up of Battle Mountain Canada, a retraction
request by a holder of Exchangeable Shares or a redemption of Exchangeable
Shares by Battle Mountain Canada; (v) it will not vote or otherwise take any
action or omit to take any action causing the liquidation, dissolution or
winding up of Battle Mountain Canada; and (vi) it will enable Battle Mountain
Canada to maintain a listing for the Exchangeable Shares on a Canadian stock
exchange.
The Voting, Support and Exchange Trust Agreement also provides that,
without the prior approval of Battle Mountain Canada and the holders of the
Exchangeable Shares as set forth under "-- Battle Mountain Canada Share
Capital -- Battle Mountain Canada Exchangeable Shares -- Amendment and
Approval," Battle Mountain will not distribute additional shares of Battle
Mountain Common Stock or rights to subscribe therefor or other property or
assets to all or substantially all holders of shares of Battle Mountain Common
Stock, nor change the Battle Mountain Common Stock, unless the same or an
economically equivalent distribution on, change to or offer for the Exchangeable
Shares (or in the rights of the holders thereof) is made simultaneously. The
Battle Mountain Canada Board of Directors is conclusively empowered to determine
in good faith and in its sole discretion whether any corresponding distribution
on or change to the Exchangeable Shares is the same as or economically
equivalent to any proposed distribution on or change to the Battle Mountain
Common Stock. In the event of any proposed tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction affecting the Battle Mountain
Common Stock, Battle Mountain will use reasonable efforts to take all actions
necessary or desirable to enable holders of Exchangeable Shares to participate
in such transaction to the same extent and on an economically equivalent basis
as the holders of Battle Mountain Common Stock.
The Voting, Support and Exchange Trust Agreement also provides that, as
long as any outstanding Exchangeable Shares are owned by any person or entity
other than Battle Mountain, Battle Mountain Sub or any of their subsidiaries,
Battle Mountain will, unless approval to do otherwise is obtained from the
holders of the Exchangeable Shares, remain the direct or indirect beneficial
owner of at least 50.1% of all issued and outstanding securities of Battle
Mountain Canada having voting rights (excluding the Exchangeable Shares).
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the Exchangeable Shares, making
certain necessary amendments or curing ambiguities or clerical errors (in each
case provided that the board of directors of each of Battle Mountain, Battle
Mountain Canada and the Trustee and its counsel are of the opinion that such
amendments are not prejudicial to the interests of the holders of the
Exchangeable Shares), the Voting, Support and Exchange Trust Agreement may not
be amended without the approval of the holders of the Exchangeable Shares as set
forth under
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"-- Battle Mountain Canada Share Capital -- Exchangeable Shares of Battle
Mountain Canada -- Amendment and Approval."
Under the Voting, Support and Exchange Trust Agreement, Battle Mountain has
agreed not to exercise any voting rights attached to the Exchangeable Shares
owned by it or any of its direct or indirect subsidiaries on any matter
considered at meetings of holders of Exchangeable Shares (including any approval
sought from such holders in respect of matters arising under the Voting, Support
and Exchange Trust Agreement).
Delivery of Battle Mountain Common Stock
Battle Mountain will ensure that all shares of Battle Mountain Common Stock
to be delivered by it or Battle Mountain Sub under the Voting, Support and
Exchange Trust Agreement or the Plan of Arrangement are duly registered,
qualified or approved under applicable Canadian and United States securities
laws, if required, so that such shares may be freely traded by the holders
thereof (other than any restriction on transfer by reason of a holder being a
"control person" of Battle Mountain Canada for purposes of Canadian law or an
"affiliate" of Battle Mountain or, prior to the Effective Date, of Hemlo Gold
for purposes of United States law). In addition, Battle Mountain will take all
actions necessary to cause all such shares of Battle Mountain Common Stock to be
listed or quoted for trading on all stock exchanges or quotation systems on
which outstanding shares of Battle Mountain Common Stock are then listed or
quoted for trading.
INDEPENDENT ACCOUNTANTS
In the event that the proposal requesting ratification of Price Waterhouse
LLP as Battle Mountain's independent accountants is approved, Price Waterhouse
LLP will be the independent accountants of all of Battle Mountain and its
subsidiaries, including Battle Mountain Canada, but excluding Niugini Mining and
its subsidiaries.
TRANSFER AGENTS AND REGISTRARS
The R-M Trust Company at its offices in Montreal, Toronto and Vancouver
will be the transfer agent and registrar for Battle Mountain Canada. The Bank of
New York at its office in New York, New York will be the transfer agent and
registrar for Battle Mountain.
TAX CONSIDERATIONS TO HEMLO GOLD SHAREHOLDERS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO HEMLO GOLD SHAREHOLDERS
In the opinion of McCarthy Tetrault, counsel for Hemlo Gold, the following
is a summary of the principal Canadian federal income tax considerations under
the Canadian Tax Act generally applicable to Hemlo Gold shareholders who, for
purposes of the Canadian Tax Act, hold their Hemlo Gold Common Shares and will
hold their Exchangeable Shares and Battle Mountain Common Stock as capital
property and deal at arm's length with Hemlo Gold, Battle Mountain and Battle
Mountain Sub. This summary does not apply to a shareholder with respect to whom
Battle Mountain or Battle Mountain Sub is or will be a foreign affiliate within
the meaning of the Canadian Tax Act or who holds more than 10 percent of the
Hemlo Gold Common Shares.
The shares will generally be considered to be capital property to a
shareholder unless held in the course of carrying on a business, in an adventure
in the nature of trade or as "mark-to-market" property for purposes of the
Canadian Tax Act. Shareholders who are resident in Canada and whose Hemlo Gold
Common Shares or Exchangeable Shares might not otherwise qualify as capital
property may be entitled to obtain such qualification by making the irrevocable
election provided by subsection 39(4) of the Canadian Tax Act. Shareholders who
do not hold their shares as capital property should consult their own tax
advisers regarding their particular circumstances and, in the case of certain
"financial institutions" (as defined in the Canadian Tax Act), the potential
application to them of the special "mark-to-market" rules in the Canadian Tax
Act, as the following discussion does not apply to such shareholders.
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This summary is based on the Canadian Tax Act, the regulations thereunder,
the Canada-United States Income Tax Convention (the "Tax Treaty") and counsel's
understanding of the administrative practices published by Revenue Canada,
Customs, Excise and Taxation ("Revenue Canada"), all in effect as of the date of
this Joint Proxy Statement. This summary takes into account specific proposals
to amend the Canadian Tax Act and regulations announced prior to the date hereof
(the "Tax Proposals"), although no assurances can be given that the Tax
Proposals will be enacted in the form presented, or at all. This summary does
not take into account or anticipate any other changes in law, whether by
judicial, governmental or legislative action or decision, nor does it take into
account provincial, territorial or foreign income tax legislation or
considerations, which may differ from the Canadian federal income tax
considerations described herein. No advance income tax ruling has been obtained
from Revenue Canada to confirm the tax consequences of any of the transactions
described herein.
THIS SUMMARY IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE,
LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR HEMLO GOLD SHAREHOLDER.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF
THE ARRANGEMENT IN THEIR PARTICULAR CIRCUMSTANCES.
In computing a shareholder's liability for tax under the Canadian Tax Act,
any cash amounts received by the shareholder in U.S. dollars must be converted
into the Canadian Dollar Equivalent, and the amount of any non-cash
consideration received by the shareholder must be expressed in Canadian dollars,
generally determined at the time such consideration is received.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable to Hemlo Gold
shareholders who, for purposes of the Canadian Tax Act, are resident or deemed
to be resident in Canada.
Exchange of Hemlo Gold Common Shares for Exchangeable Shares
So long as, at the Effective Time, the aggregate adjusted cost base of a
holder's Hemlo Gold Common Shares exceeds the sum of (i) any cash received in
respect of a fractional Exchangeable Share and (ii) the fair market value of the
Ancillary Rights acquired by such holder in connection with the exchange and net
of any reasonable costs of disposition, such holder will not realize a capital
gain for purposes of the Canadian Tax Act on the exchange. To the extent that
such sum, net of any reasonable costs of disposition, exceeds the aggregate
adjusted cost base of such holder's Hemlo Gold Common Shares, such holder will
realize a capital gain for purposes of the Canadian Tax Act. The taxation of
capital gains is described below under "-- Taxation of Capital Gain or Capital
Loss" in respect of a redemption or exchange of Exchangeable Shares.
Hemlo Gold shareholders that participate in the Arrangement will initially
receive Exchangeable Shares and Ancillary Rights. A shareholder will be deemed
to have acquired
(a) the Exchangeable Shares for a cost equal to the amount, if any,
by which the adjusted cost base to such holder of the Hemlo Gold Common
Shares exceeds the sum of (i) the fair market value of the Ancillary Rights
in respect of the shareholder's Exchangeable Shares and (ii) any cash
received by the holder in lieu of a fractional Exchangeable Share; and
(b) the Ancillary Rights in respect of the shareholder's Exchangeable
Shares for a cost equal to their fair market value.
For these purposes, a holder of Hemlo Gold Common Shares will be required
to determine the fair market value of the Ancillary Rights on a reasonable basis
for purposes of the Canadian Tax Act. Hemlo Gold is of the view and has advised
counsel that the Ancillary Rights have only nominal value. Therefore, a holder
of Hemlo Gold Common Shares should not realize a capital gain on the exchange of
Hemlo Gold Common Shares for Exchangeable Shares. Such determinations of value
are not binding on Revenue Canada and counsel can express no opinion on matters
of factual determination such as this.
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Call Rights
Hemlo Gold is of the view and has advised counsel that the Liquidation Call
Right, the Redemption Call Right and the Retraction Call Right have nominal
value and that accordingly, no amount should be allocated to the Call Rights. On
this basis, no shareholder should realize a gain at the time that any of such
rights are granted to Battle Mountain and Battle Mountain Sub. Such
determinations of value are not binding on Revenue Canada and counsel can
express no opinion on matters of factual determination such as this.
Dividends
i. Exchangeable Shares
In the case of a shareholder who is an individual, dividends received or
deemed to be received on the Exchangeable Shares will be included in computing
the shareholder's income and will be 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 Exchangeable Shares will be included in computing
the corporation's income and will normally 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
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 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 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 a related group of
individuals may be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3 percent on dividends received or deemed to be received
on the Exchangeable Shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
If Battle Mountain, Battle Mountain Sub or any other person with whom
Battle Mountain does not deal at arm's length is a specified financial
institution at a point in time that a dividend is paid on an 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 percent on dividends or deemed dividends
that are not deductible in computing taxable income. As set forth and qualified
in the Combination Agreement, Battle Mountain has represented that neither it
nor any person with whom it does not deal at arm's length is a specified
financial institution as of the Effective Date. Battle Mountain intends to
endeavor to avoid such status in the future, although there can be no assurances
that this status will not change prior to any receipt or deemed receipt of any
dividend by a corporate shareholder.
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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 Exchangeable Shares are listed on a prescribed stock exchange
(which currently includes the TSE), Battle Mountain controls Hemlo Gold, 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 Exchangeable Shares.
The Exchangeable Shares will be "taxable preferred shares" and "short-term
preferred shares" for purposes of the Canadian Tax Act. Accordingly, Hemlo Gold
will be subject to a 66 2/3 percent tax under Part VI.1 of the Canadian Tax Act
on dividends paid or deemed to be paid on the 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.
ii. Battle Mountain Common Stock
Dividends on Battle Mountain Common Stock will be included in the
recipient's income for the purposes of the Canadian Tax Act. Such dividends
received by an individual shareholder will not be subject to the gross-up and
dividend tax credit rules in the Canadian Tax Act. A corporation that is a
shareholder will include such dividends in computing its income and generally
will not be entitled to deduct the amount of such dividends in computing its
taxable income. A shareholder that is a Canadian-controlled private corporation
may be liable to pay an additional refundable tax of 6 2/3 percent on dividends.
United States non-resident withholding tax on such dividends will be eligible
for foreign tax credit or deduction treatment where applicable under the
Canadian Tax Act.
Redemption or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable Share by
Hemlo Gold, the holder of an Exchangeable Share will be deemed to have received
a dividend equal to the amount, if any, by which the redemption proceeds (the
fair market value at that time of Battle Mountain Common Stock received by the
shareholder from Hemlo Gold on the redemption plus the amount of any accrued but
unpaid dividends on the Exchangeable Share) exceeds the paid-up capital (for
purposes of the Canadian Tax Act) at that time of the Exchangeable Share so
redeemed. The amount of any such deemed dividend will be subject to the tax
treatment described above under "-- Dividends -- Exchangeable Shares." On the
redemption, the holder of an Exchangeable Share will also be considered to have
disposed of the 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 Exchangeable Share exceeds (or is
less than) such proceeds of disposition. See "-- Taxation of Capital Gain or
Capital Loss" below. 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.
On the exchange of an Exchangeable Share by the holder thereof with Battle
Mountain or Battle Mountain Sub for Battle Mountain Common Stock, the holder
will in general realize a capital gain (or a capital loss) equal to the amount
by which the proceeds of disposition of the Exchangeable Share, net any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the holder of the Exchangeable Share. For these purposes, the proceeds
of disposition will be the fair market value of Battle Mountain Common Stock at
the time of the exchange plus the amount of any accrued but unpaid dividends on
the Exchangeable Share received by the holder as part of the exchange
consideration. See "-- Taxation of Capital Gain or Capital Loss" below.
Taxation of Capital Gain or Capital Loss
Three-quarters of any such capital gain (the "taxable capital gain")
realized on a retraction, redemption or exchange of Exchangeable Shares or
disposition of Battle Mountain Common Stock will be included in the
shareholder's income for the year of disposition. Three-quarters of any capital
loss so realized (the "allowable capital loss") may be deducted by the holder
against taxable capital gains for the year of disposition. Any excess of
allowable capital losses over taxable capital gains of the shareholder for the
year of disposition may
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be carried back up to three taxation years or forward indefinitely and deducted
against net taxable capital gains in those other years.
Capital gains realized by an individual or trust, other than certain
specified trusts, may give rise to alternative minimum tax under the Canadian
Tax Act. A shareholder that is a Canadian-controlled private corporation may be
liable to pay an additional refundable tax of 6 2/3 percent on taxable capital
gains.
If the holder of an Exchangeable Share is a corporation, the amount of any
capital loss arising from a disposition or deemed disposition of an Exchangeable
Share may be reduced by the amount of dividends received or deemed to have been
received by it on such share or on the Hemlo Gold Common Shares previously owned
by such holder, 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 Exchangeable 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 Exchangeable
Shares.
Acquisition and Disposition of Battle Mountain Common Stock
The cost of Battle Mountain Common Stock received on the retraction,
redemption or exchange of an Exchangeable Share will be equal to the fair market
value of Battle Mountain Common Stock at the time of such event.
A disposition or deemed disposition of Battle Mountain 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 any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the holder of
Battle Mountain Common Stock.
Foreign Property Information Reporting
A holder of Battle Mountain Common Stock who is a "specified Canadian
entity" (as defined in the Tax Proposals) and whose cost amount for such shares
at any time in a year or fiscal period exceeds C$100,000 will be required to
file an information return in respect of such shares disclosing the holder's
cost amount, any dividends received in the year and any gains or losses realized
in the year in respect of such shares. A specified Canadian entity means a
taxpayer resident in Canada in the year, other than a corporation or a trust
exempt from tax under Part I of the Canadian Tax Act, a non-resident-owned
investment corporation, a mutual fund corporation, a mutual fund trust and
certain other trusts and partnerships.
Dissenting Shareholders
A dissenting Hemlo Gold shareholder will be considered to have realized a
deemed dividend and capital gain (or capital loss) based on proceeds equal to
the fair value of the Hemlo Gold Common Shares held by such holder determined as
of the appropriate date, computed as generally described above in the case of a
redemption (including a retraction) of an Exchangeable Share by Hemlo Gold for
Battle Mountain Common Stock under "-- Redemption or Exchange of Exchangeable
Shares." The amount of any such deemed dividend received by an individual will
be included in computing the individual's income and will be subject to the
gross-up and dividend tax credit rules normally applicable to taxable dividends
received from taxable Canadian corporations. The amount of any such deemed
dividend received by a corporation (except to the extent that it may in some
circumstances be treated as proceeds of disposition and not as a dividend) will
be included in computing its income, will normally be deductible in computing
its taxable income and may be subject to tax under Part IV of the Canadian Tax
Act if received by a private corporation and certain other corporations as
described under "-- Dividends -- (i) Exchangeable Shares" above. Dissenting
Hemlo Gold 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 Hemlo Gold shareholders who fail to perfect or withdraw
their claims pursuant to the right of dissent.
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SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary is applicable to holders of Hemlo Gold
Common Shares who, for purposes of the Canadian Tax Act, have not been and will
not be resident or deemed to be resident in Canada at any time while they have
held Hemlo Gold Common Shares or will hold Exchangeable Shares or Battle
Mountain 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.
Generally, Hemlo Gold Common Shares, Exchangeable Shares and Battle
Mountain 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 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 the
holder, alone or together with persons with whom such holder does not deal at
arm's length, has not owned (or had under option) 25 percent or more of the
issued shares of any class or series of the capital stock of Hemlo Gold or
Battle Mountain at any time within five years preceding the date of disposition.
Hemlo Gold has applied for the listing of the Exchangeable Shares on the TSE and
Battle Mountain has indicated that it intends to use its best efforts to cause
Hemlo Gold to maintain such listing. Battle Mountain has indicated that it will
maintain the listing of Battle Mountain Common Stock on the NYSE or another
prescribed stock exchange.
A holder of Hemlo Gold Common Shares will not be subject to tax under the
Canadian Tax Act on the exchange of Hemlo Gold Common Shares for Exchangeable
Shares, on the exchange of an Exchangeable Share for Battle Mountain Common
Stock (except to the extent the exchange results in a redemption of an
Exchangeable Share) or on the sale or other disposition of an Exchangeable Share
or Battle Mountain Common Stock. A holder whose Exchangeable Shares are redeemed
(either under Hemlo Gold's redemption right or pursuant to the holder's
retraction rights) will be deemed to receive a dividend as described above for
shareholders resident in Canada under "-- Redemption or Exchange of Exchangeable
Shares." The amount of such deemed dividend will be subject to the tax treatment
accorded to dividends described below.
Dividends paid or deemed to be paid on the 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 and
who is resident in the United States for purposes of the Tax Treaty.
A dissenting Hemlo Gold shareholder will be considered to have realized a
deemed dividend computed as generally described above in the case of
shareholders resident in Canada. See "-- Shareholders Resident in
Canada -- Dissenting Shareholders" above. 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 Hemlo
Gold shareholders who fail to perfect or withdraw their claims pursuant to the
right of dissent.
UNITED STATES FEDERAL TAX CONSIDERATIONS TO HEMLO GOLD 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 Exchangeable Shares and Battle Mountain Common Stock, represents
the opinion of Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), United States counsel to Hemlo Gold ("Fried Frank"),
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 includes a Hemlo Gold 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, or an estate or trust the income of which
is includible in its gross income for United States federal income tax purposes
without regard to its source, but excludes persons subject to special provisions
of United States federal income tax law, such as tax-exempt
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organizations, financial institutions, insurance companies, broker-dealers,
persons having a "functional currency" other than the United States dollar,
Hemlo Gold shareholders who hold Hemlo Gold shares as part of a straddle, wash
sale, hedging or conversion transaction (other than by virtue of their
participation in the Arrangement) and Hemlo Gold shareholders who acquired their
Hemlo Gold shares through the exercise of employee stock options or otherwise as
compensation for services. This summary is limited to United States Holders who
hold Hemlo Gold shares as capital assets and who own, actually or
constructively, less than 5 percent of the Hemlo Gold Common Shares.
This summary is based on United States federal income tax law in effect as
of the date of this Joint Proxy Statement. 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 Exchangeable Shares, the Ancillary
Rights granted to the Hemlo Gold 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
Exchangeable Shares and the exchange of Exchangeable Shares for shares of Battle
Mountain 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.
This summary does not address aspects of United States taxation other than
United States federal income taxation under the U.S. Code, 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 Exchangeable Shares or shares of
Battle Mountain Common Stock.
UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES AND THE FOREIGN
TAX CONSEQUENCES OF THE ARRANGEMENT, INCLUDING THE RECEIPT AND OWNERSHIP OF
EXCHANGEABLE SHARES, ANCILLARY RIGHTS AND SHARES OF BATTLE MOUNTAIN COMMON
STOCK.
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, if challenged, a
court would not agree with the IRS.
Receipt of Exchangeable Shares
Hemlo Gold shareholders that participate in the Arrangement will initially
receive Exchangeable Shares and Ancillary Rights (and may be deemed to grant
certain of the Call Rights). It is a condition to the obligation of Hemlo Gold
to consummate the Arrangement that Hemlo Gold shall have received an opinion
from Fried Frank, in form and substance reasonably satisfactory to Hemlo Gold,
to the effect that, although not free from doubt, the Arrangement should
generally be treated as a "reorganization" within the meaning of Section
368(a)(1)(E) of the U.S. Code, and accordingly, a United States Holder generally
should not recognize gain or loss to the extent that Exchangeable Shares are
received in exchange for Hemlo Gold Common Shares, except as otherwise provided
herein.
United States Holders will nevertheless recognize gain or loss equal to the
difference, if any, between the amount of cash received in lieu of a fractional
share interest and the tax basis of the Hemlo Gold Common Shares allocated to
the holder's fractional share interest. Such gain or loss will constitute
capital gain or loss and will be long-term capital gain or loss if the
fractional share interest exchanged has been held for more than one year at the
time cash is received in lieu thereof.
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The tax basis of the Exchangeable Shares received by a United States Holder
generally should be equal to the tax basis of the Hemlo Gold Common Shares
surrendered pursuant to the Arrangement, reduced by the tax basis allocated to
(i) fractional share interests for which cash is received and (ii) Hemlo Gold
Common Shares, if any, deemed to have been exchanged for the Ancillary Rights
(as discussed below). The holding period of Exchangeable Shares in the hands of
a United States Holder should include the holding period of the Hemlo Gold
Common Shares converted pursuant to the Agreement.
To the extent that the Arrangement was not treated as a reorganization
within the meaning of Section 368(a) of the U.S. Code, a United States Holder
would generally recognize gain (or loss) equal to the difference between such
United States Holder's adjusted tax basis in the Hemlo Gold Common Shares
exchanged and the aggregate fair market value of the consideration received
therefor. Battle Mountain and Hemlo Gold intend that the Arrangement be treated
as a reorganization within the meaning of Section 368(a)(1)(E) of the U.S. Code
and the balance of the discussion below assumes that the Arrangement will be so
treated.
Hemlo Gold believes that the Ancillary Rights received and any Call Rights
deemed to be granted by Hemlo Gold shareholders pursuant to the Combination
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 Hemlo
Gold shareholder. 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 transfer or receipt of such rights is taxable. 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 gain or loss would generally be
capital gain or loss, unless the IRS were successfully to assert that the
Ancillary Rights were transferred to the United States Holder by Hemlo Gold in
redemption of a portion of the United States Holder's Hemlo Gold Common Shares.
If the IRS successfully asserted that the Ancillary Rights have greater
than nominal value and such rights are deemed to have been transferred by Hemlo
Gold in redemption of Hemlo Gold Common Shares, a United States Holder would
recognize dividend income equal to the value of the Ancillary Rights to the
extent of the accumulated earnings and profits of Hemlo Gold (as determined
under United States federal income tax principles), unless such deemed
redemption is either "not essentially equivalent to a dividend" or
"substantially disproportionate" (as such terms are defined in Section 302(b) of
the U.S. Code). If the deemed redemption is "substantially disproportionate" or
"not essentially equivalent to a dividend," any gain recognized by a United
States Holder would be capital gain. 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.
Proposed Legislation
Provisions contained in the Clinton Administration's fiscal year 1997
budget proposal (the "Proposal"), as submitted to the United States Congress on
March 19, 1996, could affect the federal income tax consequences to United
States Holders described above. Under the Proposal, if there is a "constructive
sale" of an "appreciated financial position" a taxpayer would recognize gain as
if such appreciated financial position were sold for its fair market value on
the date of such constructive sale. For this purpose, an "appreciated financial
position" would include ownership of appreciated stock. A taxpayer would be
treated as having made a constructive sale of the appreciated financial position
if the taxpayer (or a related person) either enters into one or more "positions"
with respect to the same or substantially identical property which, for some
period, substantially eliminate both risk of loss and opportunity for gain on
the appreciated financial position (the "risk/reward" test) or enters into any
other transaction that was marketed or sold as being economically equivalent to
any transaction that satisfies the risk/reward test. A "position" in property
means an interest in or with respect to such property, including a futures or
forward contract, a short sale, or an option. The granting of a call option, or
the acquisition of a put option, is a position which would satisfy the
risk/reward test only if there is substantial certainty that such call or put
option would be exercised. Under the Proposal, the new constructive sale rule
would apply to constructive sales occurring after enactment of the provision and
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to constructive sales occurring after January 12, 1996 that were not closed
prior to 30 days after the date of the enactment. However, the chairmen of the
House Ways and Means and Senate Finance Committees of the United States House of
Representatives and Senate, respectively, issued a joint statement on March 29,
1996 saying that the effective date of any of the revenue proposals included in
the Clinton Administration's fiscal year 1997 budget proposal would be no
earlier than the date of appropriate congressional action.
The application of the constructive sale rule contained in the Proposal to
the receipt of Exchangeable Shares upon conversion of Hemlo Gold Common Shares
is uncertain. In addition, it is uncertain at present whether (a) any
constructive sale rule will be enacted, and, if so, whether such enacted rule
will be substantially similar to the constructive sale rule contained in the
Proposal, (b) any such enactment will retain the effective date rules contained
in the Proposal, and (c) the receipt of Exchangeable Shares upon conversion of
Hemlo Gold Common Shares would be within the scope of any enacted constructive
sale rule.
Requirement of Notice Filing
Any United States Holder that receives Exchangeable Shares in exchange for
Hemlo Gold Common Shares will be required to file a notice with the IRS on or
before the last date for filing a United States federal income tax return for
the holder's taxable year in which the Arrangement occurs. The notice must
contain certain information specifically enumerated in Section 7.367(b)-1 of the
United States Treasury regulations, and United States Holders are advised to
consult their tax advisors for assistance in preparing such notice.
If a United States Holder required to give notice as described above fails
to give such notice, and if the United States Holder further fails to establish
reasonable cause for the failure, then the Commissioner of the IRS (the
"Commissioner") will be required to determine, based on all the facts and
circumstances, whether the conversion of Hemlo Gold Common Shares into
Exchangeable Shares is eligible for nonrecognition of gain treatment. In making
this determination, the Commissioner may conclude (i) that the conversion is
eligible for nonrecognition of gain treatment, despite such noncompliance, (ii)
that the conversion is eligible for nonrecognition of gain treatment, provided
that certain other conditions imposed by the United States Treasury regulations
are satisfied, or (iii) that the conversion is not eligible for nonrecognition
of gain treatment and that any gain recognized will be taken into account for
purposes of increasing the tax basis of the Exchangeable Shares received
pursuant to the Combination Agreement and the Arrangement. Nevertheless, the
failure of any one United States Holder to satisfy the foregoing notice
requirements should not prevent other United States Holders that do satisfy such
requirements from receiving nonrecognition treatment with respect to the
conversion of their Hemlo Gold Common Shares into Exchangeable Shares pursuant
to the Arrangement.
Exchange of Exchangeable Shares
A United States Holder that exercises such holder's right to exchange its
Exchangeable Shares for shares of Battle Mountain Common Stock generally will
(subject to the discussion below) 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 Battle Mountain Common Stock at the time of the exchange and the
United States Holder's tax basis in the 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 Exchangeable Shares, ordinary income
may be recognized. Capital gain or loss will generally be long-term capital gain
or loss if the Exchangeable Shares (together with the Hemlo Gold Common Shares
surrendered therefor in the Arrangement) have been held for more than one year
at the time of the exchange. A United States Holder will have a tax basis in the
shares of Battle Mountain Common Stock received equal to the fair market value
of such shares at the time of the exchange. The holding period for such shares
will begin on the day after the exchange. The IRS could assert, however, that
the Exchangeable Shares and certain of the rights associated therewith
constitute "offsetting positions" for purposes of the straddle rules set forth
in Section 1092 of the U.S. Code. In such case, the holding period of the
Exchangeable Shares would not increase while held by a United States Holder (and
interest incurred in carrying the Exchangeable Shares would not be deductible by
a United States Holder). Under certain limited circumstances, the exchange by a
United States Holder of Exchangeable Shares for shares of Battle Mountain Common
Stock may be characterized as a tax-free exchange. Whether an exchange
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would be tax-free will depend upon the facts and circumstances existing at the
time of the exchange and cannot be accurately predicted at the time of this
Joint Proxy Statement.
For United States federal income tax purposes, gain realized on the
exchange of Exchangeable Shares for shares of Battle Mountain Common Stock
generally will be treated as United States source gain, except that, under the
terms of the Tax Treaty, such gain may be treated as sourced in Canada. Any
Canadian tax imposed on the exchange may be available as a credit against United
States federal income taxes, subject to applicable limitations. 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 Exchangeable Shares
A United States Holder of Exchangeable Shares generally will be required to
include in gross income as ordinary income dividends paid on the Exchangeable
Shares to the extent paid out of the earnings and profits of Hemlo Gold, as
determined under United States federal income tax principles. Such dividends
paid in Canadian dollars will be includible 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. 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 United States dollars on such date. Dividends should generally be treated
as foreign source passive income for foreign tax credit limitation purposes.
Under the current Tax Treaty, such distributions will be subject to Canadian
withholding tax at a maximum rate of 15 percent. Subject to certain limitations
of United States federal income tax law, a United States Holder should generally
be entitled to either a credit against such holder's United States federal
income tax liability or a deduction in computing United States taxable income
for Canadian income taxes withheld from distributions with respect to the
Exchangeable Shares.
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
Hemlo Gold 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 deemed
to be interest for federal income tax purposes, which amounts will be taxed as
ordinary income) and such holder's basis in the Hemlo Gold Common Shares. Such
gain or loss will be capital gain or loss if the Hemlo Gold Common Shares were
held as capital assets at the time of the Effective Time and will be long-term
capital gain or loss if the Hemlo Gold Common Shares have been held for more
than one year at such time.
Passive Foreign Investment Company Considerations
For United States federal income tax purposes, Hemlo Gold generally will be
classified as a passive foreign investment company (a "PFIC") for any taxable
year ending prior to consummation of the Arrangement 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. For purposes of applying the foregoing tests, the assets and
gross income of Hemlo Gold's significant subsidiaries will be attributed to
Hemlo Gold.
While there can be no assurance with respect to the classification of Hemlo
Gold as a PFIC, Hemlo Gold believes that it did not constitute a PFIC during its
taxable years ending prior to consummation of the Arrangement. Currently, Hemlo
Gold and Battle Mountain intend to endeavor to cause Hemlo Gold 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. Moreover, in connection with the
transactions contemplated herein, no opinion will be rendered regarding Hemlo
Gold's status as a PFIC.
For purposes of applying the 50 percent asset test following the
Arrangement, Hemlo Gold's assets must be measured by their adjusted tax bases
(as calculated in order to compute earnings and profits for United
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States federal income tax purposes) instead of by value, subject to certain
adjustments. As a result, it is possible that Hemlo Gold could be a PFIC for
taxable years ending after the Arrangement even though less than 50 percent of
Hemlo Gold's assets (measured by the fair market value of such assets) do not
constitute passive assets. After the Arrangement, Hemlo Gold intends to monitor
its status regularly, and promptly following the end of each taxable year, Hemlo
Gold will endeavor to notify United States Holders of Exchangeable Shares if it
believes that Hemlo Gold was a PFIC for that taxable year.
If Hemlo Gold were a PFIC at any time during a particular United States
Holder's holding period for its Hemlo Gold Common Shares, is not a PFIC
following the Arrangement, and a United States Holder had not made an election
to treat Hemlo Gold as a qualified electing fund (a "QEF Election") for all
taxable years included in the United States Holder's holding period in which
Hemlo Gold was a PFIC, then, under proposed regulations, such United States
Holder would be required to recognize gain upon the conversion of its Hemlo Gold
Common Shares into Exchangeable Shares. In the event that gain recognition were
so required, the amount of such gain would be equal to the excess of the fair
market value of the Hemlo Gold Common Shares over their adjusted tax bases.
If Hemlo Gold is a PFIC following the Arrangement during a United States
Holder's holding period for such holder's Exchangeable Shares, and the United
States Holder does not make a QEF Election with respect to all taxable years
included in the United States Holder's holding period in which Hemlo Gold was a
PFIC, then (i) the United States Holder would be required to allocate income
recognized upon receiving certain "excess distributions" (generally, 125 percent
of the average amount distributed in respect of the Exchangeable Shares held by
the holder during the three preceding taxable years) with respect to, and gain
recognized upon the disposition of, the United States Holder's Exchangeable
Shares (including upon the exchange of Exchangeable Shares for shares of Battle
Mountain Common Stock), ratably over the United States Holder's holding period
for such Exchangeable Shares, (ii) the amount allocated to each year other than
(x) the year of the excess dividend payment or disposition of the Exchangeable
Shares or (y) any year prior to the beginning of the first taxable year of Hemlo
Gold for which it was a PFIC, would be subject to tax at the highest rate
applicable to individuals or corporations, as the case may be, for the taxable
year to which such income is allocated, and an interest charge would be imposed
upon the resulting tax attributable to each such year, and (iii) gain recognized
upon the disposition of the Exchangeable Shares would be taxable as ordinary
income.
If a United States Holder has made a QEF Election with respect to all
taxable years included in the United States Holder's holding period in which
Hemlo Gold was a PFIC, the United States Holder would recognize gain or loss on
the disposition of Exchangeable Shares without regard to the PFIC rules. If a
United States Holder makes a QEF Election, the holder generally will be
currently taxable on its pro rata share of Hemlo Gold's ordinary earnings and
net capital gains (at ordinary income and capital gains rates, respectively) for
each taxable year of Hemlo Gold in which Hemlo Gold is classified as a PFIC for
which a QEF Election is in effect, even if no dividend distributions are
received by such United States Holder, unless such United States Holder makes an
election to defer such taxes. If Hemlo Gold believes that it was a PFIC for a
taxable year, it will endeavor to provide United States Holders of Exchangeable
Shares with information sufficient to allow such holders to make a QEF Election
and report and pay any current or deferred taxes due with respect to their pro
rata shares of Hemlo Gold's ordinary earnings and profits and net capital gains
for such taxable year. United States Holders should consult their tax advisors
concerning the merits and mechanics of making a QEF Election and other relevant
tax considerations if Hemlo Gold is a PFIC for any taxable year.
The foregoing summary of the possible application of the PFIC rules to
Hemlo Gold and the United States Holders of Hemlo Gold Common Shares and
Exchangeable Shares is only a summary of certain material aspects of those
rules. Because the United States federal income tax consequences to such United
States Holders under the PFIC provisions are significant and complex, such
United States Holders are urged to discuss those consequences with their tax
advisors.
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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 Hemlo Gold 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, Hemlo Gold shareholders who hold Hemlo Gold shares as
part of a straddle, wash sale, hedging or conversion transaction (other than by
virtue of their participation in the Arrangement) and Hemlo Gold shareholders
who acquired their Hemlo Gold shares through the exercise of employee stock
options or otherwise as compensation for services. 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 Hemlo Gold shares
as capital assets and who will hold Exchangeable Shares and shares of Battle
Mountain Common Stock as capital assets.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to tax as if they were U.S. citizens.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular non-United States Holder's tax position, including
whether such non-United States Holder is a United States expatriate.
Dividends received by a non-United States Holder with respect to the
Exchangeable Shares should not be subject to United States withholding tax, and
Hemlo Gold and Battle Mountain do not intend that Hemlo Gold or Battle Mountain
will withhold any amounts in respect of such tax from such dividends. There is
some possibility, however, that the IRS may assert that United States
withholding tax is payable with respect to dividends paid on the Exchangeable
Shares to non-United States Holders. In such case, holders of Exchangeable
Shares could 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).
Dividends received by a non-United States Holder with respect to Battle
Mountain Common Stock that are not effectively connected with the conduct by
such holder of a trade or business in the United States will generally 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).
Subject to the discussion below, a non-United States Holder generally will
not be subject to United States federal income tax on gain (if any) recognized
on the receipt of the Exchangeable Shares, on the sale or exchange of the
Exchangeable Shares, or on the sale or exchange of shares of Battle Mountain
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 Hemlo Gold Common Shares, the Exchangeable
Shares or the Battle Mountain 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.
Notwithstanding the general rule set forth in the preceding paragraph,
under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), gain
or loss recognized by a non-United States Holder on the sale or exchange of
Exchangeable Shares or on the sale or exchange of shares of Battle Mountain
Common
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Stock will be subject to regular United States federal income tax, as if such
gain or loss were effectively connected with a U.S. trade or business, if (a)
Battle Mountain is a "U.S. real property holding corporation" ("USRPHC") (as
defined below) and (b) such non-United States Holder is a "greater than 5
percent shareholder" (as defined below) of Hemlo Gold or Battle Mountain, as the
case may be.
Battle Mountain will be a USRPHC with respect to any greater than 5 percent
shareholder if at any time during the shorter of (x) the five-year period ending
on the date of the sale or exchange of Exchangeable Shares or Battle Mountain
Common Stock (as the case may be) or (y) the period during which such greater
than 5 percent shareholder held such Exchangeable Shares or Battle Mountain
Common Stock (as the case may be) (such period the "FIRPTA holding period"), the
fair market value of Battle Mountain's interests in United States real property
equaled or exceeded 50 percent of the sum of the fair market values of all of
its interests in real property and all of its other assets used or held for use
in a trade or business (as defined in applicable regulations). Battle Mountain
has represented in the Combination Agreement that it is not presently a USRPHC.
Moreover, Battle Mountain considers it unlikely that Battle Mountain will become
a USRPHC in the future unless its interests in United States real property
increase significantly as a result of one or more acquisitions, but there can be
no assurance that Battle Mountain will not in any event become a USRPHC in the
future. After the Arrangement, Battle Mountain intends to monitor its USRPHC
status regularly, and has covenanted that it will enter into a Tax Cooperation
Agreement to provide information as to its USRPHC status to holders of
Exchangeable Shares who are greater than 5 percent shareholders at the Effective
Time, if such holders have properly requested such an agreement prior to the
Effective Time.
The definition of a "greater than 5 percent shareholder" is complex and
subject to some uncertainty. In the case of a non-United States Holder who owns
only Battle Mountain Common Stock (actually and constructively), such non-United
States Holder will be a greater than 5 percent shareholder if such non-United
States Holder holds more than 5 percent of the total fair market value of the
Battle Mountain Common Stock outstanding (on a non-diluted basis). In the case
of a non-United States Holder who owns only Exchangeable Shares (actually and
constructively, other than Battle Mountain Common Stock constructively owned by
reason of ownership of Exchangeable Shares), such non-United States Holder will
be a greater than 5 percent shareholder if either (a) such non-United States
Holder holds more than 5 percent of the total fair market value of the
Exchangeable Shares outstanding and the Exchangeable Shares are treated as
"regularly traded on an established securities market" or (b) such non-United
States Holder holds Exchangeable Shares with a fair market value on the relevant
date of determination greater than 5 percent of the total fair market value of
the Battle Mountain Common Stock outstanding (on a non-diluted basis) on such
date and the Exchangeable Shares are not treated as "regularly traded on an
established securities market." The Exchangeable Shares will be traded on the
TSE which should be considered an "established securities market" for this
purpose. The Exchangeable Shares will be treated as regularly traded on that
market if they are registered by Battle Mountain under Section 12 of the
Exchange Act or Battle Mountain makes certain filings with the IRS, and certain
other conditions are met. Battle Mountain intends to register the Exchangeable
Shares under Section 12 of the Exchange Act. Notwithstanding the foregoing, the
Exchangeable Shares will not be considered regularly traded on the TSE during
any calendar quarter in which 100 or fewer persons own 50 percent or more of the
Exchangeable Shares. If a non-United States Holder which is a greater than 5
percent shareholder during a period in which Battle Mountain is a USRPHC
subsequently disposes of sufficient Exchangeable Shares or Battle Mountain
Common Shares so that such non-United States Holder is no longer a greater than
5 percent shareholder, such non-United States Holder will still be subject to
United States federal income tax on subsequent dispositions until Battle
Mountain has ceased to be a USRPHC for at least five years. If, at any time, the
Battle Mountain Common Stock were not regularly traded on an established
securities market, or the Exchangeable Shares were traded on an established
securities market located in the United States, different rules, not described
herein, may apply. Non-United States Holders who believe they may be greater
than 5 percent shareholders are particularly urged to consult their own tax
advisors to determine the possible application of FIRPTA to them, and, if
appropriate, to consider entering into a Tax Cooperation Agreement.
A non-United States Holder that is a greater than 5 percent shareholder may
be subject to withholding on the sale or exchange of Exchangeable Shares, if, at
the time of such sale or exchange, such Exchangeable
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Shares are not treated as regularly traded on an established securities market.
Upon the sale or exchange of Exchangeable Shares, the transferee of such
Exchangeable Shares would be required to withhold ten percent of the amount
realized in the sale or exchange, unless, in general, the non-United States
Holder obtains from Battle Mountain and provides to the transferee a statement
signed under penalties of perjury to the effect that Battle Mountain is not a
USRPHC and was not a USRPHC at any time during the FIRPTA holding period
(described above). Any tax withheld may be credited against the United States
federal income tax owed by the non-United States Holder for the year in which
the sale or exchange occurs.
The foregoing summary of the possible application of the FIRPTA rules to
non-United States Holders is only a summary of certain material aspects of these
rules. Because the United States federal income tax consequences to a non-United
States Holder under FIRPTA may be significant and are complex, non-United States
Holders are urged to discuss those consequences with their tax advisors.
Battle Mountain Common Stock (or a previously triggered obligation of
Battle Mountain or Battle Mountain Sub to deliver Battle Mountain Common Stock
along with unpaid dividends) will be deemed to be a United States situs asset
for purposes of United States federal estate tax law and, therefore, Battle
Mountain Common Stock (or a previously triggered obligation of Battle Mountain
or Battle Mountain Sub to deliver Battle Mountain Common Stock along with unpaid
dividends) 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 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 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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BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
RESULTS OF OPERATIONS
The following table presents significant financial data related to Battle
Mountain's results of operations for the years ending December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Gold sales (ounces) -- 100%........................... 713,000 569,000 503,000
Gold revenue realized per ounce....................... US$384 US$386 US$366
Average London PM fix per ounce....................... US$384 US$384 US$360
Cash production costs per equivalent gold ounce
produced*........................................... US$202 US$203 US$232
Depreciation, depletion and amortization per
equivalent ounce produced........................... US$92 US$83 US$82
</TABLE>
- ---------------
* Includes mining, milling and other plant costs directly related to a mine site
and stripping cost adjustments but excludes third-party smelting costs,
transportation costs, royalties, depreciation, depletion and amortization and
taxes.
Revenues
Gross revenue increased in 1995 compared with 1994 primarily because of
increased sales volumes. Sales volumes increased at all of Battle Mountain's
mines in 1995 compared with 1994, with the largest increases coming from the
Kori Kollo mine, the Battle Mountain Complex mines and the Red Dome mine.
Production volumes increased at the Kori Kollo mine in 1995 because of increased
mill throughput. Production volumes at the Red Dome mine and the Battle Mountain
Complex increased in 1995 because 1995 was the first full year of production
from the new mine areas at these sites.
Gross revenue increased in 1994 compared with 1993 because of increased
sales volumes, primarily from the Kori Kollo and San Cristobal mines, and an
increase in the average realized price of gold. Volumes from the Kori Kollo mine
increased in 1994 compared with 1993 because 1994 was the first full year of
operation of that mine's new milling facilities and because of increased
recoveries. Upgrading of the crushing facilities at the San Cristobal mine was
the main factor contributing to the increase in that mine's sales volume in
1994. The increases at Kori Kollo and San Cristobal in 1994 compared with 1993
were partially offset by a significant decrease in sales volumes at the Red Dome
mine, which was caused primarily by the majority of the mining efforts at that
mine being directed at a push back of the existing mine pit. Additionally, a pit
wall slippage delayed startup of production from the push back of the mine pit
and also delayed access to higher grade ore. The Battle Mountain Complex
experienced a decrease in production volumes in 1994 compared with 1993
primarily because the Basin Leach facility, which was the complex's main
operation during 1993, was nearing the end of its production cycle. This
decrease in production at the complex was partially offset by production from
the start up of the Reona Leach facility in October 1994.
Selling and Operating Costs
Freight, allowances and royalties increased in total and decreased slightly
on a cost per equivalent ounce of gold sold basis in 1995 compared with 1994.
These costs increased in total because of increased sales volumes and decreased
on a cost per equivalent ounce basis because of reduced shipping costs for
concentrate shipped from the Red Dome mine. Freight, allowances and royalties
decreased in total and on a cost per equivalent ounce of gold sold basis in 1994
compared with 1993 due to fewer concentrate sales from the Red Dome mine in
1994. Shipments from the Red Dome mine carry relatively high shipping costs.
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Cash production costs increased in total in 1995 compared with 1994 but
remained approximately the same on the basis of cost per equivalent ounce
produced. The increase in total cash production costs is directly related to the
increase in production from all of Battle Mountain's mines as previously
discussed.
Cash production costs decreased in total and on a per equivalent ounce of
gold produced basis in 1994 compared with 1993. These costs decreased on a per
equivalent ounce of gold produced basis because of an increased percentage (from
approximately 41 percent in 1993 to approximately 52 percent in 1994) of volumes
being produced at the Kori Kollo mine, which has lower cash production costs per
equivalent ounce than the rest of the mines. Cash operating costs per equivalent
ounce of gold sold at the Kori Kollo mine were lower in 1994 compared with 1993
because of increased recoveries. The San Cristobal mine costs decreased on an
equivalent ounce of gold sold basis because of the addition of more efficient
crushing equipment. Lower per equivalent ounce cash production costs at the
Battle Mountain Complex, the San Luis mine and the Pajingo mine also contributed
to the decrease in cash production costs on a per ounce and total basis for
1994.
Depreciation, depletion and amortization increased 38 percent in total and
11 percent on a per equivalent ounce of gold produced basis for 1995 compared
with 1994. These costs have increased on an equivalent ounce basis primarily
because of the high capital costs incurred to develop new areas at the Pajingo
Complex and the Red Dome mine relative to the amount of production expected from
these new areas. Depreciation, depletion and amortization increased 24 percent
in total and remained approximately the same on a per equivalent ounce of gold
produced basis for 1994 compared with 1993. The increase in total was caused
primarily by increased sales volumes.
Exploration Costs
Exploration and evaluation expenses increased 24 percent in 1995 compared
with 1994 and 53 percent in 1994 compared with 1993. In 1995 and 1994, Battle
Mountain expanded its exploration activities in Australia, Indonesia and
Bolivia, and also in the vicinity of currently operating mines. (See
"-- Liquidity and Capital Resources -- Investing Activities").
Write-off of Property, Plant and Equipment
In June 1995, management decided that Battle Mountain would dismantle
portions of the milling facility used for the milling of ore from the depleted
Fortitude mine in Nevada rather than renovate it for use in the Phoenix project
or other possibilities. Consequently, the net carrying value of this mill and
related facilities was written off during June 1995 and resulted in a charge to
operations of approximately US$2.2 million. Spare parts related to this milling
facility were rendered obsolete due to this decision and, therefore, US$.9
million was charged to milling and other plant costs to expense these now
obsolete parts. No further write-downs are currently anticipated, and none were
recorded in 1994 or 1993.
General and Administrative Costs
Battle Mountain's general and administrative costs are presented on a
consolidated basis without reduction for minority interest and include the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Battle Mountain............................... US$7,841 US$8,198 US$8,672
Inti Raymi.................................... 2,482 1,638 1,794
Niugini Mining................................ 2,838 2,540 2,435
--------- --------- ---------
Total............................... US$13,161 US$12,376 US$12,901
========= ========= =========
</TABLE>
As a result of evaluations of peer group operational and reporting
practices, in 1995 management instituted alternative reporting of certain costs
to allocate to mine operations certain costs which previously were recorded as
general and administrative costs. The amounts for 1994 and 1993 have been
reclassified for
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comparability to the 1995 treatment of these costs. These reclassifications
resulted in a reduction in general and administrative costs in the amount of
US$4.7 million in 1994 and US$4.6 million in 1993.
Other
Interest income decreased in 1995 compared with 1994 because of lower
interest rates and lower average balances of invested cash. Interest income
increased in 1994 compared to 1993 primarily due to an increase in invested cash
balances and higher interest rates.
Gross interest expense, including amounts capitalized, increased in 1995
compared with 1994 and in 1994 compared with 1993. Gross interest expense
increased in 1995 because of increased borrowings. Niugini Mining borrowed US$30
million under a bridge financing in order to purchase an additional interest in
the Lihir project. This borrowing was repaid in December 1995. All of the
interest expense related to this borrowing was capitalized as part of the Lihir
investment. Gross interest expense also increased because of borrowings under
Battle Mountain's new revolving credit facility during the fourth quarter of
1995. All interest related to the latter borrowings was capitalized as part of
the Crown Jewel project.
Gross interest expense, including amounts capitalized, increased in 1994
because of generally higher interest rates on Inti Raymi's variable rate debt
which was somewhat offset by recoveries from interest rate cap contracts. The
increase in gross interest expense due to increases in interest rates was
partially offset by a decrease in outstanding debt.
Interest with respect to borrowings attributable to any given project in
the pre-commercial production stage is capitalized. The interest associated with
the 6 percent convertible subordinated debentures has been and continues to be
capitalized as part of the Lihir investment. Interest expense would be expected
to increase when any acquisitions or mine development investments reach the
operational stage.
Other income (expense), net in 1995 included approximately US$5.5 million
in gains from the sale of various exploration prospects, primarily a US$4.2
million gain on the sale of the Plutonic Bore exploration project in Australia.
It also includes US$1.3 million in royalties received from the owner of the
Triple P ore deposit, which was sold by Battle Mountain in 1993.
Other income (expense), net in 1994 included approximately US$.8 million in
royalties from the owner of the Triple P ore deposit and a gain of US$.7 million
from the sale of a prospect in Chile. This income was offset by foreign currency
losses of approximately US$1.2 million attributable to Papua New Guinea kina
cash deposits. The 1993 income resulted primarily from gains of US$3.7 million
from the sale of the Triple P ore deposit and US$2 million from the sale of
certain other long-term investments held by Niugini Mining.
Battle Mountain's effective income tax benefit rate was 23 percent in 1995
compared with an income tax expense rate of 21 percent in 1994 and an income tax
benefit rate of 48 percent in 1993. The effective income tax rate for 1995 was
affected by the recognition of deferred tax assets related to foreign tax
credits. Battle Mountain previously treated foreign taxes paid as deductions for
U.S. income tax purposes; however, Battle Mountain has determined that it is
more likely than not that it will be able to utilize foreign tax credits because
of Inti Raymi's projected net income and its ability to remit earnings in the
form of dividends to Battle Mountain.
The effective income tax rate for 1994 was influenced by a reduction in
Battle Mountain's deferred tax valuation allowance. In 1994, Battle Mountain
determined that it was more likely than not that additional deferred tax
benefits would be realized as a result of Battle Mountain's profitability in
1995.
Income tax expense in 1994 resulted primarily from the accrual of
withholding taxes on income from Battle Mountain's majority owned subsidiary
Inti Raymi. The income tax benefit in 1993 resulted from the net operating loss
generated in 1993.
Net income attributable to minority interests increased in 1995 compared
with 1994 and decreased in 1994 compared with 1993. Net income attributable to
minority interest increased in 1995 because of increased profits generated by
Battle Mountain's majority owned subsidiaries Inti Raymi and Niugini Mining.
Minority interest in net income decreased in 1994 because of net losses incurred
by Niugini Mining, as calculated under
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Battle Mountain's accounting policies which are in accordance with U.S. GAAP,
compared with net income from Niugini Mining in 1993.
Net Income
Net income increased in 1995 compared with 1994 in spite of reduced
operating income because of the gains generated on the sale of exploration
prospects and the income tax benefit derived from the recognition of foreign tax
credits as described above. Operating income decreased in 1995 principally
because of the write-off of assets at the Battle Mountain Complex as described
above and increased exploration expenditures.
Battle Mountain generated net income in 1994 primarily because of the
increased profitability of its Kori Kollo mine in Bolivia and higher realized
gold, silver and copper prices. Production increases and decreased operating
costs per equivalent ounce of gold were the main factors contributing to Kori
Kollo's profitability.
During 1993, Battle Mountain completed the transition of its primary
production stream from the Fortitude mine in Nevada to the Kori Kollo mine in
Bolivia. As expected, there was little change in Battle Mountain's total gold
production during this transition period. However, increased costs related to
the transition to a lower grade ore body at the Battle Mountain Complex and
lower than anticipated production levels from the heap leach operations at the
Battle Mountain Complex and the San Cristobal mine resulted in an increase in
total operating costs per equivalent ounce of gold sold for 1993. These factors
all contributed to the net loss incurred by Battle Mountain in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Summary
At December 31, 1995, Battle Mountain had cash and cash equivalents of
US$46.1 million, of which US$6.1 million was held by Battle Mountain, US$29.4
million was held by Niugini Mining, and US$10.6 million was held by Inti Raymi.
Operating Activities
Battle Mountain generated cash flow of US$90.6 million, US$83.1 million and
US$30.1 million from operating activities for the years ended December 31, 1995,
1994 and 1993, respectively. The increase in cash flow from operating activities
in 1995 compared with 1994 and 1994 compared with 1993 resulted primarily from
the increased production and sales. In 1994, the recovery of approximately
US$8.1 million of refundable value added taxes from the Bolivian government paid
in years prior to 1994 related to the construction of the Kori Kollo sulfide
mining facilities contributed to the increase for that year. These increases
were partially offset by increased outlays for materials and supplies in 1994
which increased inventories of materials and supplies by US$4.6 million.
Inventories of materials and supplies increased at the expanding Kori Kollo mine
operations in Bolivia due to an increase in the quantities of the materials
which must be retained at that mine site due to its remote location.
Investing Activities
Cash used for investing activities increased to US$132.7 million in 1995
from US$100.8 million in 1994 and US$60.3 million in 1993. Capital and
exploration expenditures were the most significant components contributing to
the increase in cash flows used for investing activities. Battle Mountain has
spent approximately US$67 million on the Lihir project during 1995. Expenditures
in 1995 include the acquisition by Niugini Mining of an additional interest in
the Lihir joint venture (see "-- Investing Activities -- Lihir Project" below).
In 1995, Battle Mountain spent a total of approximately US$25 million at the
Kori Kollo mine on capital expenditures which included approximately US$6.3
million for the recovery enhancement system and US$1.4 million for the tailings
treatment facility. The remaining amount of approximately US$17 million was
spent at the Kori Kollo mine primarily on various dewatering system projects and
on the purchase of haul trucks and other mining equipment. Battle Mountain has
spent a total of approximately US$15.1 million on the recovery enhancement
system and approximately US$5.9 million on the tailings
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treatment facility. The new recovery enhancement system at Kori Kollo began
operating in start-up mode in January 1996. Based on the varied results to date
from partial system operation, a metallurgical review is under way in order to
optimize the operating mode. Other throughput efforts to date have increased the
recovery rate for sulfide ore by 6 percent compared to feasibility study levels,
and the objective of the current review is to determine how much additional
recovery is possible from the gravity concentrator.
Battle Mountain has included US$47 million for capital expenditures in its
1996 business plan. The plan includes US$10.5 million for development of the
Phoenix project and US$8.4 million for development of the Crown Jewel project.
Of the total 1996 projected expenditures, 39 percent is expected to be spent in
North America, 24 percent in Latin America, 8 percent in Australia and 29
percent in various countries by Niugini Mining.
Phoenix Project
Battle Mountain has announced its decision to develop the Phoenix project,
subject to permitting. The project, which is expected to be in operation in the
first half of 1998, includes the construction of a milling facility and is
located in the Copper Canyon area of the Battle Mountain Complex. The cost of
developing the project is estimated to be approximately US$142 million excluding
capitalized interest and escalation, of which US$7.2 million has been spent
through December 31, 1995. The cost of the project has increased substantially
primarily because the scope of the project has increased. The new project
envisages a milling operation of 14,000 tons per day compared with the original
plan of 10,000 tons per day. The project contains reserves of approximately 34.7
million tons of millable ore at an average ore grade of .05 ounces of gold per
ton, and 11.9 million tons of heap leach ore with an average grade of .03 ounces
of gold per ton, for a total of approximately 1.9 million contained ounces of
gold. The project also includes approximately 10.1 million contained ounces of
silver. The reserves were determined using cutoff grades ranging from .01 to
.024 ounces of gold per ton and an assumed gold price of US$385 per ounce. The
estimated recovery factor was approximately 86 percent for the mill ore and 65
percent for the leach ore.
Crown Jewel Project
Battle Mountain expects to construct a 3,000 ton per day milling facility
with start-up possible in the spring of 1998, depending on the time it will take
to complete the permitting process. A Draft Environmental Impact Statement was
issued at the end of June 1995. The issuance of the Final Environmental Impact
Statement is currently expected by the end of 1996.
To earn a 54 percent ownership interest in the Crown Jewel project, Battle
Mountain has agreed to fund all expenditures for exploration, evaluation and
development of the project through commencement of commercial production. The
minority partner will not reimburse Battle Mountain for any portion of funding
provided through the commencement of commercial production. These expenditures,
plus acquisition costs, are currently estimated to be approximately US$108
million excluding capitalized interest and escalation, of which, as of December
31, 1995, US$54 million (US$45.2 million of which has been capitalized) has been
incurred. Management expects that Battle Mountain should be able to recover more
than its total investment in the project from its 54 percent interest in the
project's operating cash flows based on current market conditions and current
expectations of the timing to obtain permitting.
Lihir Project
Battle Mountain holds an indirect interest in the Lihir project through its
50.5 percent ownership of Niugini Mining, which in turn now owns 17.15 percent
of Lihir Gold Limited ("LGL"). With a wholly owned subsidiary of RTZ
Corporation, plc ("RTZ") as operator, LGL is now developing and constructing the
Lihir project in Papua New Guinea ("PNG"). Financing for the project involved
bank debt facilities and an initial public offering of common stock of LGL. The
initial public offering was completed on October 6, 1995. The following
paragraphs describe the series of now completed transactions related to the
financing of the Lihir project and the restructuring of its ownership.
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In March 1995, the Special Mining Lease ("SML") for the Lihir project was
executed by the PNG government, and final landowner agreements were executed in
April 1995. The SML provided Niugini Mining, and subsidiaries of RTZ and the PNG
government, as joint venture partners, the right to develop and operate the
Lihir gold project. In connection with the execution of the SML, an entity of
the PNG government acquired an intermediate 30 percent joint venture interest,
pro rata from RTZ's 80 percent position and Niugini Mining's 20 percent
position. In June 1995, Niugini Mining acquired an additional 16 percent of the
Lihir joint venture from a subsidiary of RTZ for US$54.1 million, which included
payment of Niugini Mining's share of joint venture costs and interest dating
back to January 1, 1994. Niugini Mining then temporarily owned, pending the
planned initial public offering described below, a 30 percent interest in the
Lihir joint venture.
Niugini Mining and subsidiaries of RTZ and the PNG government (the
"Sponsoring Parties") formed LGL for the sole purpose of ownership of the Lihir
project. Initially, upon transfer of the joint venture interests of the
respective owners, LGL was owned 30 percent by Niugini Mining, 40 percent by a
subsidiary of RTZ and 30 percent by an entity of the PNG government. On October
6, 1995, LGL completed a planned initial public offering of common stock raising
approximately US$450 million to be used for the construction, development and
initial operation of the Lihir project. Prior to consummation of the offering,
the joint venture assets related to the Lihir project were contributed by the
Sponsoring Parties to LGL. Additional funding required for the project is to be
provided in the form of debt financing by LGL. In connection with the LGL debt
financing, Niugini Mining has guaranteed, until project completion, 30 percent
of LGL's obligations under the facility (which obligations include up to US$300
million of senior facility debt, up to US$10 million of subordinated debt
incurred to fund the purchase of instruments required in connection with hedging
activities and up to US$50 million of potential liabilities under hedging
arrangements). Neither Battle Mountain nor its non-Niugini Mining subsidiaries
have any obligation or liability under this guarantee. In addition, Niugini
Mining has pledged its LGL shares as security under the facility until project
completion.
The initial public offering was the final transaction in the series of
transactions which restructured and reduced Battle Mountain's participation in
the Lihir project. As a result of the initial public offering, Niugini Mining
now owns a 17.15 percent interest in LGL and Battle Mountain's attributable
interest is 8.7 percent. In the fourth quarter of 1995, Battle Mountain recorded
the effects of this series of transactions. An increase in Niugini Mining's
shareholders' equity of approximately US$57 million related to the issuance of
the common stock by LGL at a value in excess of Niugini Mining's carrying value
per share in LGL was recorded. This increase was recorded as a credit to
additional paid-in capital consistent with Battle Mountain's accounting policy
with regard to transactions of this nature. An offsetting increase in the
carrying value of Niugini Mining's investment in LGL was recorded. Battle
Mountain attributed US$28 million of this increase to minority interest in its
consolidated financial statements; the remainder was credited to additional paid
in capital. Also, as a result of these transactions, Battle Mountain amortized
approximately US$35 million of its investment in Niugini Mining, which has been
attributed to the investment in LGL. This amortization was recorded as a charge
to Battle Mountain's additional paid in capital. The net result of these
transactions in Battle Mountain's Consolidated Financial Statements was an
increase in the carrying value of the LGL investment of approximately US$22
million, an increase in minority interest of approximately US$28 million and a
net decrease in additional paid in capital of approximately US$6 million. As of
December 31, 1995, the carrying value of Battle Mountain's investment in the
Lihir project was approximately US$225 million. Niugini Mining's interest in LGL
is being accounted for using the equity method of accounting.
The capital costs for the Lihir project were estimated by the manager of
the project at US$673 million. The manager's estimate of total cash operating
costs, which exclude royalties and sales costs, is US$234 per ounce over the
expected life of the project. The estimate of minable sulfide reserves is 114.6
million tons, or 14.6 million contained gold ounces, with an average grade of
.13 ounces of gold per ton.
Exploration
Battle Mountain currently estimates that it will spend approximately
US$18.3 million on its 1996 exploration programs in search of potential
additional mineral deposits. Of this amount, 10 percent is budgeted to be spent
in North America, 30 percent in Latin America, 31 percent in Australia and the
South Pacific and
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23 percent in various countries by Niugini Mining. The remaining six percent of
the budgeted amount is earmarked for evaluation of exploration and acquisition
opportunities worldwide. During 1995, Battle Mountain spent approximately
US$18.8 million on exploration and evaluation activities and related capital
expenditures. The foregoing does not give effect to any changes in exploration
activities that may occur after consummation of the transaction. See "THE
COMPANIES AFTER THE TRANSACTION -- Plans and Proposals."
Financing Activities
On November 6, 1995, Battle Mountain completed a new committed non-reducing
revolving credit agreement with a syndicate of six banks, led by Citibank N.A.,
as agent. In connection with the new revolving credit agreement Battle Mountain
terminated its previously existing committed revolving credit agreement. The new
facility provides for unsecured borrowings of up to US$75 million, of which
US$17 million was outstanding as of December 31, 1995. Interest rates under the
facility are based on the facility agent's base rate, LIBOR, applicable
certificate of deposit rates or gold funding rates plus an applicable margin
which is subject to adjustment in case of certain changes in Battle Mountain's
credit rating and certain financial ratios. Additionally, interest charges
increase when outstanding borrowings under this facility exceed US$25 million
and, again, when such borrowings exceed US$50 million. The revolving credit
agreement imposes certain financial covenants upon Battle Mountain which include
covenants relating to leverage, net worth, contained production, mineral
reserves and working capital, as well as certain restrictions on liens,
investments, additional debt, lease obligations, and the acquisition or
disposition of assets. These restrictions are not expected to affect planned
operations.
Battle Mountain may borrow an additional US$15 million through a separate
uncommitted revolving credit facility. As of December 31, 1995, no borrowings
were outstanding under this facility; however, letters of credit amounting to
approximately US$2.2 million had been issued.
Battle Mountain's majority-owned Bolivian subsidiary, Inti Raymi, borrowed
funds from three international agencies, the Overseas Private Investment
Corporation ("OPIC") (US$40 million), the International Finance Corporation
("IFC") (US$40 million) and the Corporacion Andina de Fomento ("CAF") (US$15
million) under three separate but coordinated financing facilities. These
facilities provided most of the funding necessary for the development of the
Kori Kollo mine. Each of these facilities imposes restrictions on dividend
payments and loan repayments by Inti Raymi to its shareholders, and limits
additional fixed asset purchases or dispositions, debt and liens. As of February
22, 1996, Inti Raymi owed an aggregate of US$65.6 million under these
facilities. This amount includes US$2.6 million previously owed by Inti Raymi to
OPIC. The IFC facility includes a US$5 million convertible loan payable on March
1, 2002, which may be converted at any time, at IFC's option, into a 3.98
percent ownership interest in Inti Raymi. Other than the convertible portion,
loans under the facilities are to be repaid in semi-annual installments which
commenced in December 1994 and will continue through June 2000. Certain
prepayments would be required in the event of substantial Kori Kollo reserve
losses or significantly improved gold prices.
In 1994, Inti Raymi successfully obtained lender acceptance of project
completion status under the Kori Kollo project financing agreements.
Accordingly, Battle Mountain is no longer required to provide financial support
to Inti Raymi under the terms of these agreements. Subject to other restrictions
in the financing agreements and general operating needs, Inti Raymi may
generally pay dividends up to the amount of Inti Raymi's net income for the
preceding fiscal year, which ends September 30. In 1995, Inti Raymi paid
dividends of US$20 million to its shareholders (US$17.6 million to Battle
Mountain). In both 1994 and 1995, dividends paid by Inti Raymi to its
shareholders were less than amounts permitted under the financing agreements
because available cash was required to fund Kori Kollo plant modifications.
Permitted but unpaid amounts of dividends in one year are available for dividend
declarations in future years and it is expected that future Inti Raymi dividends
will be declared and paid based, in part, on such availability.
The OPIC and IFC loan agreements require that the current mining plan
indicate that production from the Kori Kollo mine extends at least three years
beyond the final scheduled principal payment ("Reserve Life Provision"). Failure
to meet this Reserve Life Provision results in the suspension of all debt
repayments from
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Inti Raymi to its shareholders and all Inti Raymi dividend payments until such
time as compliance with the Reserve Life Provision is achieved by either a
pre-payment of a sufficient portion of the debt or an increase in the Kori Kollo
mine ore reserves. The IFC and CAF loan agreements contain provisions which
entitle their respective agencies to receive principal pre-payments
proportionate to those received by OPIC. In the third quarter of 1994, Battle
Mountain completed a rescheduling of the life of mine production and observed
that the new schedule was not in compliance with the Reserve Life Provision due
to more accelerated mining and production than originally planned. The
then-current plan indicated that production would extend approximately 2.8 years
beyond the date of the final scheduled principal payment. To allow continuing
payments of dividends and the repayment of intercompany debts, Inti Raymi
obtained temporary waivers permitting noncompliance with the Reserve Life
Provision until June 30, 1996. Inti Raymi has recently announced reserve
additions which the lenders have approved as sufficient to satisfy the Reserve
Life Provision.
In December 1995, Niugini Mining completed a bonus issue of options under
which its shareholders had received one option for each four shares of Niugini
Mining stock held as of June 26, 1995. All the options issued were exercised on
December 8, 1995 and each option allowed the holder to purchase one share of
Niugini Mining stock for A$2.00. Niugini Mining sold approximately 23.5 million
shares of Niugini Mining stock for aggregate proceeds of approximately A$47
million upon exercise of the options. Niugini Mining had agreed to a bridge
financing facility of US$30 million which was drawn down in June 1995 to enable
consummation of the purchase of the additional interest in the Lihir joint
venture (see "-- Investing Activities" above). The bridge financing was secured
by the proceeds of the exercise of the options, and therefore a majority of the
proceeds from the stock issuance was used to repay the bridge financing.
Battle Mountain does not expect Niugini Mining to pay dividends currently
because of Niugini Mining's other business commitments and plans for its working
capital.
Conclusion
Battle Mountain expects that, even without giving effect to the
Transaction, the cash currently held, along with cash flows from operations and
financing facilities currently in place, will be adequate to meet its cash needs
at least through the end of 1996. If the Transaction is consummated, the cash
flow of Battle Mountain will be substantially increased.
Government Regulation
All of Battle Mountain's mining and processing operations are subject to
reclamation and closure requirements. Battle Mountain monitors such requirements
and periodically revises its cost estimates to meet the legal and regulatory
requirements of the various jurisdictions in which it conducts its business.
Where possible, plans for ongoing operations and future mine development are
implemented in a manner that contributes to the fulfillment of reclamation and
closure obligations in a cost-effective manner through the conduct of ongoing
operating activities. Costs estimated to be incurred in future periods which
cannot be addressed in this manner are charged to operations through provisions
based on the units of production method such that the estimated cost of ultimate
reclamation is fully provided for by the time mineral reserves are depleted. The
timing of actual cash expenditures for reclamation may be accelerated or
deferred depending on cost and other determinations which may make such
decisions prudent in the circumstances. Battle Mountain believes that these
policies and practices adequately address its reclamation obligations and
provide a systematic and rational method of charging such costs to operations
consistent with industry practice. Accruals amounting to an aggregate of US$8.0
million at December 31, 1995, are included as long-term liabilities in Battle
Mountain's consolidated balance sheet. At the Battle Mountain Complex, aggregate
reclamation expenditures estimated to be spent in future periods are expected to
amount to approximately US$7.8 million. Actual expenditures made to date have
equaled the total amount accrued to date, therefore there is no net accrued
liability at December 31, 1995, for this location. Estimated ultimate
reclamation obligations and related accrued liability balances at December 31,
1995, respectively, for each of Battle Mountain's other operating mines are as
follows: San Luis US$3.3 million and US$1.7 million, Pajingo US$2.6 million and
US$1.5 million, Kori Kollo US$10.0 million and US$1.9 million and Red Dome
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US$3.7 million and US$2.9 million. Reclamation expenditures for the San
Cristobal mine are not expected to be material.
Legislative amendment of the General Mining Law, under which Battle
Mountain holds claims on public lands in the U.S., could take place in 1996.
Among other things, such legislation could impose a royalty on production from
public lands. Approximately 40 percent of the Reona reserves, 23 percent of
Phoenix project reserves and 80 percent of the Crown Jewel ore body are on
public lands. However, a First Half -- Mineral Entry Final Certificate has been
issued with respect to the unpatented portion of the Crown Jewel ore body and
mineral surveys have been completed for the claims constituting the unpatented
portion of the Crown Jewel, Reona and Phoenix project reserves. Battle Mountain
cannot yet predict whether existing law will be amended, the extent of such
amendment or the impact of any such change on its U.S. activities. However, the
passage of legislation that can be reasonably anticipated is not expected to
render uneconomic any of Battle Mountain's existing operating mines or
development projects, assuming current gold prices.
Battle Mountain has investigated the discharge to groundwater of chloride
(salt) from the tailings facility at the Battle Mountain Complex. This facility
was unlined at the time it was constructed in keeping with then-accepted
practice. Battle Mountain is currently evaluating mitigation alternatives to
achieve applicable water quality standards. Battle Mountain currently expects to
achieve the applicable standards by utilizing the high chloride water in
connection with its proposed Phoenix operation. Additionally, recent groundwater
samples were taken from a highly mineralized area near historic copper leach
activities. The results indicate that groundwater in this vicinity is acidic and
high in metals. Pursuant to the State-issued Water Pollution Control Permit
covering the site, Battle Mountain has prepared and submitted a work plan for
further investigation of groundwater in this area. Due to the preliminary nature
of this investigation, it is not possible to estimate what, if any, remediation
might be required.
In Bolivia, new environmental regulations to implement federal legislation
passed in 1992 became effective in December 1995. The official version of the
new regulations was released in April 1996. These regulations contain new
environmental standards and requirements applicable to Battle Mountain's Kori
Kollo project which, depending on how the regulations are implemented and
interpreted, could require expenditures and changes in operations and it is
possible that such expenditures and changes could have a material effect on
Battle Mountain's financial condition or results of operations. However, based
on Battle Mountain's initial review of the regulations and assuming reasonable
interpretation and implementation, Battle Mountain does not anticipate that
compliance will have a material adverse effect on Battle Mountain's financial
condition or results of operations.
Forward Sales and Hedging
Battle Mountain has limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate, foreign currency exchange rate and commodity price
risks.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. At December 31,
1995, Inti Raymi was party to three interest rate cap agreements which were
effective June 1, 1994, each with a term of three years. The agreements entitle
Inti Raymi to receive from counterparties on a quarterly basis the amounts, if
any, by which Inti Raymi's interest payments on a portion of its LIBOR-based
floating-rate Kori Kollo project financing exceed various fixed rates over the
term of the caps. The fixed rates in the cap agreements gradually escalate from
5.4 percent in 1995 to 7.2 percent in 1997. Inti Raymi has hedged 50 percent of
its net interest rate exposure currently related to the Kori Kollo LIBOR-based
project financing. The hedge increases to 100 percent of its exposure by June
1996. Inti Raymi has not hedged any of its exposure subsequent to December 1997.
The net unamortized cost of the premiums paid for these caps amounting to US$.5
million at December 31, 1995, has been included in other assets. Since the
interest rate caps were put in place, Battle Mountain has amortized
approximately US$.2 million of such premiums and has received approximately
US$.2 million in settlement of expiring caps.
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Battle Mountain uses fixed forward sales contracts, spot deferred sales
contracts and put options to hedge anticipated sales of gold, silver and copper.
The following table summarizes Battle Mountain's forward sales contracts at
December 31, 1995:
<TABLE>
<CAPTION>
AVERAGE PRICE
AMOUNT PER UNIT PERIOD
------------- ------------- ---------------
<S> <C> <C> <C>
Battle Mountain
Forward sales contracts
Gold............................... 129,977 oz US$397 Jan 96 - Oct 96
Niugini Mining
Forward sales contracts
Gold............................... 91,529 oz A$536 Jan 96 - Dec 96
28,679 oz US$386 Jan 96
Silver............................. 12,568 oz US$5.87 Jan 96
Copper............................. 2,000 tonnes US$2,654 Jan 96 - Feb 96
Inti Raymi
Forward sales contracts
Gold............................... 83,500 oz US$396 Jan 96 - Jun 96
Purchased put options
Gold............................... 42,000 oz US$385 Jan 96 - Apr 96
</TABLE>
Deferred costs associated with Inti Raymi's forward sales contracts
amounted to US$1.3 million and US$1.5 million at December 31, 1995 and 1994,
respectively. Deferred costs associated with put options amounted to US$.2
million at December 31, 1995. There were no put options at December 31, 1994.
Battle Mountain is exposed to credit-related losses in the event of
nonperformance by the counterparties to its interest rate caps and forward sales
contracts, but does not expect any counterparties to fail to meet their
obligations. Battle Mountain does not obtain collateral or other security to
support financial instruments subject to credit risk but monitors the credit
standing of counterparties.
In future periods, Battle Mountain may continue to employ selective hedging
strategies, where appropriate, to protect cash flow for specific needs.
Foreign Operations
Battle Mountain continues to expand and geographically diversify its
resource base through the exploration, acquisition, development and exploitation
of foreign gold reserves. Battle Mountain's identifiable assets attributable to
foreign operations as of December 31, 1995, were approximately US$570 million
and foreign operations represented approximately 81 percent of the total gross
revenues of Battle Mountain for the year ended December 31, 1995. As a result,
Battle Mountain is exposed to risks normally associated with foreign operations,
including political, economic, social and labor instabilities, as well as
foreign exchange controls, currency fluctuations and taxation changes.
In Bolivia, presidential and congressional elections are scheduled for
mid-1997. Under the Bolivian constitution, a sitting president cannot serve
consecutive terms. Therefore, a change in administration will occur in 1997. The
current administration has initiated far-reaching programs to decentralize
central government's authority, to decentralize the distributions of the tax
revenues, to reform the education and tax system and to promote private
ownership of previously state-owned companies. While Battle Mountain believes
these reforms are beneficial to the Bolivian people and Bolivian economy, it is
difficult to predict the ultimate impacts of these, and associated reforms and a
change in administration, on Battle Mountain's Bolivian operations.
Foreign operations and investments may also be subject to laws and policies
of the United States affecting foreign trade, investment and taxation which
could affect the conduct or profitability of those operations.
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Inflation and Changing Prices
Gold production costs and corporate expenses are subject to normal
inflationary pressures, which, to date, have not had a significant impact on
Battle Mountain. Battle Mountain's results of operations and cash flows are
affected by fluctuations in the market prices of gold, silver and copper, and to
a lesser extent by changes in foreign currency exchange rates.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
LIQUIDITY AND CAPITAL RESOURCES
Summary -- At March 31, 1996, Battle Mountain had cash and cash equivalents
of US$42.7 million, of which US$11.0 million was held by Battle Mountain,
US$21.0 million was held by Niugini Mining and US$10.7 million was held by Inti
Raymi.
Operating Activities -- Battle Mountain generated cash flow of $5.4 million
from operating activities during the three months ended March 31, 1996, compared
with cash flow from operations of US$7.0 million for the three months ended
March 31, 1995. The decrease in cash flows from operations of US$1.6 million was
primarily the result of higher production costs at the Kori Kollo, Red Dome and
Pajingo mines. Total production costs increased at the Red Dome mine because of
a 47% increase in production volumes. The increase in production costs at the
Kori Kollo and Pajingo mines resulted from an increase in per unit costs. (See
"- Results of Operations -- Production Costs").
Investing Activities -- Battle Mountain used cash of US$13.5 million for
capital expenditures during the three months ended March 31, 1996. This amount
includes US$6.0 million in interest that has been capitalized related to Battle
Mountain's investment in the Lihir Gold Ltd. Battle Mountain's 1996 business
plan includes a total of US$47.8 million for capital expenditures, of which
approximately US$10.5 million and US$8.6 million are associated with the Phoenix
and Crown Jewel projects, respectively and approximately US$9.7 million is
associated with various projects and purchases of equipment by Inti Raymi.
During the three months ended March 31, 1996, Battle Mountain spent
approximately US$5.2 million on exploration and evaluation. Battle Mountain
currently estimates that it will spend a total of approximately US$18 million on
its 1996 exploration programs. Exploration and evaluation expenditures increased
for the three months ended March 31, 1996 compared with the same period of 1995
primarily because of the expansion of Battle Mountain's exploration activities
in the area of the Red Dome and Pajingo mines.
Financing Activities -- During the first quarter of 1996, Battle Mountain
borrowed an additional US$13 million under its US$75 million revolving credit
facility, resulting in a total of US$30 million outstanding under this facility
as of March 31, 1995. During the first quarter of 1996, Battle Mountain received
US$3.9 million in dividends from Inti Raymi, net of applicable Bolivian
withholding taxes. Further dividends are expected from Inti Raymi as earnings
and cash are available.
Conclusion -- Battle Mountain expects cash on hand, along with cash flows
from operations and financing facilities currently in place, to be adequate to
meet its cash needs at least through the middle of 1997.
Government Regulation -- In Bolivia, new environmental regulations to
implement federal legislation passed in 1992 became effective in December 1995.
The official version of the new regulations was released in April 1996. These
regulations contain new environmental standards and requirements applicable to
Battle Mountain's Kori Kollo project which, depending on how the regulations are
implemented and interpreted could require expenditures and changes in operations
and it is possible that such expenditures and changes could have a material
effect on Battle Mountain's financial condition or results of operations.
However, based on Battle Mountain's initial review of the regulations and
assuming reasonable interpretation and implementation, Battle Mountain does not
anticipate that compliance will have a material adverse effect on Battle
Mountain's financial condition or results of operations.
Forward Sales and Hedging -- Battle Mountain has limited involvement with
derivative financial instruments and does not use them for trading purposes.
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At March 31, 1996, Inti Raymi was party to three interest rate cap
agreements which were effective June 1, 1994, each with a term of three years.
The agreements entitle Inti Raymi to receive from counterparties on a quarterly
basis the amounts, if any, by which Inti Raymi's interest payments on a portion
of its LIBOR based floating-rate Kori Kollo project financing exceed various
fixed rates over the term of the caps. The fixed rates in the cap agreements
gradually escalate from 5.4 percent to 7.2 percent by 1997. The net unamortized
cost of the premiums paid for these caps amounting to US$.4 million at March 31,
1996, has been included in other assets. Since the interest rate caps were put
in place, Battle Mountain has amortized approximately US$.3 million of such
premiums and has received approximately US$.2 million in settlement of expiring
caps.
Battle Mountain uses fixed forward sales contracts, spot deferred sales
contracts and put options to hedge anticipated sales of gold, silver and copper.
The following table summarizes Battle Mountain's contracts at March 31, 1996:
<TABLE>
<CAPTION>
AVERAGE PRICE
AMOUNT PER UNIT PERIOD
------------- ------------- ----------------
<S> <C> <C> <C>
Battle Mountain
Forward sales contracts
Gold.............................. 129,977 oz US$399 Apr 96 -- Feb 97
Niugini Mining
Forward sales contracts
Gold.............................. 85,422 oz A$543 Apr 96 -- Dec 96
53,679 oz US$394 Apr 96
Silver............................ 312,568 oz US$5.81 Apr 96
Copper............................ 1,000 tonnes US$2,460 Sep 96
Inti Raymi
Forward sales contracts
Gold.............................. 83,500 oz US$399 Apr 96 -- Sep 96
Purchased put options
Gold.............................. 10,500 oz US$385 Apr 96
</TABLE>
Deferred costs associated with Inti Raymi's forward sales contracts
amounted to US$1.1 million and US$1.5 million at March 31, 1996 and 1995,
respectively. Deferred costs associated with put options amounted to US$.1
million at March 31, 1996. There were no put options at March 31, 1995.
The aggregate amount by which the net market value of Battle Mountain's
open forward sales contracts is greater than the spot price of US$396 per ounce
of gold, US$5.51 per ounce of silver and US$2,549 per tonne of copper, as of
March 31, 1996, before consideration of the deferred costs referred to above, is
US$2.9 million, of which US$1.1 million is attributable to minority interests.
The foregoing amounts were calculated assuming conversion of Australian dollar
contracts to U.S. dollars at the March 1996 month end exchange rate of US$.78 to
A$1.
Foreign Operations -- Battle Mountain's identifiable assets attributable to
foreign operations as of March 31, 1996, were approximately US$554 million and
foreign mining operations represented approximately 80 percent of the total
gross revenues of Battle Mountain for the three months ended March 31, 1996. As
a result, Battle Mountain is exposed to risks normally associated with foreign
operations, including political, economic, social and labor instabilities, as
well as foreign exchange controls, currency fluctuations and taxation changes.
In Bolivia, presidential and congressional elections are scheduled for
mid-1997. Under the Bolivian constitution, a sitting president cannot serve
consecutive terms. Therefore, a change in administration will occur in 1997. The
current administration has initiated far reaching programs to decentralize
central government's authority, to decentralize the distributions of the tax
revenues, to reform the education and tax system and to promote private
ownership of previously state-owned companies. While Battle Mountain believes
these reforms are beneficial to the Bolivian people and Bolivian economy, it is
difficult to predict the
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<PAGE> 116
ultimate impacts of these and associated reforms and a change in administration
on Battle Mountain's Bolivian operations.
RESULTS OF OPERATIONS
The following table presents significant financial data related to Battle
Mountain's results of operations for the three months ended March 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Gold sales (ounces -- 100%)...................................... 148,000 142,000
Gold revenues realized per ounce................................. US$393 US$382
Average London PM fix per ounce.................................. US$400 US$379
Cash production costs per equivalent gold ounce produced*........ US$240 US$209
Depreciation, depletion and amortization per equivalent gold
ounce produced................................................. US$96 US$87
</TABLE>
- ---------------
* Includes mining, milling and other plant costs directly related to a mine site
and stripping cost adjustments but excludes third party smelting costs,
transportation costs, royalties, depreciation, depletion and amortization and
taxes.
Gross Revenue -- Gross revenue increased for the three months ended March
31, 1996, compared with the same period of 1995 because of a higher average
realized gold price and increased sales volumes from the Red Dome, San
Cristobal, Pajingo and Kori Kollo mines. Increased spot gold prices caused the
average realized sales price of gold to increase to US$393 per ounce for the
first quarter of 1996 compared with US$382 per ounce for the first quarter of
1995. Average realized prices for the first quarter of 1996 were lower than the
average London PM fix because of Battle Mountain's practice of pricing its gold
shipments 20 to 45 days in advance of shipment.
Production Costs -- Production costs increased on a total and per
equivalent ounce of gold produced basis for the three month period ended March
31, 1996, compared with the same period of 1995. Production costs increased
because of increased sales volumes at the Red Dome, San Cristobal, Pajingo and
Kori Kollo mines. Production costs per equivalent ounce of gold produced
increased at the Kori Kollo, Pajingo and San Luis mines. These unit costs
increased at the Kori Kollo mine because of lower mill head grades and temporary
increases in materials costs. Studies are underway regarding the lower mill head
grades. Per equivalent ounce of gold produced costs increased at the Pajingo
mine because production is now coming from ore recovered from the higher cost
underground section of the Cindy deposit and because ore was being mined at a
faster rate than it was being milled. Mining was completed at the Cindy deposit
in April and production is currently from stockpiles which will result in a
reduction of per equivalent ounce production costs. Battle Mountain expects
production to be completed towards the end of the third quarter of 1996.
Depreciation, depletion and amortization increased in total and on a cost
per equivalent ounce produced for the three months ended March 31, 1996, when
compared with the same period of 1995. Depreciation, depletion and amortization
increased primarily because of an increase in this cost on a per equivalent
ounce of gold produced basis at the Pajingo mine complex. The depreciation,
depletion and amortization at the Pajingo mine complex is high because of the
high cost of the development of the underground portion of the Cindy mine
relative to the number of ounces that will be produced from that mine.
Production from ore from the Cindy mine will cease during the second quarter of
1996 thus reducing depreciation, depletion and amortization charges at the
Pajingo mine complex in subsequent quarters. Once the ore from the Cindy mine is
exhausted, gold will continue to be produced at the Pajingo complex from low
grade stockpiles from the previously depleted Scott Lode.
Other -- Battle Mountain had other expense in the amount of US$1.5 million
for the three months ended March 31, 1996, compared with other income of US$.6
million for the three months ended March 31, 1995. The other expense resulted
primarily from foreign exchange losses in the amount of approximately
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<PAGE> 117
US$1.6 million. Most of these foreign exchange losses resulted from losses
recorded on U.S. dollar cash deposits held by Niugini Mining (Australia) Pty.
Ltd. ("NMA"), an Australian dollar functional currency subsidiary of Niugini
Mining. The losses occurred because of the strengthening of the Australian
dollar compared with the U.S. dollar. The U.S. dollar cash deposits were from
sales of gold, silver and copper from the Red Dome mine. Under the terms of a
short term loan agreement, Niugini Mining was required to keep U.S. dollars
received from the sales of its metals from the Red Dome mine in a U.S. dollar
bank account held by NMA. At the end March 1996, this loan was repaid and there
are no further restrictions imposed by the loan agreement on the transfer of
funds between NMA and its affiliates. This should allow Niugini Mining more
flexibility in managing its foreign currency gains and losses. Niugini Mining
transferred most of the U.S. dollar cash deposits from NMA to Niugini Mining
Ltd. in April 1996. Niugini Mining Ltd. is a U.S. dollar functional currency
company.
Battle Mountain's effective income tax rate is 40 percent for the first
quarter of 1996, as compared with an effective income tax rate of 9.5 percent in
1995. The effective tax rate for 1996 is higher than the U.S. statutory rate
primarily because the income tax benefit derived from the undistributed losses
of Niugini Mining have not been included in the calculation of the income tax
rate. The effective income tax rate for 1995 was affected by the recognition of
deferred tax assets related to foreign tax credits. Prior to 1995, Battle
Mountain treated foreign taxes paid as deductions for U.S. income tax purposes.
However, Battle Mountain determined in 1995 that it is more likely than not that
it will be able to utilize foreign tax credits for foreign taxes because of Inti
Raymi's projected net income and its ability to remit earnings in the form of
dividends to Battle Mountain.
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<PAGE> 118
STATISTICAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
------- -------
<S> <C> <C>
BATTLE MOUNTAIN COMPLEX Operating Data
Production statistics
Gold recovered (000s oz).................................... 17 17
Silver recovered (000s oz).................................. 64 42
------- -------
Cost Per Equivalent Gold Ounce(1)
Cash production costs....................................... US$ 311 US$ 334
Taxes, other than income.................................... 10 12
Depreciation, depletion and amortization.................... 73 62
------- -------
Total operating costs.................................. US$ 394 US$ 408
------- -------
SAN LUIS Operating Data
Production statistics
Gold Recovered (000s oz).................................... 15 17
Silver Recovered (000s oz).................................. 9 6
------- -------
Cost Per Equivalent Gold Ounce(1)
Cash production costs....................................... US$ 273 US$ 250
Taxes, other than income.................................... 18 7
Depreciation, depletion and amortization.................... 85 96
------- -------
Total operating costs.................................. US$ 376 US$ 353
------- -------
PAJINGO Operating Data
Production statistics
Gold recovered (000s oz).................................... 11 8
Silver recovered (000s oz).................................. 5 18
------- -------
Cost Per Equivalent Gold Ounce(1)
Cash production costs....................................... US$ 292 US$ 110
Taxes, other than income.................................... 3 2
Depreciation, depletion and amortization.................... 115 54
---- ----
Total operating costs.................................. US$ 410 US$ 166
------- -------
KORI KOLLO Operating Data
Production statistics
Gold recovered Battle Mountain share (000s oz)(2)........... 69 71
Silver recovered Battle Mountain share (000s oz)(2)......... 214 302
Gold recovered (000s oz).................................... 78 81
Silver recovered (000s oz).................................. 243 343
------- -------
Cost Per Equivalent Gold Ounce(1)
Cash production costs....................................... US$ 206 US$ 167
Taxes, other than income.................................... 3 1
Depreciation, depletion and amortization.................... 103 90
------- -------
Total operating costs.................................. US$ 312 US$ 258
======= =======
</TABLE>
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<PAGE> 119
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
---- ----
<S> <C> <C>
SAN CRISTOBAL Operating Data
Production statistics
Gold recovered Battle Mountain share (000s oz)(3)........... 10 9
Silver recovered Battle Mountain share (000s oz)(3)......... 25 21
Gold recovered (000s oz).................................... 21 18
Silver recovered (000s oz).................................. 50 41
------- -------
Cost Per Equivalent Gold Ounce(1)
Cash production costs....................................... US$ 312 US$ 314
Taxes, other than income.................................... -- --
Depreciation, depletion and amortization.................... 93 81
------- -------
Total operating costs.................................. US$ 405 US$ 395
------- -------
RED DOME Operating Data
Production statistics
Gold recovered Battle Mountain share (000s oz)(3)........... 12 11
Silver recovered Battle Mountain share (000s oz)(3)......... 106 76
Gold recovered (000s oz).................................... 24 21
Silver recovered (000s oz).................................. 209 146
Copper recovered (000s lbs)................................. 3,525 2,542
------- -------
Cost Per Equivalent Gold Ounce(1)
Cash production costs.......................................... US$ 204 US$ 220
Taxes, other than income.................................... -- --
Depreciation, depletion and amortization.................... 92 125
------- -------
Total operating costs.................................. US$ 296 US$ 345
------- -------
AGGREGATE DATA
Gold recovered Battle Mountain share (000s oz).............. 134 133
Gold sales Battle Mountain share (000s oz).................. 125 124
Gold recovered (000s oz).................................... 166 162
Gold sales (000s oz)........................................ 148 142
Average price per oz realized............................... US$ 393 US$ 382
------- -------
Silver recovered Battle Mountain share (000s oz)............ 423 465
Silver sales Battle Mountain share (000s oz)................ 320 388
Silver recovered (000s oz).................................. 580 596
Silver sales (000s oz)...................................... 379 453
Average price per oz realized............................... US$5.45 US$4.83
------- -------
Weighted Average Cost Per Equivalent Gold Ounce(1)
Cash production costs..................................... US$ 240 US$ 209
Taxes, other than income.................................. 5 3
Depreciation, depletion and amortization.................. 96 87
------- -------
Total operating costs.................................. US$ 341 US$ 299
------- -------
</TABLE>
- ---------------
(1) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. Includes mining,
milling and other plant costs directly related to a mine site and stripping
cost adjustments but excludes third party smelting costs, transportation
costs, royalties, depreciation, depletion and amortization and taxes.
(2) Reflects Battle Mountain's 88 percent equity interest.
(3) Reflects Battle Mountain's average equity interest of 50.5 percent for 1996
and of 51.4 percent for 1995.
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<PAGE> 120
INFORMATION CONCERNING BATTLE MOUNTAIN
BUSINESS AND PROPERTIES OF BATTLE MOUNTAIN
Introduction
Battle Mountain is engaged in the mining and processing of gold, silver and
copper ore in the United States, Bolivia, Chile and Australia and in the
exploration and evaluation of precious metals properties primarily in Latin
America, the South Pacific, Australia and the United States. Battle Mountain was
incorporated in Nevada in 1985.
Battle Mountain's operating properties include the Battle Mountain Complex
in Nevada, the San Luis mine in Colorado, the Pajingo and Red Dome mines in
Queensland, Australia, the San Cristobal mine in Chile and the Kori Kollo mine
in Bolivia. Battle Mountain is in the permitting phase of two development
projects in the United States, the Crown Jewel in Washington and the Phoenix at
the Battle Mountain Complex in Nevada, and the Lihir project is under
development in PNG.
Battle Mountain currently owns 88 percent of the outstanding common equity
of Inti Raymi, which owns and operates the Kori Kollo mine. Battle Mountain also
owns approximately 50.5 percent of the outstanding common equity of Niugini
Mining, which owns and operates the San Cristobal and the Red Dome mines and has
a 17.15 percent interest in LGL, which is constructing and developing the Lihir
project. See "-- Niugini Mining Limited -- Lihir Project."
In 1995, Battle Mountain produced approximately 714,000 ounces of gold, 2.4
million ounces of silver and 10.8 million pounds of copper, of which Battle
Mountain's attributable portion was 579,000 ounces of gold, 1.9 million ounces
of silver and 5.5 million pounds of copper. A majority of Battle Mountain's
production in 1995 was attributable to foreign operations.
The following table provides aggregate operating data for all of Battle
Mountain's operating mines for the years 1995 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994
--------------------- ---------------------
BATTLE BATTLE
MOUNTAIN MOUNTAIN
AGGREGATE OPERATING DATA NET(1) 100% NET(2) 100%
- ----------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gold production (000s oz)...................... 579 714 486 581
Gold sales (000s oz)........................... 579 713 478 569
Average realized gold price per oz............. US$383 US$384 US$385 US$386
Silver production (000s oz).................... 1,855 2,414 1,724 2,150
Silver sales (000s oz)......................... 1,842 2,389 1,692 2,094
Average realized silver price per oz........... US$5.23 US$5.26 US$5.33 US$5.34
Copper production (000s lbs)................... 5,520 10,840 6,546 12,606
Copper sales (000s lbs)........................ 5,415 10,637 6,022 11,601
Average realized copper price per lb........... US$1.191 US$1.191 US$1.053 US$1.053
Weighted average cost per equivalent gold
ounce(3):
Cash production costs........................ US$202 US$201 US$203 US$205
Taxes, other than income..................... 4 4 4 3
Depreciation, depletion and amortization..... 92 na 83 na
-------- -------- -------- --------
Total operating costs................ US$298 na US$290 na
======== ======== ======== ========
</TABLE>
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<PAGE> 121
- ---------------
(1) Includes data based on Battle Mountain's 88 percent ownership of Inti Raymi
during 1995. Gold production and gold sales each include 298,000 ounces
related to Battle Mountain's interest in Inti Raymi; silver production and
silver sales include 1,153,000 ounces and 1,154,000 ounces, respectively,
related to such interest. The information in the table also includes data
based on Battle Mountain's 50.9 percent average ownership interest in
Niugini Mining for 1995. Gold production and gold sales include 98,000
ounces and 97,000 ounces, respectively, related to Battle Mountain's
interest in Niugini Mining; silver production and silver sales include
419,000 ounces and 402,000 ounces, respectively, related to such interest;
copper production and copper sales relate only to such interest.
(2) Includes data based on Battle Mountain's 85 percent ownership of Inti Raymi
until February 28, 1994, and 88 percent thereafter. Gold production and
gold sales include 274,000 ounces and 271,000 ounces, respectively, related
to Battle Mountain's interest in Inti Raymi, and silver production and
silver sales include 1,251,000 ounces and 1,238,000 ounces, respectively,
related to such interest. The information in the table also includes data
based on Battle Mountain's 52.0 percent average ownership interest in
Niugini Mining for 1994. Gold production and gold sales include 61,000
ounces and 57,000 ounces, respectively, related to Battle Mountain's
interest in Niugini Mining; silver production and silver sales include
265,000 ounces and 242,000 ounces, respectively, related to such interest;
and copper production and copper sales relate only to such interest.
(3) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. All costs are
shown on a per equivalent gold ounce produced basis, with silver and copper
by-products converted to ounces of gold on an equivalent revenue basis.
Cash production costs include mining, processing, mine-related corporate
administrative and other direct plant costs, but exclude sales expenses,
royalties, corporate administrative expenses unrelated to a particular mine
site and other indirect costs.
Gold Price Volatility
The volatility of gold prices is illustrated by the following table of the
high, low and average afternoon fixing prices of gold per ounce on the London
Bullion Market:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
High................................ US$397 US$395 US$406 US$359 US$403
Low................................. 374 378 326 330 344
Average............................. 384 384 360 344 362
</TABLE>
To mitigate the impact of downturns in the gold, silver and copper markets,
Battle Mountain currently engages in limited hedging transactions with respect
to a portion of its production and reserves of gold, silver and copper. See
"RISK FACTORS -- Gold Price Volatility" for a discussion of gold price
fluctuation and its impact on the profitability of Battle Mountain. Also, see
"-- Sales and Precious Metals Hedging Activities," "BATTLE MOUNTAIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" and Note 15, "Forward Sales and
Hedging," of Notes to Battle Mountain Consolidated Financial Statements included
elsewhere herein.
Battle Mountain Gold Company
Battle Mountain's corporate headquarters is located in Houston, Texas.
Battle Mountain has a North American regional office in Denver, Colorado. Mine
offices are located in Battle Mountain, Nevada; San Luis, Colorado; and near
Charters Towers, Queensland; with an operations branch office in Oroville,
Washington. Battle Mountain's worldwide exploration program is headquartered in
Houston, Texas. U.S. exploration activities are managed from the Reno, Nevada
branch office. Latin American exploration activities are
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<PAGE> 122
managed from the Tucson, Arizona branch office. Other exploration offices are
located in Helena, Montana; San Juan, Argentina; Townsville, Queensland; Perth,
Western Australia; and Jakarta, Indonesia.
Battle Mountain Complex
General. Battle Mountain's Battle Mountain Complex is located near Battle
Mountain, Nevada, and consists of two areas known as Copper Canyon and Copper
Basin, totaling approximately 50 square miles. The Copper Basin area is located
10 miles northeast of the Copper Canyon area. Battle Mountain's identifiable
assets attributable to the Battle Mountain Complex as of December 31, 1995, were
US$45.0 million.
The Fortitude mine's reserves at the Battle Mountain Complex were exhausted
in March 1993. Heap leaching at Copper Basin commenced in 1991 and is expected
to continue through mid-1996. The Reona heap leach mine in Copper Canyon
commenced production in October 1994. Battle Mountain announced a development
decision with regard to the Phoenix milling project in March 1995. Start-up of
the Phoenix project will depend on the length of the permitting process.
Battle Mountain holds title to the Battle Mountain property in the form of
fee land, unpatented lode, placer and millsite claims and leased claim acreage.
The Reona mine and Phoenix project are located in part on unpatented lode claims
which may be subject to future royalties if legislative amendment or replacement
of the General Mining Law takes place. See "-- Property Interests -- United
States." Access to the Battle Mountain Complex is by way of a two-mile paved
road, which connects to a state highway.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
RESERVE DATA(1)
Proven/probable ore reserves (000s tons)............................. 13,610
Average gold ore grade (oz/ton)...................................... .022
Contained ounces (000s)
Gold............................................................... 295
Silver............................................................. 2,120
Recovery factor for gold (%)......................................... 66
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
OPERATING DATA
Production statistics:
Tons of ore leached (000s).................................... 6,362 2,853
Stripping ratio(2)............................................ 1.0:1 1.9:1
Leach ore grade (oz gold/ton)................................. .009 .010
Leach recovery factor for gold (%)............................ 60 45
Gold recovered (000s oz)...................................... 75 48
Silver recovered (000s oz).................................... 207 96
Cost per equivalent gold ounce(3):
Cash production costs......................................... US$311 US$276
Taxes, other than income...................................... 12 16
Depreciation, depletion and amortization...................... 72 117
------ ------
Total operating costs......................................... US$395 US$409
====== ======
</TABLE>
- ---------------
(1) The reserves relate to the Reona mine only and were determined using a
cutoff grade ranging from .009 to .024 ounce per ton and an assumed gold
price of US$385 per ounce. These reserve data do not include approximately
7,000 contained ounces of gold attributable to Copper Basin heap leach ore
which will continue to be leached through mid-1996. See "-- Certain Factors
Affecting Reserves, Foreign Investments and Properties."
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<PAGE> 123
(2) As of December 31, 1995, the estimated average stripping ratio over the
remaining life of the Battle Mountain Complex ore reserves was approximately
1.3:1.
(3) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. All costs are shown
on a per equivalent gold ounce produced basis, with by-product silver
converted to ounces of gold on an equivalent revenue basis. Cash production
costs include mining, processing, other direct plant costs and mine-related
corporate administrative costs, but exclude sales expenses, corporate
administrative expenses unrelated to a particular mine site and other
indirect costs.
Reona Mine. The Reona mine commenced operations in October 1994 and had its
first full year of production in 1995.
Copper Basin Heap Leach. Residual leaching of ore continued at the Copper
Basin Heap Leach operation during 1995 and is expected to be discontinued in
mid-1996.
Phoenix Project. Battle Mountain announced a development decision in March
1995 for the Phoenix milling project in Copper Canyon at the Battle Mountain
Complex. Reserves at the Phoenix project were estimated at 46.6 million tons of
ore at an average grade of .039 ounce of gold per ton as of December 31, 1995,
for proven and probable reserves of approximately 1,890,000 contained ounces of
gold and approximately 10,100,000 contained ounces of silver. The average
recovery factor for gold was estimated to be approximately 82 percent. The
reserves were determined using a cutoff grade ranging from .009 to .024 and an
assumed gold price of US$385 per ounce. The estimated average stripping ratio
over the life of the Phoenix project is expected to be approximately 3.9:1. See
"-- Certain Factors Affecting Reserves, Foreign Investments and Properties."
Preliminary engineering for the project commenced in the fall of 1995. The
Phoenix project is in the process of being permitted. The draft Environmental
Impact Statement ("EIS") is expected to be issued in late 1996 with the final
EIS expected to be issued in the first half of 1997. See "-- Environmental
Matters -- United States -- Battle Mountain Complex." Total capital costs of the
Phoenix project are estimated at US$142 million, excluding escalation and
capitalized interest. The estimated cost of the project has increased from the
previous estimate of US$125 million primarily due to the redesign of the milling
facility with a throughput capacity of 14,000 tons per day compared to the
previous design of 10,000 tons per day. This new design anticipates higher
annual production of approximately 190,000 ounces per year over a nine-year life
of mine. This compares to the previously reported average production rate of
150,000 ounces of gold per year. The higher production rate is based in part on
an increase in proven and probable reserves at the Phoenix project. See "BATTLE
MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Liquidity and Capital Resources."
Geology. The mines at the Battle Mountain Complex are located in the Battle
Mountain Range. The range consists of predominantly faulted and folded Paleozoic
rocks which have been locally intruded by plutonic masses. Marginal to and
associated with the plutons, sulfide mineralization containing base and precious
metals has locally formed. Economic concentrations of gold and silver are
typically associated with carbonate sediments that have been converted to
"skarn" through the process of contact metamorphism. Economic mineralization is
also associated with faulting and shearing which formed contemporaneously with
the intrusive events. Mill grade gold and silver mineralization has been mined
from several areas within the district where strong sulfide mineralization was
deposited. Natural weathering has altered areas of sulfide mineralization to
form iron oxides and other secondary minerals that are generally favorable for
heap leach recovery of precious metals.
Mining, Processing and Environmental Compliance. Battle Mountain conducts
its mining operation at the Battle Mountain Complex utilizing conventional open
pit mining methods. Leach grade ore is processed at Reona and Copper Basin by
heap leaching. The precious metals refinery and desorption plant at Copper
Canyon processes solution from the Reona and Copper Basin heap leach facilities.
The Battle Mountain Complex is subject to federal and state environmental laws
and regulations including reclamation and closure requirements under the laws
and regulations of the State of Nevada and the U.S. Department of the Interior,
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<PAGE> 124
Bureau of Land Management (the "BLM"). See "BATTLE MOUNTAIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Liquidity and Capital Resources -- Government Regulation" and "-- Environmental
Matters -- United States -- Battle Mountain Complex."
San Luis Mine
General. The San Luis mine is located approximately 3 miles northeast of
San Luis, Colorado. The San Luis mine lies within approximately 800 acres of
land leased from a private party which in turn owns the land in fee. The lease
is held by Battle Mountain Resources Inc., a wholly owned subsidiary of Battle
Mountain. Battle Mountain also owns fee lands in the proximity of the mine.
Production from the mine is subject to a net smelter returns royalty of 3.5
percent payable to a private party. See "-- Property Interests -- United
States." Commercial production at the San Luis mine began in July 1991. The San
Luis reserves are expected to be depleted in the second quarter of 1997. Access
to the San Luis property is by way of a five mile dirt road, which connects to a
state highway. Battle Mountain's identifiable assets attributable to the San
Luis mine as of December 31, 1995, were US$19.4 million.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
RESERVE DATA(1)
Proven/probable ore reserves (000s tons)........................... 2,155
Average gold ore grade (oz/ton).................................... .043
Contained gold ounces (000s)....................................... 95
Recovery factor for gold (%)....................................... 90
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
OPERATING DATA
Production statistics:
Tons of ore milled (000s)..................................... 1,881 1,692
Stripping ratio(2)............................................ 1.3:1 2.0:1
Mill feed ore grade (oz gold/ton)............................. .043 .046
Mill recovery factor for gold (%)............................. 89 89
Gold recovered (000s oz)...................................... 72 73
Silver recovered (000s oz).................................... 32 19
Cost per equivalent gold ounce(3):
Cash production costs......................................... US$235 US$244
Taxes, other than income...................................... 13 14
Depreciation, depletion and amortization...................... 96 71
------ ------
Total operating costs................................. US$344 US$329
====== ======
</TABLE>
- ---------------
(1) The reserves were determined using a cutoff grade of .022 ounce of gold per
ton and an assumed gold price of US$385 per ounce. See "-- Certain Factors
Affecting Reserves, Foreign Investments and Properties."
(2) As of December 31, 1995, the estimated average stripping ratio was
approximately 1.6:1 over the remaining life of the mine.
(3) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. All costs are shown
on a per equivalent gold ounce produced basis, with silver by-product
converted to ounces of gold on an equivalent revenue basis. Cash production
costs include mining, processing, mine-related corporate administrative
costs and other direct plant costs, but exclude sales expenses, royalties,
corporate administrative expenses unrelated to a particular mine site and
other indirect costs.
Geology. The San Luis gold deposits, composed of the east and west zones,
are part of a relatively flat dipping, tabular mineralized zone. This zone lies
on the south-facing slope of the north side of Rito Seco
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<PAGE> 125
Valley. The host rocks of the deposits are intensely deformed gneisses of
Precambrian age. The gold is fine-grained and associated with various sulfide
minerals, pyrite being the most common. The degree of oxidation is weak and
generally is restricted to fractures near the surface. Sulfides occur at the
surface in some areas, particularly the west zone.
Mining, Processing and Environmental Compliance. Battle Mountain conducts
its mining operations at San Luis utilizing conventional open pit mining
methods. Ore is processed at a mill in a carbon-in-pulp cyanide leach circuit.
Operations at San Luis are subject to federal and state environmental laws and
regulations. See "-- Environmental Matters -- United States."
Pajingo Mine/Cindy Deposit
General. The Pajingo mine and milling facility and the nearby Cindy deposit
are situated on a 10.5 square mile state-issued mining lease, 44 miles southeast
of Charters Towers and 120 miles southwest of Townsville, Queensland. The
ownership of the Pajingo facilities, surrounding area and Cindy deposit was
transferred by Pajingo Gold Mine Pty. Ltd., a wholly owned Australian subsidiary
of a U.S. subsidiary of Battle Mountain, to Battle Mountain (Australia) Inc., a
wholly owned U.S. subsidiary of Battle Mountain, in early 1996. An agreement is
presently being negotiated with Posgold Operations Pty. Ltd. whereunder Battle
Mountain (Australia) Inc.'s interest in the Pajingo facilities, surrounding area
and Cindy deposit would be transferred to the currently existing joint venture
between Battle Mountain (Australia) Inc. and Posgold, in which Battle Mountain
Australia holds a 50 percent interest. Production from the state-issued mining
lease is subject to an annual royalty payable to the State of Queensland. See
"-- Property Interests -- Australia" and "-- Taxes -- Australia." Production
from the Cindy deposit is subject to a 3 percent royalty payable to a private
party. Battle Mountain's identifiable assets attributable to the Pajingo mine
and Cindy deposit as of December 31, 1995, were US$7.2 million.
The Pajingo mine commenced production in 1987. Mining operations at the
Pajingo mine ceased in 1993; however, processing of stockpiled ore continued
into 1995. Battle Mountain commenced development of the Cindy deposit in
November 1993. Open pit mining of the Cindy deposit ceased in July 1994.
Underground mining of the Cindy deposit, which began in 1995, is currently
expected to cease in 1996 with the depletion of Cindy reserves. Exploration is
ongoing at the nearby Vera and other prospects in which Battle Mountain
(Australia) Inc. has a 50 percent joint venture interest, as well as around the
Cindy deposit. Access to the Pajingo mine and Cindy deposit is by way of a
13-mile gravel road, which connects to a state highway.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
RESERVE DATA(1)
Proven/probable ore reserves (000s tons)............................... 77
Average gold ore grade (oz/ton)........................................ .217
Contained gold ounces (000s)........................................... 15
Recovery factor for gold (%)........................................... 96
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
OPERATING DATA
Production statistics:
Tons of ore milled (000s)..................................... 192 191
Stripping ratio(2)............................................ na 22.7:1
Mill feed ore grade (oz gold/ton)............................. .199 .170
Mill recovery factor for gold (%)............................. 96 95
Gold recovered (000s oz)...................................... 36 30
Silver recovered (000s oz).................................... 44 93
Cost per equivalent gold ounce(3):
Cash production costs......................................... US$172 US$160
Taxes, other than income...................................... 2 2
Depreciation, depletion and amortization...................... 107 47
------ ------
Total operating costs...................................... US$281 US$209
====== ======
</TABLE>
117
<PAGE> 126
- ---------------
(1) This table includes ore reserves at the Cindy deposit. The reserves were
determined using a cutoff grade of .117 ounce of gold per ton and an assumed
gold price of US$385 per ounce. See "-- Certain Factors Affecting Reserves,
Foreign Investments and Properties."
(2) The stripping ratio reported for 1994 relates to open pit mining at the
Cindy deposit.
(3) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. All costs are shown
on a per equivalent gold ounce produced basis, with by-product silver
converted to ounces of gold on an equivalent revenue basis. Cash production
costs include mining, processing, mine-related corporate administrative
costs and other direct plant costs, but exclude sales expenses, corporate
administrative expenses unrelated to a particular mine site and other
indirect costs. Under the mining lease, Battle Mountain pays to the State of
Queensland an annual royalty equal to the greater of 2 percent of gross
sales after deducting A$30,000 or 5 percent of the operating income that
exceeds A$30,000. Payment of such royalty is not included in cash production
costs.
Vera Prospect. Battle Mountain, with its joint venture partner PosGold
Operations Pty. Ltd., conducts exploration and evaluation activities in search
of precious metals near the Pajingo mine and Cindy deposit. Gold mineralization
has been found at the Vera prospect near the Cindy deposit. Additional drilling
is currently underway in an effort to further evaluate the Vera prospect gold
mineralization.
Geology. The Cindy deposit and Vera prospect are located in rocks of
Paleozoic age in the Drummond Basin. The host rocks are volcanic pyroclastic and
lava rocks intermixed with sandstone and siltstone sedimentary rocks. The gold
ores occur as quartz veins emplaced in steeply dipping fractures in the host
rocks.
Mining, Processing and Environmental Compliance. Battle Mountain conducts
its mining operations at the Cindy deposit utilizing underground mining methods.
Ore from the Cindy deposit is transported by truck over a three-kilometer road
to the Pajingo mine and processed at the Pajingo mill in a carbon-in-pulp
cyanide leach circuit. The Pajingo mine and Cindy deposit are subject to
environmental laws and regulations including reclamation requirements under
Queensland legislation. See "-- Environmental Matters -- Australia."
Crown Jewel Project
Battle Mountain has an option to earn a 54 percent joint venture interest
in the Crown Jewel project near Oroville, Washington. After the joint venture
produces 1.6 million ounces of gold, this joint venture interest would be
reduced to 51 percent. Battle Mountain announced a decision to develop the Crown
Jewel project in 1992, subject to obtaining requisite permits and approvals.
Total capital costs for the project, including plant construction, exploration,
evaluation and option payments, are anticipated to be approximately US$100
million excluding escalation and capitalized interest, of which approximately
US$45.2 million have been incurred through December 31, 1995. See "BATTLE
MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Liquidity and Capital Resources." Legislative amendment of the
General Mining Law could take place in 1996 which could result in the imposition
of a royalty on a portion of Crown Jewel production. See "-- Property
Interests -- United States."
The project is located in northeastern Washington state on lands consisting
of patented, unpatented and lease holdings. Battle Mountain's identifiable
assets attributable to the Crown Jewel project as of December 31, 1995, were
US$44.0 million. A First Half -- Mineral Entry Final Certificate has been issued
with respect to the unpatented portion of the Crown Jewel ore body. See
"-- Property Interests -- United States." The Crown Jewel milling facility will
have a throughput capacity of 3,000 tons per day which is expected to produce an
average of approximately 97,200 ounces of gold per year attributable to Battle
Mountain. Battle Mountain will be the operator.
Battle Mountain is proceeding with permitting of the Crown Jewel project.
The draft Environmental Impact Statement was issued in June 1995. The final
Environmental Impact Statement is currently expected to be issued by the end of
1996. Start-up of the Crown Jewel project will depend on the length of the
118
<PAGE> 127
permitting and the extent to which legal appeals are made. See "-- Environmental
Matters -- United States -- Crown Jewel Project."
Reserves at the Crown Jewel project were estimated at 8.5 million tons of
ore at an average grade of .182 ounce of gold per ton as of December 31, 1995,
for proven and probable gold reserves of approximately 1,550,000 contained
ounces with 835,000 ounces attributable to Battle Mountain. The average recovery
factor for gold was estimated to be approximately 88 percent. The reserves were
determined using a cutoff grade of .042 ounce of gold per ton and an assumed
gold price of US$375 per ounce. Additional gold mineralization exists at the
Crown Jewel project comprising approximately 600,000 tons of gold mineralization
with an average grade of .182 ounce of gold per ton based on the same cutoff
grade and assumed gold price used to determine the above stated reserves. See
"-- Certain Factors Affecting Reserves, Foreign Investments and Properties."
Exploration
Battle Mountain, through subsidiaries and joint ventures, currently
conducts exploration and evaluation activities in search of precious metals
internationally, including the United States, Argentina, Bolivia, Mexico, Chile,
Panama, Honduras, Australia, Peru, Indonesia and China. Battle Mountain's
primary objective is to develop high-quality ore deposits with low operating
costs per ounce. Battle Mountain seeks to do this through exploration for
extensions of ore zones at operating properties, in areas proximate to other
gold production and through frontier exploration. For additional information
concerning Battle Mountain's exploration expenditures, see "BATTLE MOUNTAIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Empresa Minera Inti Raymi S.A.
Inti Raymi's corporate headquarters is located in La Paz, Bolivia. Battle
Mountain owns 88 percent of Inti Raymi's equity. The remaining 12 percent of
Inti Raymi is owned by Zeland Mines S.A. See "BATTLE MOUNTAIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources." Battle Mountain maintains
political risk insurance for a portion of its investment in Inti Raymi with the
Overseas Private Investment Corporation, a United States government agency. See
"-- Certain Factors Affecting Reserves, Foreign Investments and Properties."
Inti Raymi's principal asset is the Kori Kollo mine.
Kori Kollo Mine
General. The Kori Kollo mine is located near Oruro in western Bolivia on
government mining concessions issued to Inti Raymi covering approximately 43.7
square miles. See "-- Property Interests -- Bolivia." Access to the mine site is
by way of a 27-mile dirt and gravel road connected to a national highway. Battle
Mountain's identifiable assets attributable to the Kori Kollo mine as of
December 31, 1995, were US$265.0 million.
Commercial production from the milling facility at the Kori Kollo mine
commenced in February 1993. At that time, heap leaching of oxide ore at the mine
was discontinued. The cost of constructing the milling facility was partially
project financed. See "BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources." Inti Raymi completed its first full year of production from the
milling facility in 1994.
119
<PAGE> 128
Inti Raymi conducts ongoing exploration and evaluation activities in search
of precious metals within the Kori Kollo concession areas. At the Llallagua
project located on the Kori Kollo concessions, Inti Raymi has identified 8.21
million tons of proven and probable oxide gold reserves, with an average ore
grade of .039 ounce of gold per ton at an assumed gold price of US$385 per ounce
of gold, or approximately 320,000 contained ounces of gold. These reserves,
included in the table below, will be processed at the nearby Kori Kollo milling
facility. Additional gold mineralization has been found in the sulfide ore
underlying the oxide cap at Llallagua. Metallurgical testing is underway to
further evaluate this sulfide ore. See "-- Certain Factors Affecting Reserves,
Foreign Investments and Properties."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------
BATTLE
MOUNTAIN
NET
(88%) 100%
-------- ------
<S> <C> <C>
RESERVE DATA(1)
Proven/probable ore reserves (000s tons)....................... 49,421 56,161
Average gold ore grade (oz/ton)................................ .061 .061
Contained ounces (000s)
Gold......................................................... 3,065 3,480
Silver....................................................... 17,625 20,030
Recovery factor for gold (%)................................... 70 70
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994
-------------------- --------------------
BATTLE BATTLE
MOUNTAIN MOUNTAIN
NET NET
(88%) 100% (2) 100%
-------- ------- -------- -------
<S> <C> <C> <C> <C>
OPERATING DATA
Tons of ore milled (000s)................. 6,217 7,065 5,980 6,831
Stripping ratio(3)........................ 1.5:1 1.5:1 1.2:1 1.2:1
Mill feed ore grade (oz gold/ton)......... .069 .069 .066 .066
Mill recovery factor for gold (%)......... 70 70 69 69
Gold recovered (000s oz).................. 298 339 274 313
Silver recovered (000s oz)................ 1,153 1,310 1,251 1,431
Cost per equivalent gold ounce(4):
Cash production costs..................... US$ 172 US$172 US$ 173 US$173
Taxes, other than income.................. 3 3 1 1
Depreciation, depletion and
amortization........................... 90 na 91 na
------- ------ ------- ------
Total operating costs............. US$ 265 na US$ 265 na
======= ====== ======= ======
</TABLE>
- ---------------
(1) The reserves were determined using a cutoff grade ranging from .025 to .037
ounce of gold per ton and an assumed gold price of US$385 per ounce. See
"-- Certain Factors Affecting Reserves, Foreign Investments and Properties."
(2) Reflects data attributable to Battle Mountain's 85 percent-ownership of Inti
Raymi through February 1994 and its 88 percent ownership of Inti Raymi
thereafter.
(3) As of December 31, 1995, the estimated average stripping ratio was
approximately 1.1:1 over the remaining life of the mine.
(4) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. All costs are shown
on a per equivalent gold ounce produced basis, with by-product silver
converted to ounces of gold on an equivalent revenue basis. Cash production
costs include mining, processing, mine-related corporate administrative
costs and other direct plant costs, but exclude sales expenses, corporate
administrative expenses unrelated to a particular mine site and other
indirect costs.
120
<PAGE> 129
Start-up of a recovery enhancement plant at the Kori Kollo mine began in
January 1996. The plant has produced varied results to date which have been
significantly below expectation. Inti Raymi is evaluating ore metallurgy and the
plant system in an effort to maximize future recovery rates. See "BATTLE
MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Liquidity and Capital Resources."
Geology. The project is in the Andean tectonic belt of western Bolivia
between the Cordillera Occidental and the Cordillera Real, and within an area of
lacustrine deposits on the Altiplano. Deformed Paleozoic sediments and a
Tertiary volcanic sequence underlie the lacustrine deposits. Locally these rocks
form topographic highs, reflecting block-faulting. Irregular masses of
biotite-hornblende dacite porphyry intrude the Paleozoic sediments. The deposit
is contained within two varieties of dacite porphyry intrusions. Both varieties
of dacite have been pervasively quartz-sericite altered throughout the deposit.
The most important structural controls of mineralization are fault systems which
trend in two directions and contain auriferous sulfide veins and veinlets. Some
veins contain minor stibnite, tetrahedrite, galena, sphalerite and realgar.
Mining, Processing and Environmental Compliance. Inti Raymi utilizes
conventional open pit mining methods at Kori Kollo. Mining at the Kori Kollo
mine is performed by Servicios de Maquinaria y Transporte, S.A., an 88
percent-owned subsidiary of Battle Mountain ("SERMAT"). Ore from the Kori Kollo
mine is processed at the mill in a carbon-in-leach cyanide leach circuit. The
mill processes an average of approximately 19,000 tons of ore per day. The Kori
Kollo operations are subject to Bolivian environmental laws and regulations. See
"-- Environmental Matters -- Bolivia."
Exploration
Battle Mountain conducts exploration in Bolivia (outside the Kori Kollo
concession area) through Compania Minera La Barca S.A. ("La Barca"), a separate
88 percent-owned subsidiary of Battle Mountain. For additional information
concerning exploration expenditures, see "BATTLE MOUNTAIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Niugini Mining Limited
Niugini Mining's administrative offices are located in Sydney, Australia
and Kainantu, Papua New Guinea, with subsidiary branch offices in Santiago and
Antofagasta, Chile; and Cairns, Australia. Battle Mountain owns 50.5 percent of
Niugini Mining's equity. The remaining share ownership of Niugini Mining is
publicly held, with the shares quoted on the Australian Stock Exchange Limited.
In 1995, Niugini Mining completed a bonus issue involving the grant of an option
to purchase one share of Niugini Mining stock for each four shares of Niugini
Mining stock held as of June 26, 1995. The options, including Battle Mountain's
Niugini Mining options, were exercised on December 8, 1995. See "BATTLE MOUNTAIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
121
<PAGE> 130
San Cristobal Mine
General. In 1989, Niugini Mining purchased a 100 percent interest in the
San Cristobal gold mine located on 52.5 square miles of government-issued mining
concessions in northern Chile, 68 miles from the port city of Antofagasta. See
"-- Property Interests -- Chile." The San Cristobal mine is owned and operated
by Niugini Mining's wholly owned Chilean subsidiary Inversiones Mineras del
Inca, S.A. The mine is readily accessible by existing roads. Commercial
production of the mine began in July 1991. Battle Mountain's identifiable assets
attributable to the San Cristobal mine as of December 31, 1995, were US$36.3
million.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
BATTLE
MOUNTAIN
NET
(50.5%) 100%
-------- -------
<S> <C> <C>
RESERVE DATA(1)
Proven/probable ore reserves (000s tons)........................ 5,676 11,244
Average gold ore grade (oz/ton)................................. .029 .029
Contained ounces (000s)
Gold.......................................................... 165 330
Silver........................................................ 830 1,640
Recovery factor for gold (%).................................... 72 72
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994
-------------------- --------------------
BATTLE BATTLE
MOUNTAIN MOUNTAIN
NET NET
(50.5%)(2) 100% (51.4%)(3) 100%
-------- ------- -------- -------
<S> <C> <C> <C> <C>
OPERATING DATA
Production statistics:
Tons of ore heap leached (000s).......... 2,156 4,269 2,065 3,969
Stripping ratio(4)....................... 2.1:1 2.1:1 2.7:1 2.7:1
Leach ore grade (oz gold/ton)............ .025 .025 .025 .025
Leach recovery factor for gold (%)....... 76 76 76 76
Gold recovered (000s oz)................. 41 81 39 74
Silver recovered (000s oz)............... 97 191 94 181
Cost per equivalent gold ounce(5):
Cash production costs.................... US$ 293 US$293 US$ 254 US$254
Taxes, other than income................. -- -- -- --
Depreciation, depletion and amortization... 92 92 75 75
------- ------ ------- ------
Total operating costs............ US$ 385 US$385 US$ 329 US$329
======= ====== ======= ======
</TABLE>
- ---------------
(1) The reserves were determined using a cutoff grade of .010 ounce of gold per
ton and an assumed gold price of US$385 per ounce. See "-- Certain Factors
Affecting Reserves, Foreign Investments and Properties."
(2) Reflects Battle Mountain's 50.9 percent average ownership for 1995. See
"BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
(3) Reflects Battle Mountain's 52.0 percent average ownership for 1994. See
"BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
(4) As of December 31, 1995, the estimated average stripping ratio was
approximately 1.7:1 over the remaining life of the mine.
122
<PAGE> 131
(5) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period and are not directly
comparable to selling and operating costs per equivalent ounce of gold sold.
See "BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Results of Operations." All costs are
shown on a per equivalent gold ounce produced basis, with by-product silver
converted to ounces of gold on an equivalent revenue basis. Cash production
costs include mining, processing and other direct plant costs, but exclude
sales expenses, corporate administrative expenses and other indirect costs.
Geology. The San Cristobal mine is located in a low-grade porphyry-breccia
style gold deposit. A system of quartz feldspar porphyries, rhyolites and
breccias is hosted within a major structure at the margin of a larger granite
porphyry. The main part of the deposit occurs in the upper part of the
porphyry-breccia system. Several styles of gold mineralization have been defined
with the majority of the gold contained within the dikes and breccias,
particularly at dike contacts.
Mining, Processing and Environmental Compliance. Niugini Mining conducts
its mining operations at San Cristobal utilizing conventional open pit mining
methods. Ore is processed by heap leaching. San Cristobal operations are subject
to Chilean environmental laws and regulations. See "-- Environmental
Matters -- Chile."
Red Dome Mine
General. In 1991, Niugini Mining purchased a 100 percent interest in the
Red Dome gold mine in northern Queensland for approximately US$15.5 million
(before working capital adjustments of US$2.1 million which resulted in a net
purchase price of US$13.4 million). The Red Dome mine is owned by Niugini Mining
(Australia) Pty. Ltd., a wholly owned Australian subsidiary of Niugini Mining.
The mine is located on a 5.6 square mile state-issued block of four mining
leases located 84 miles west of Cairns, Queensland, Australia and is accessible
by a 44-mile dirt and gravel road from a state highway. Production from the
state-issued mining lease is subject to an annual royalty payable to the State
of Queensland. See "-- Property Interests -- Australia" and
"-- Taxes -- Australia." Battle Mountain's identifiable assets attributable to
the Red Dome mine as of December 31, 1995, were US$53.8 million.
Expansion of the existing Red Dome pit was completed in 1994. Ore reserves
from the Red Dome mine are expected to be depleted in the second half of 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------
BATTLE
MOUNTAIN
NET
(50.5%) 100%
---------- ------
<S> <C> <C>
RESERVE DATA(1)
Proven/probable ore reserves (000s tons)..................... 1,017 2,015
Average gold ore grade (oz/ton).............................. .056 .056
Contained gold ounces(000s).................................. 60 115
Contained pounds of copper (000s)............................ 8,430 16,700
Recovery factor for gold (%)................................. 92 92
</TABLE>
123
<PAGE> 132
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
<S> <C> <C> <C> <C>
1995 1994
--------------------- ---------------------
BATTLE BATTLE
MOUNTAIN MOUNTAIN
GOLD NET GOLD NET
OPERATING DATA (50.5%)(2) 100% (51.4%)(3) 100%
----------------------------------------- ---------- ------ ---------- ------
Production statistics:
Tons of ore milled (000s).............. 639 1,265 673 1,293
Stripping ratio(4)..................... .8:1 .8:1 13.0:1 13.0:1
Mill feed ore grade (oz gold/ton)...... .092 .092 .041 .041
Mill recovery factor for gold (%)...... 93 93 69 69
Gold recovered (000s oz)............... 57 111 22 43
Silver recovered (000s oz)............. 322 630 171 330
Copper recovered (000s lbs)............ 5,520 10,840 6,546 12,606
Cost per equivalent gold ounce(5):
Cash production costs.................. US$155 US$155 US$238 US$238
Taxes, other than income............... -- -- -- --
Depreciation, depletion and
amortization........................ 111 111 48 48
------ ------ ------ ------
Total operating costs.......... US$266 US$266 US$286 US$286
====== ====== ====== ======
</TABLE>
- ---------------
(1) This table includes in situ ore reserves resulting from the expansion of the
Red Dome mine pit. The reserves were determined using a cutoff grade of .050
ounce of gold per ton and an assumed gold price of A$515 per ounce. See
"-- Certain Factors Affecting Reserves, Foreign Investments and Properties"
and "-- Explanatory Note Regarding Exchange Rates for Australian Dollars."
(2) Reflects Battle Mountain's 50.9 percent average ownership for 1995.
(3) Reflects Battle Mountain's 52.0 percent average ownership for 1994.
(4) As of December 31, 1995, the estimated average stripping ratio was
approximately 0.7:1 over the remaining life of the mine.
(5) Represents production costs incurred which, because of changes in inventory,
may not be included in operating results for the period. All costs are
shown on a per equivalent gold ounce produced basis, with by-product silver
and copper converted to ounces of gold on an equivalent revenue basis. Cash
production costs include mining, processing, mine-related corporate
administrative and other direct plant costs, but exclude sales expenses,
corporate administrative expenses unrelated to a particular mine site and
other indirect costs. Under the mining lease, Niugini Mining pays to the
State of Queensland an annual royalty equal to the greater of 2 percent of
gross sales after deducting A$30,000 or 5 percent of the operating income
that exceeds A$30,000. Payment of such royalty is not included in cash
production costs.
Geology. The Red Dome deposit is hosted by Siluro-Devonian sedimentary
rocks of the Chillagoe Formation and is located between one-half and one and
one-half miles to the east of the Palmerville Fault, which is a major regional
feature that marks the western boundary between this unit and the Precambrian
Dargalong Metamorphics to the west. The Chillagoe Formation consists
predominantly of fossiliferous limestone and chert with intercalated beds of
quartz greywacke and siltstone. At the mine, narrow porphyritic rhyolite dikes
were intruded into a calcareous unit of the Chillagoe Formation and produced
skarns. Detailed electron microprobe analysis has indicated that the gold occurs
predominantly as isolated grains of native gold either as inclusions within
sulfides or as free gold associated with silicates. Electrum is minor and has
been identified only in the retrograde skarn.
Mining, Processing and Environmental Compliance. Mining operations at Red
Dome are conducted utilizing conventional open pit methods. The open pit mine
has been in operation since 1986, first utilizing heap leach processing and
later adding a milling facility. Ore is processed by heap leach, flotation and
carbon-in-leach methods. Red Dome operations are subject to environmental laws
and regulations including reclamation requirements under Queensland legislation.
See "-- Environmental Matters -- Australia."
124
<PAGE> 133
Lihir Project
Niugini Mining owns 17.15 percent of LGL which is developing and
constructing the Lihir project in PNG. The Lihir project is located on the east
coast of Lihir Island, 375 miles northeast of mainland PNG. Lihir Management
Company Pty. Ltd., a wholly owned subsidiary of RTZ Corporation, plc ("RTZ"), is
LGL's manager for the Lihir project. The manager estimates minable reserves
(predominantly sulfides) at the Lihir project to be approximately 114.6 million
tons of ore with an average ore grade of .13 ounce of gold per ton, or
approximately 14.6 million contained gold ounces (1.27 million ounces of gold
attributable to Battle Mountain). The reserves were determined using a cutoff
grade of .058 ounce of gold per ton and an assumed gold price of US$365. See
"-- Certain Factors Affecting Reserves, Foreign Investments and Properties."
Battle Mountain's identifiable assets attributable to the Lihir project as
of December 31, 1995, were approximately US$225 million. For a discussion of the
series of now completed transactions related to the financing of the Lihir
project, the restructuring of its ownership and capital costs of the project,
see "BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
The Lihir project will consist of an open pit mine, a crushing and grinding
circuit, a pressure oxidation circuit, a carbon-in-leach circuit, gold smelting
facilities to produce dore and associated infrastructure. Based on the manager's
current proposals, the milling facility will begin processing oxide ore in
mid-1997. Sulfide ore is expected to start being processed utilizing pressure
oxidation at a rate of approximately 9,400 tons of ore per day in December 1997.
The mine is expected to produce an average of approximately 600,000 ounces of
gold per year for the first 12 years of production. The Lihir ore is refractory
in nature, requiring complex processing methods. The ore body is associated with
an active geothermal system, and an extensive dewatering and geothermal control
system will be necessary to avoid problems with hot water or steam during
mining. The process recovery factor is estimated to be approximately 92 percent
with total cash operating costs (excluding royalties and sales costs) estimated
at US$234 per ounce over the life of mine. See "BATTLE MOUNTAIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" and "-- Environmental
Matters -- Papua New Guinea."
Exploration
In addition to its mining operations, Niugini Mining conducts exploration
and evaluation activities in search of precious metals in the vicinity of its
San Cristobal and Red Dome mines and generally in Papua New Guinea, Chile,
Malaysia, Thailand, Australia, India and Greece. For additional information
concerning Niugini Mining's exploration expenditures, see "BATTLE MOUNTAIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Sales and Precious Metals Hedging Activities
Sales. Battle Mountain primarily produces dore at its mines which it sells
under sales and/or refining agreements. It also produces concentrates containing
gold, silver and copper at the Red Dome mine. Metal refiners Engelhard-CLAL and
Johnson Matthey each accounted for more than 15 percent of Battle Mountain's
total 1995 sales. Because of the availability of several alternative buyers,
Battle Mountain believes that it would suffer no material adverse effect should
it cease to market its gold, silver and copper through its present buyers.
Sales in Australia are denominated in either U.S. or Australian dollars at
Battle Mountain's election. See "-- Explanatory Note Regarding Exchange Rates
for Australian Dollars"; Note 8, "Major Customers and Export Sales" and Note 13,
"Geographic Segment Information," of Notes to Battle Mountain Consolidated
Financial Statements under Item 8 of Part II herein.
Precious Metals Hedging. Battle Mountain may employ a number of hedging
techniques with the objective of mitigating the impact of downturns in the gold
market. Battle Mountain also engages in limited
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hedging of its silver and copper production. Hedging techniques used by Battle
Mountain have included selling and/or delivering against fixed forward and "spot
deferred" forward sales contracts and entering into put options with
unaffiliated parties. Fixed forward sales contracts require the future delivery
at a specified price on a specified date. Forward sales contracts that are made
on a spot deferred basis allow Battle Mountain to defer the delivery of gold
under the contract to a later date at the original contract price plus the
prevailing premium (contango) at the time of deferral, as long as certain
conditions are satisfied. Various factors influence the decision to close a spot
deferred contract or roll the contract to a later date.
Future decisions with respect to hedging will depend upon gold market
conditions and management's assessment of the potential impacts of gold price
risk. Volatility in the price of gold can have a significant effect on Battle
Mountain's sales revenue and income. The volatility can be reduced by the use of
forward sales and other hedging techniques, but these techniques may at the same
time reduce Battle Mountain's ability to fully realize the benefits of increases
in gold prices.
The forward sales contracts associated with Red Dome gold production are
denominated in Australian dollars. The value of Red Dome's forward sales
contracts will fluctuate depending on the exchange rate between U.S. and
Australian dollars. During 1995, the Australian dollar fluctuated from a low of
one Australian dollar to 0.71 U.S. dollar to a high of one Australian dollar to
0.78 U.S. dollar. For more information regarding Battle Mountain's hedging
activities, see "BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" and Note 15, "Forward Sales and Hedging," of Notes to Battle Mountain
Consolidated Financial Statements. For more information concerning gold prices
and the gold market, see "-- Gold Price Volatility."
Certain Factors Affecting Reserves, Foreign Investments and Properties
A significant portion of Battle Mountain's reserves and production come
from Inti Raymi's Kori Kollo mine in Bolivia. Risks associated with conducting
business in Bolivia are therefore significant to Battle Mountain. For several
decades, Bolivia experienced periods of slow or negative growth, high inflation,
large devaluations of the Bolivian currency and imposition of exchange controls.
Limited availability of foreign exchange required the Bolivian government to
restructure its foreign currency denominated indebtedness. Since 1985, the
Bolivian government has pursued economic stabilization and reform policies which
have significantly reduced inflation and budget deficits and which have
eliminated exchange controls. There are currently no restrictions on the
transfer of funds out of Bolivia. Since 1986, the exchange rate for Bolivian
currency has been relatively stable. A recurrence of adverse economic
conditions, high levels of inflation, the imposition of exchange controls or
restrictions on payments to non-Bolivians could adversely affect Inti Raymi's
ability to pay dividends or repay funds borrowed outside Bolivia and adversely
affect Battle Mountain's financial condition and results of operations.
Since 1982, Bolivian governments have been elected through a democratic
process as required under the Bolivian Constitution. Battle Mountain considers
the Bolivian government to be stable and its current relations with the
government to be good. However, should there be a deterioration in Bolivia's
political stability or an adverse change in the Bolivian government's policy
towards foreign-owned companies in Bolivia, Battle Mountain's financial
condition and results of operations could be adversely affected. Although
Bolivia has not suffered from civil disturbances, acts of terrorism and sabotage
to the same extent as neighboring South American countries, there can be no
assurance that the occurrence of civil unrest or terrorist activities against
Inti Raymi's facilities will not occur. Battle Mountain has, in connection with
its investment in Inti Raymi, obtained political risk insurance from the U.S.
Overseas Private Investment Corporation. This insurance provides coverage of
US$15 million for expropriation, US$25 million for inconvertibility and US$25
million for political violence. The policy is renewed annually at the option of
Battle Mountain and is expected to be available for the life of the Kori Kollo
mine. Presidential and congressional elections are scheduled for mid-1997 in
Bolivia. Under the Bolivian constitution, a sitting president cannot serve
consecutive terms. Therefore, a change in administration will occur in 1997. The
current administration has initiated far-reaching programs to decentralize
central government's authority, to decentralize the distributions of the tax
revenues, to reform the education and tax systems and to promote private
ownership of previously state-owned companies. While
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Battle Mountain believes these reforms are beneficial to the Bolivian people and
Bolivian economy, it is difficult to predict the ultimate impacts of these and
associated reforms and a change in administration on Battle Mountain's Bolivian
operations. Foreign operations and investments may also be subject to laws and
policies of the United States affecting foreign trade, investment and taxation
which could affect the conduct or profitability of those operations. See "BATTLE
MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Foreign Operations."
Battle Mountain also has a significant investment in the Lihir project
located in PNG. PNG achieved independence in 1974. Since 1974, PNG has
maintained a policy favoring direct foreign investment in general, and foreign
investment in the mining sector in particular. The PNG Constitution and major
statutes governing foreign investment also provide significant safeguards for
investors and lenders. The Investment Promotion Act assures investors the right
to remit after-tax profits and make debt-service and supplier payments. The
Investment Promotion Act also provides that expropriation will not occur without
adequate compensation. While Battle Mountain does not expect civil unrest from
the inhabitants of Lihir Island, there can be no assurance that acts of civil
unrest against the Lihir project will not occur. Furthermore, a deterioration in
PNG's political stability or an adverse change in the PNG government's policy
towards foreign-owned companies in PNG could adversely affect the Lihir project
and Battle Mountain's financial condition. See "RISK FACTORS -- Risks of
International Operations."
Property Interests
United States. Mineral interests in the United States are owned variously
by federal and state governments and private parties. In addition to the
acquisition of mineral rights held by states or private parties, Battle Mountain
also may acquire rights to explore for and produce minerals on federally owned
lands that are open to location. This acquisition is accomplished through the
location of unpatented mining claims upon unappropriated federal land pursuant
to procedures established by the General Mining Law of 1872, the Federal Land
Policy and Management Act of 1976 and various state laws (or the acquisition of
previously located mining claims from a private party). These laws generally
provide that a citizen of the United States, including a corporation, may
acquire a possessory right to explore for and develop valuable mineral deposits
discovered upon unappropriated federal lands, provided that such lands have not
been withdrawn from mineral location. These laws also provide that a proprietor
of a valid mining claim may obtain a possessory right to nonwithdrawn,
unappropriated nonmineral federal lands for mining or milling purposes through
the location of unpatented millsite claims.
The location of a valid mining claim on federal lands requires the
discovery of valuable minerals and compliance with certain procedures, while the
location of a valid millsite claim requires use or occupancy and the compliance
with certain procedures. Failure to follow the required procedures may render
the mining or millsite claim void. Upon compliance with the statutes and
regulations for the location of a mining claim, the locator obtains a possessory
property interest and the right to explore, develop and produce minerals from
the claim. Upon compliance with the statutes and regulations for the location of
a millsite claim, the locator obtains a possessory property interest and the
right to use the millsite for mining and milling purposes. Such property rights
can be freely transferred and are protected against appropriation by the
government without just compensation. Historically, the claim locator could also
make application to obtain a patent (or deed) conveying fee title to his claim
from the federal government upon payment of fees and compliance with certain
additional procedures. However, a legislative moratorium currently precludes the
acceptance of new patent applications.
The interests represented by unpatented mining claims and millsites possess
certain unique risks not associated with other types of property interests. For
example, in order to maintain each unpatented mining claim, the claimant must
pay fees to the United States Department of the Interior. Failure to make the
required payments constitutes abandonment of the claim. Further, because mining
claims are often located with less than sophisticated surveying techniques,
difficulty may arise in determining the validity and ownership of specific
mining claims. Moreover, under applicable regulations and court decisions, in
order for an unpatented mining claim to be valid against a governmental
challenge, the claimant must be able to prove
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that the minerals on which the claim is based can be mined at a profit. Thus, it
is conceivable that, during times of declining metal prices, claims that were
valid when located could be later invalidated by the federal government. See
"RISK FACTORS -- Uncertainty Regarding Title to Properties."
Legislative amendment of the General Mining Law under which Battle Mountain
holds claims on federal lands could take place in 1996. Such legislation could
impose a royalty. Valid existing claims, or claims with respect to which a
certain portion of the patenting process has been completed, might be exempted
from such a royalty. Approximately 40 percent of the Reona reserves, 23 percent
of the Phoenix project reserves and 80 percent of the Crown Jewel reserves are
on federal lands. A patent covering the unpatented portion of the Crown Jewel
reserves was applied for in 1992 and a First Half-Mineral Entry Final
Certificate was received in 1995. Mineral surveys have been completed for the
claims constituting the unpatented portions of the Reona and Phoenix reserves,
but no patent applications can be made unless official plats are finalized by
the Department of the Interior and the legislative moratorium on the acceptance
of new patent applications is lifted. The extent to which existing law might
change is not yet known. Battle Mountain cannot yet predict the impact of any
such change on its U.S. activities. However, the passage of legislation that can
be reasonably anticipated is not expected to render uneconomic any of Battle
Mountain's existing operating mines or development projects, assuming current
gold prices.
Bolivia. Mineral interests in Bolivia are under the domain of the federal
government. Concessions for exploration and mining are issued pursuant to the
Bolivian Mining Code. Inti Raymi owns a group of concessions which include the
Kori Kollo mine and operating facilities. A concession constitutes a right other
than that of ownership of the land where the concession is located. Among other
things, the payment of patents (fees) and engaging in certain work is required
to keep concessions in good standing. A valid exploration concession also gives
the concessionaire the exclusive option to obtain, in accordance with provisions
of the Bolivia Mining Code, exploitation concessions within the exploration
area. A valid exploitation concession gives the concessionaire the exclusive
right to exploit minerals subject to the concession from the area covered by the
concession.
Chile. Mineral interests in Chile are under the domain of the federal
government, which issues mining claims pursuant to the Chilean Mining Code.
Niugini Mining, through subsidiaries, owns the group of mining concessions
including the San Cristobal mine and operating facilities.
Australia. Most of Battle Mountain's exploration properties in Australia
are located in Queensland and in Western Australia. Much of this land is "Crown
land" held under pastoral leases by third parties. Battle Mountain holds the
lands under mining leases, authorities to prospect and exploration licenses. The
Pajingo mine and the Red Dome mine and associated operating facilities are on
lands held pursuant to mining leases issued by the State of Queensland.
Similar to procedures in the United States, a lease applicant must stake
the area of a proposed mining lease. A subsequent application for a mining lease
must be filed with officials who will make a recommendation to the state to
grant or refuse the lease application. Each state imposes various obligations on
tenement holders and generally requires holders to undertake a minimum work
program or to make certain minimum exploration expenditures during each year of
the permit. The duration of permits varies from state to state.
In June 1992, the Supreme Court of Australia recognized, in the case Mabo
v. Queensland, a new form of real property title in Australia referred to as
"native title," relating to aboriginal rights. The court held that "native
title" may exist wherever such title has not been extinguished by a superseding
grant from the government. The court also held that "native title" may also
co-exist with certain interests granted by the government, such as mining
exploration. Since the Mabo decision, the federal government and a number of
state governments have attempted to formulate a legislative response that will
validate titles threatened by native title claims without compromising
aboriginal rights. Battle Mountain believes that the Mabo decision will neither
affect Battle Mountain's Pajingo or Red Dome mine nor have an adverse impact on
Battle Mountain's exploration properties in Australia. However, the Mabo
decision has increased the risk that title to certain exploration properties may
be challenged or invalidated in the future or that title claimants will have the
right to negotiate compensatory terms with Battle Mountain.
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Papua New Guinea. Exploration and mining activities in PNG are regulated by
the Mining Act and administered by the Department of Minerals and Energy. Before
construction and mining operations can begin, an exploration license must be
converted, at the government's discretion, to a Special Mining Lease which may
be granted for an initial term of 40 years. On March 17, 1995, the Special
Mining Lease for the Lihir project was executed by the PNG government. See
"-- Niugini Mining Limited -- Lihir Project" for the current status of the Lihir
project.
Environmental Matters
Set forth below is a summary description of various environmental matters
affecting Battle Mountain, including various domestic and foreign, national,
state and local legislation and regulations governing, among other things,
mineral exploration, development, production and refining. Environmental laws
and regulations in most countries allow the imposition of civil and criminal
penalties for violations. Battle Mountain believes it is in substantial
compliance with all material aspects of such applicable laws and regulations.
Battle Mountain is not aware of any material environmental constraint affecting
its existing mines or development properties that would preclude the economic
development or operation of any of Battle Mountain's mines or projects.
United States
General. Each of Battle Mountain's mining properties has many environmental
controls. The principal environmental control facilities at Battle Mountain's
heap leaching operations include engineered heap leach facilities to contain
process fluids. The principal environmental control facilities at Battle
Mountain's milling operations consist of tailings treatment circuits to process
plant effluent and tailings facilities designed to hold the processed effluent.
These facilities are constructed as an integral part of processing facilities.
Battle Mountain will also incur reclamation expenditures as reserves at existing
mines are exhausted and the facilities are closed. Battle Mountain is making
accruals for estimated reclamation expenditures over the lives of the respective
mines. See "RISK FACTORS -- Governmental Regulation" and "BATTLE MOUNTAIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Laws and Regulations. Battle Mountain is subject to federal, state and
local laws and regulations relating to the protection of the environment. At the
federal level, these laws include, among others, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the National
Environmental Policy Act of 1969 and the Endangered Species Act of 1973.
The Resource Conservation and Recovery Act ("RCRA"). RCRA regulates the
generation, transportation, treatment, storage and disposal of hazardous wastes,
special wastes and some non-hazardous wastes. Mining wastes are currently exempt
to a limited extent from the extensive set of Environmental Protection Agency
("EPA") regulations governing hazardous waste. The EPA is proceeding with
development of a program to regulate mining waste pursuant to its solid waste
management authority under RCRA. Under this program, certain processing and
other wastes, as well as high volume extraction and beneficiation wastes, will
eventually be regulated by the EPA. In this connection, RCRA is currently
pending legislative re-authorization and the EPA is studying regulations
concerning how mine wastes should be managed and regulated. If Battle Mountain's
mining wastes are treated as hazardous wastes, material expenditures would be
required for the construction of additional waste disposal facilities and other
possible corrective action measures.
The Clean Water Act ("CWA"). CWA controls, among other things, the point
source discharge of pollutants into navigable surface waters by requiring
effluent discharge permits. The EPA promulgated stormwater regulations in 1991
which regulate point source stormwater discharge at all United States mining
operations. Battle Mountain has applied to state authorities and received
general permits for point source stormwater discharges under relevant state and
federal regulations. The general permits allow the use of Best Management
Practices ("BMPs") for control of potential pollutants. If the BMPs are not
effective, then more
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stringent treatments could be required. At this time, Battle Mountain does not
anticipate that more stringent treatments will be required.
The Clean Air Act ("CAA"). CAA controls, among other things, fugitive dust
arising out of Battle Mountain's operations. Mining operations produce fugitive
dust, primarily from crushing operations and vehicular traffic over unpaved
roads. To control fugitive dust, dust suppressants and water are periodically
sprayed on the unpaved roads. Certain environmental groups have contended in
several pending court cases that fugitive dusts emissions from new or expanded
surface mining operations should be subject to additional regulation, which
could substantially limit the ability of Battle Mountain and other companies
engaged in similar mining operations to develop new surface mining operations or
maintain or expand existing operations. Emission limitations are a matter of
individual state air quality control implementation plans. Both federal and
state law impose substantial penalties for violation of applicable requirements.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). CERCLA, also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons that are considered to have contributed to the release of a
"hazardous substance" into the environment. These persons include the owner or
operator of the disposal site or sites where the release occurred and companies
that disposed or arranged for the disposal of the hazardous substances found at
the site. Persons who are or were responsible for releases of hazardous
substances under CERCLA may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources. In the ordinary course of
Battle Mountain's operations, substances may be generated which fall within the
definition of "hazardous substances."
The National Environmental Policy Act of 1969 ("NEPA"). Under NEPA, if any
project is to be undertaken that would significantly affect the quality of the
environment and that would require a permit or approval from a federal agency, a
detailed "EIS" or an environmental assessment may be required by the federal
agency. It is possible that new projects and extensions of many of Battle
Mountain's existing projects would require NEPA compliance. The effect of NEPA
may be to delay or prevent construction of new facilities or to alter their
location, design or method of construction. Similar state laws also may be
applicable. Furthermore, the NEPA process often engenders citizen involvement
which can result in substantial delays in the permitting process.
The Endangered Species Act of 1973 ("ESA"). ESA is designed to protect
certain species of flora and fauna that have been identified by the government
as endangered or threatened. No federal agency may grant permission to develop
mines unless it insures that the action will not jeopardize or adversely affect
the designated critical habitat of the species. Many of Battle Mountain's
operations require federal agency approval and are subject to ESA requirements.
A finding by a federal agency that proposed mining operations could jeopardize
or adversely affect an endangered species could impair Battle Mountain's ability
to develop a project.
In the various states in which Battle Mountain operates or has projects,
laws and regulations have been promulgated that are at least as stringent as
RCRA, CWA and CAA and the regulations promulgated thereunder. Such states have
assumed authority from the EPA for permitting and enforcement of these federal
laws and regulations. Should the EPA promulgate more stringent regulations, the
states must conform their regulations or risk having permitting and enforcement
authority revert to the EPA.
The various states in which Battle Mountain operates have groundwater
protection statutes and regulatory programs. These laws vary from state to
state. As a general rule, state groundwater protection programs regulate the
discharge of waste materials that could adversely impact groundwater which is
capable of beneficial use. The groundwater programs typically require site
discharge permits, spill notification and corrective action measures, and impose
civil and criminal penalties for violations. It is not uncommon for neighboring
landowners and other third parties to file claims for personal injury arising
out of contamination events.
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Changes in the aforementioned federal and state environmental laws and
regulations, the enactment or promulgation of new laws and regulations or the
imposition of new requirements pursuant to such laws or regulations could
require capital expenditures, increases in operating costs and delays or
interruptions of operations, render certain mining operations uneconomic and
prevent or delay the development of new operations.
Battle Mountain Complex. Battle Mountain has been issued a water pollution
control permit for the Battle Mountain Complex project facilities from the
Nevada Division of Environmental Protection. This permit was amended in 1994 to
include the Reona operations. Groundwater samples from a highly mineralized area
near historic copper leach activities indicate that the groundwater in this
vicinity is acidic and high in metals. Pursuant to the State-issued water
pollution control permit covering the site, Battle Mountain has prepared and
submitted a work plan for further investigation of groundwater in this area.
Battle Mountain has also been included in a stormwater discharge general permit
which covers the Battle Mountain Complex area.
Battle Mountain has applied for a reclamation permit covering the Battle
Mountain Complex area which is currently under review. Battle Mountain has
investigated the discharge to groundwater of chloride (salt) from the tailings
facility at the Battle Mountain Complex. This facility was unlined at the time
it was constructed in keeping with then-accepted practice. Battle Mountain is
currently evaluating mitigation alternatives to achieve applicable water quality
standards. Battle Mountain currently expects to achieve the applicable standards
by utilizing the high chloride water in connection with its proposed Phoenix
operations.
Battle Mountain is currently conducting further site characterization
studies for the Battle Mountain Complex area and is communicating with the
Nevada Division of Environmental Protection to determine the ultimate
reclamation and closure requirements. Adverse site characterization results or
the imposition by regulatory authorities of unanticipated reclamation and
closure standards could substantially increase future reclamation and closure
requirements and expenditures. Based on data collected to date, management has
not identified any adverse site characterization results that are expected to
have a material adverse effect on Battle Mountain's financial condition. See
"BATTLE MOUNTAIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Government Regulation."
Crown Jewel Project. The State of Washington, site of the proposed Crown
Jewel mine, has a comprehensive regulatory regime controlling the development
and operation of new mining operations. Approximately two dozen permits and
approvals must be obtained from federal, state and local agencies before the
mine can be put into operation. The State Environmental Policy Act ("SEPA")
mandates an exhaustive review of the environmental impact of the project. In
addition, NEPA compliance is necessary, including the preparation of an EIS
which is also used to satisfy the SEPA requirements. Most permits for the Crown
Jewel project require the completion of the NEPA/SEPA process before such
permits can be issued. The draft EIS was released for public comment in June
1995. The final EIS is expected to be released by the end of 1996. Battle
Mountain is currently engaged in final negotiations with relevant Washington
State permitting agencies to develop a schedule for agency decisions on all
major state permit applications. Start-up of the Crown Jewel project is
difficult for the management of Battle Mountain to predict since it is
contingent upon many variables not within Battle Mountain's control, including
administrative and judicial appeals and inter-governmental coordination.
Bolivia
In Bolivia, new environmental regulations to implement federal legislation
passed in 1992 became effective in December 1995. The official version of the
new regulations was released in April 1996. These regulations contain new
environmental standards and requirements applicable to Battle Mountain's Kori
Kollo project which, depending on how the regulations are implemented and
interpreted could require expenditures and changes in operations and it is
possible that such expenditures and changes could have a material effect on
Battle Mountain's financial condition or results of operations. However, based
on Battle Mountain's initial review of the regulations and assuming reasonable
interpretation and implementation, Battle Mountain does
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not anticipate that compliance will have a material adverse effect on Battle
Mountain's financial condition or results of operations. See "BATTLE MOUNTAIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Government Regulation."
Chile
Environmental legislation was approved by the Chilean legislature and
enacted into law in 1993. Regulations in connection with the legislation have
not been published. The legislation is expected to impact mining activities in
Chile. However, at this time, Battle Mountain cannot accurately assess the
impact on Niugini Mining's San Cristobal operations or Battle Mountain's
exploration activities in Chile.
Australia
The mining industry in Australia is subject to extensive state legislation
with respect to environmental protection. In particular, such legislation
requires the reduction or elimination of the adverse effects of wastes generated
by extraction and processing operations. Accordingly, mine and plant designs and
extraction and processing operations are subject to such legislative
requirements, which typically entail compliance with applicable environmental
criteria or review processes, the obtaining of various permits, licenses and
authorizations from various governmental agencies, and, under certain
circumstances, the preparation of environmental impact reports.
In addition to complying with various environmental protection statutes,
both the Pajingo and Red Dome mines in Queensland are required to obtain plan of
operations approvals from the Minister of Mines pursuant to the Mineral
Resources Act. When approved, the plan of operations becomes part of the
conditions of the mining lease issued by the state. The plans of operations at
the Pajingo and Red Dome mines have been approved, including an approved
Environmental Management Overview Strategy, which covers environmental
protection and rehabilitation requirements.
In 1994, the Queensland government passed the Environmental Protection Act
(EP Act), which includes comprehensive environmental legislation which
supersedes prior law. The lead agency for the EP Act is the Department of
Environment and Heritage; however, the Department of Minerals and Energy was to
be granted authority for licensing mining operations. No agreement has been
reached between the two agencies on a Memorandum of Understanding, so in early
1996 interim licenses procedures were established for the mining industry. These
interim licenses are effective until September 1997. Until the Memorandum of
Understanding is completed, Battle Mountain is not able to accurately assess the
impact of this new legislation on Battle Mountain's operations and exploration
activities in Australia.
Papua New Guinea
Mining operations in PNG are subject to comprehensive environmental
regulations pursuant to legislation requiring the preparation of an EIS and
legislation setting environmental standards and approval requirements for
activities which may affect air, land or water.
Taxes
United States
Battle Mountain is subject to federal income tax by the United States on
its worldwide earnings, although earnings of Battle Mountain's foreign
subsidiaries are not generally subject to tax until repatriated to the United
States. While the United States allows a credit for foreign income taxes paid,
the limitations on such credit may substantially reduce or eliminate the benefit
of the credit. The top marginal U.S. statutory corporate rates are presently 35
percent for regular tax and 20 percent for alternative minimum tax. Alternative
minimum taxes paid are available as credits against regular tax in subsequent
years. At December 31, 1995, Battle Mountain had approximately US$71.8 million
of regular net operating losses and US$9.3 million of alternative minimum tax
net operating loss carryforwards expiring beginning in 2007, available to offset
future U.S. federal income tax and approximately US$4.6 million of alternative
minimum tax credits available on an indefinite carryforward basis. These amounts
are subject to adjustment upon a
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subsequent audit by the IRS. Battle Mountain is also subject to state and local
taxes in jurisdictions in which it is engaged in business operations.
Bolivia
In December 1994, the laws in Bolivia were amended to generally subject
Bolivian mining operations to income tax. Pursuant to certain provisions under
the Bolivian Mining Code and tax legislation which exempted, on an interim
basis, mines which were operating in 1994 from the income tax, Inti Raymi is
currently subject to a 3 percent royalty which is assessed on gold sales. Inti
Raymi has recently been advised that a presidential decree signed May 20, 1996,
will increase the royalty to 5 percent. The decree is expected to be effective
near the end of the second quarter of 1996. Starting in late 1999, however, the
exemption terminates and Inti Raymi would then be subject to the income tax
regime which will impose taxes equal to the greater of 25 percent of assessable
income or a royalty of 2.5 percent of gold sales. See "-- Certain Factors
Affecting Reserves, Foreign Investments and Properties."
Dividends and interest paid by Inti Raymi to Battle Mountain are subject to
a 12.5 percent Bolivian withholding tax. Inti Raymi generally pays import duties
and Bolivian Value Added Tax on all purchases. Inti Raymi subsequently claims
refunds from the Bolivian government of the import duties and the domestically
sourced Value Added Tax by means of tax certificates used to pay taxes due on
its sales. Inti Raymi is also subject to transaction taxes on domestic
transactions. See "-- Inti Raymi -- General" and see "BATTLE MOUNTAIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Chile
The San Cristobal mine is owned and operated by Niugini Mining's wholly
owned Chilean subsidiary Inversiones Mineras del Inca, S.A. After utilization of
existing tax loss carryforwards, Inversiones Mineras del Inca, S.A. will be
subject to income tax at the rate of 15 percent. Repatriated profits are
generally taxed at an effective rate of 20 percent. Inversiones Mineras del
Inca, S.A. pays Chilean Value Added Tax on all purchases and imports and
subsequently claims a refund of Value Added Tax with respect to its exports.
Australia
Battle Mountain (Australia) Inc. and Pajingo Gold Mine Pty. Ltd. are
subject to tax on income derived from their 1995 exploration and mining
operations. However, no taxes are expected to be paid. See "BATTLE MOUNTAIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Results of Operations." Australian dividends are currently subject
to a 15 percent Australian withholding tax.
Niugini Mining (Australia) Pty. Ltd., a wholly owned Australian subsidiary
of Niugini Mining, is subject to tax at the corporate rate of 36 percent on its
mining, hedging and investment income. However, such income is expected to be
offset by certain deductions and loss carryforwards available to Niugini Mining
(Australia) Pty. Ltd.
Battle Mountain's Australian operations are also subject to various state
and local taxes and the payment of certain gold and silver royalties. Under each
of the mining leases, Battle Mountain pays to the State of Queensland an annual
royalty equal to the greater of 2 percent of gross sales after deducting
A$30,000 or 5 percent of the operating income that exceeds A$30,000.
Papua New Guinea
Niugini Mining is subject to corporate tax in PNG. Assessable income, after
utilization of existing tax loss carryforwards, will be subject to a 35 percent
income tax because Niugini Mining is a PNG resident corporation. The dividend
withholding tax rate is currently 17 percent. Niugini Mining did not pay any
dividends in 1995.
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Insurance
Battle Mountain carries insurance against property damage risks and
comprehensive general liability insurance. Battle Mountain is also insured
against losses from dishonesty, including limited losses from the theft of gold,
as well as losses of other goods in transit. From time to time, Battle Mountain
reviews and modifies its insurance coverages and may obtain additional policies,
cancel existing policies or self-insure as it deems appropriate. See "RISK
FACTORS -- Environmental Risks."
Employees
The number of full-time employees of Battle Mountain at April 30, 1996 was:
<TABLE>
<S> <C>
Battle Mountain
Battle Mountain Complex*................................................... 132
San Luis mine.............................................................. 89
Pajingo mine............................................................... 24
Crown Jewel project........................................................ 10
U.S. corporate and exploration staff....................................... 72
Australian corporate and exploration staff................................. 17
Bolivian corporate and exploration staff................................... 3
Inti Raymi
Inti Raymi corporate, operations and exploration staff*.................... 553
SERMAT corporate and mining staff*......................................... 221
Niugini Mining
San Cristobal mine*........................................................ 249
Red Dome mine*............................................................. 103
Niugini Mining corporate and exploration staff............................. 19
-----
Total.............................................................. 1,492
=====
</TABLE>
- ---------------
* Represent operations where some of the employees are represented by a labor
union.
Competition
In terms of asset size or reserves, Battle Mountain is not currently a
major producer in the world markets for gold as compared with other producers.
There is a world market for gold, silver and copper. Battle Mountain believes
that no single company has sufficient market power to substantially affect the
price or supply of gold, silver and copper in the world market. See "RISK
FACTORS -- Gold Price Volatility" and "-- Competition."
Explanatory Note Regarding Exchange Rates for Australian dollars
On March 5, 1996, the New York foreign exchange selling rate in U.S.
dollars applied to trading among banks in amounts of $1 million or more, as
quoted at 3:00 p.m., Eastern time, by Bankers Trust Company, was A$1.00 equals
US$.7596.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which Battle Mountain or its
subsidiaries is a party.
EXECUTIVE OFFICERS
Listed below are the names and ages as of March 1, 1996, of each of the
present executive officers of Battle Mountain together with principal
occupations held by each during the past five years. Executive officers are
appointed annually to serve for the ensuing year or until their successors have
been appointed. No officer is related to any other by blood, marriage or
adoption. No arrangement or understanding exists between any officer and any
other person under which any officer was elected. Mr. Elers has been employed
with Battle Mountain since May 1987 and has served in his current capacity since
April 1990. Mr. Werneburg has been employed with Battle Mountain since November
1989 and has served in his current capacity since April 1990. Messrs. Mazur,
Quinn and Reisbick have been employed with Battle Mountain since July 1985. Mr.
Reisbick previously served as General Manager, North America Exploration until
November 1992. Mr. O'Connell was Vice President of Battle Mountain from May 1992
until July 1992 when he was named Vice President --
134
<PAGE> 143
Finance and Chief Financial Officer. Prior to joining Battle Mountain, Mr.
O'Connell served as Assistant Controller, Worldwide Exploration and Production
for Marathon Oil Company since January 1991.
<TABLE>
<S> <C>
KARL E. ELERS(57) -- Chairman of the Board and Chief Executive Officer and Director
KENNETH R. WERNEBURG(54) -- President and Chief Operating Officer and Director
JOSEPH L. MAZUR(57) -- Vice President, Administration and Communications
R. DENNIS O'CONNELL(49) -- Vice President, Finance and Chief Financial Officer
ROBERT J. QUINN(40) -- Vice President, General Counsel and Secretary
FRED B. REISBICK(58) -- Vice President, Exploration
</TABLE>
SECURITY OWNERSHIP
Set forth in the table below is the number of shares of Battle Mountain
Common Stock beneficially owned (within the meaning of Rule 13-d3 under the
Securities Exchange Act) as of March 15, 1996 (without giving effect to the
Transaction), by each of Battle Mountain's directors and nominees, each of the
executive officers named in the Summary Compensation Table under "-- Executive
Compensation" and all directors and executive officers as a group. Except as
otherwise indicated, all such shares are owned directly, and the indicated owner
has sole voting and investment power with respect to such Battle Mountain Common
Stock. As of March 15, 1996, there was no person known to Battle Mountain to be
the beneficial owner of more than 5 percent of the Battle Mountain Common Stock.
<TABLE>
<CAPTION>
NUMBER PERCENT
OF OF
NAME SHARES CLASS
-------------------------------------------------------------- -------- ----
<S> <C> <C>
Douglas J. Bourne............................................. 144,540(1) *
Delo H. Caspary............................................... 51,000(2) *
Charles E. Childers........................................... 12,000(3) *
Jack R. Crosby................................................ 61,375(4) *
Andre J. Douchane............................................. 0 *
Karl E. Elers................................................. 463,854(5) *
Rodney L. Gray................................................ 9,500(4) *
Joseph L. Mazur............................................... 197,490(6) *
R. Dennis O'Connell........................................... 115,196(7) *
Ted H. Pate................................................... 63,146(8) *
Kenneth R. Werneburg.......................................... 312,298(9) *
William A. Wise............................................... 26,000(4) *
All directors and executive officers as a group (14
persons).................................................... 1,710,271(10) 2.1%
</TABLE>
- ---------------
(1) Includes 750 shares jointly owned by Mr. Bourne and his wife, and 11,000
shares issuable upon the exercise of stock options acquired under Battle
Mountain's option plans.
(2) Includes 11,000 shares issuable upon the exercise of stock options acquired
under Battle Mountain's option plans.
(3) Includes 9,500 shares issuable upon the exercise of stock options acquired
under Battle Mountain's option plans.
(4) Consists of shares issuable upon the exercise of stock options acquired
under Battle Mountain's option plans.
(5) Includes 388,111 shares issuable upon the exercise of stock options
acquired under Battle Mountain's option plans.
(6) Includes 161,922 shares issuable upon the exercise of stock options
acquired under Battle Mountain's option plans.
(7) Includes 106,300 shares issuable upon the exercise of stock options
acquired under Battle Mountain's option plans.
(8) Includes 57,000 shares issuable upon the exercise of stock options acquired
under Battle Mountain's option plans.
(9) Includes 278,300 shares issuable upon the exercise of stock options
acquired under Battle Mountain's option plans.
(10) Includes 1,362,874 shares issuable upon the exercise of stock options
acquired under Battle Mountain's option plans.
* Less than 1%.
135
<PAGE> 144
EXECUTIVE COMPENSATION
Summary Compensation Table -- The table set forth below contains
information regarding compensation for services in all capacities to Battle
Mountain for 1995, 1994 and 1993 of those persons who (i) served as the chief
executive officer of Battle Mountain during 1995 and (ii) were the other four
most highly compensated executive officers of Battle Mountain at December 31,
1995. The format and the information presented are as prescribed in rules of the
SEC.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------- ----------
NAME AND ------------------------------------------ RESTRICTED SECURITIES LTIP ALL OTHER
PRINCIPAL OTHER ANNUAL STOCK UNDERLYING PAYOUTS COMPENSATION
POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS (1) (2)
- -------------- ---- ----------- ----------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Karl E.
Elers....... 1995 US$351,575 US$167,064 -- -- 57,200 US$579,962 US$ 82,823
Chairman of
the 1994 332,858 180,030 -- -- 53,700 -- 21,741
Board and
Chief 1993 315,902 106,797 -- -- 138,400 338,865 11,724
Executive
Officer
Kenneth R.
Werneburg... 1995 280,126 133,112 -- -- 45,600 462,268 54,832
President
and Chief 1994 256,212 143,443 -- -- 42,800 -- 17,323
Operating
Officer 1993 251,702 85,092 -- -- 108,400 265,772 9,271
R. Dennis
O'Connell... 1995 175,111 66,583 -- -- 24,500 232,552 21,463
Vice
President- 1994 165,401 72,012 -- -- 23,400 -- 12,475
Finance and
Chief 1993 157,951 42,719 -- -- 58,400 -- 6,746
Financial
Officer
Andre J.
Douchane(3)... 1995 172,459 65,577 -- -- 24,100 218,372 22,454
Vice
President- 1994 160,846 69,314 -- -- 22,500 -- 12,400
Operations 1993 150,324 40,772 -- -- 58,400 -- 6,746
Joseph L.
Mazur....... 1995 164,366 62,484 -- -- 23,200 219,790 40,679
Vice
President- 1994 156,863 68,295 -- -- 22,600 -- 15,886
Administration
and 1993 149,799 40,514 -- -- 58,400 128,043 5,746
Communications
</TABLE>
- ---------------
(1) Amounts represent the cash and market value of Battle Mountain Common Stock
distributable in respect of performance units granted under Battle
Mountain's 1988 Long-Term Performance Unit Plan for the three-year
performance periods ended June 30, 1995 and June 30, 1993. In 1992, the
performance measures applicable to the performance period ended June 30,
1993 were revised by dropping two of the four original measures and
establishing a new threshold condition to payout.
(2) Consists of (a) Battle Mountain's contributions (vested and unvested) under
Battle Mountain's Savings Plan and a related contribution equalization plan
of US$6,930 and US$19,193 in 1995, US$12,708 and US$9,033 in 1994, and
US$6,746 and US$4,978 in 1993 for Mr. Elers; US$6,930 and US$14,343 in
1995, US$10,126 and US$7,196 in 1994, and US$6,746 and US$2,525 in 1993 for
Mr. Werneburg; US$6,930 and US$5,925 in 1995, US$9,240 and US$3,234 in
1994, and US$6,746 in 1993 for Mr. O'Connell; US$6,930 and US$6,662 in
1995, US$9,240 and US$3,160 in 1994, and US$6,746 in 1993 for Mr. Douchane;
and US$6,930 and US$5,318 in 1995, US$9,240 and US$3,068 in 1994, and
US$6,746 in 1993 for Mr. Mazur and (b) as to the balance of such amounts,
the benefit to the executive officer of the premiums paid by Battle
Mountain during 1995 under Battle Mountain's split-dollar life insurance
program.
(3) Mr. Douchane resigned from Battle Mountain effective December 31, 1995.
136
<PAGE> 145
Option Grants Table -- The following table shows, as to the executive
officers named in the Summary Compensation Table, information regarding stock
options granted pursuant to Battle Mountain's 1994 Long-Term Incentive Plan
during 1995. All of such options have an exercise price equal to the market
price on the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE PER EXPIRATION PRESENT
GRANTED(1) IN 1995 SHARE DATE VALUE(2)
----------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Karl E. Elers................. 57,200 12.4 US$11.375 4/27/05 US$413,613
Kenneth R. Werneburg.......... 45,600 9.9 11.375 4/27/05 319,734
R. Dennis O'Connell........... 24,500 5.3 11.375 4/27/05 177,160
Andre J. Douchane............. 24,100 5.2 11.375 4/27/05 174,267
Joseph L. Mazur............... 23,200 5.0 11.375 4/27/05 167,759
</TABLE>
- ---------------
(1) All options granted to the named executive officers were granted on April
27, 1995 and have exercise prices equal to the closing price of the Battle
Mountain Common Stock on the NYSE Composite Tape on that date. The options
became exercisable on April 27, 1996 (except as to Mr. Douchane, whose
options lapsed as a result of the termination of his employment) and also
contain provisions for acceleration of vesting in the event of a change of
control and payment in cash of the then appreciated value of the option. A
change of control is deemed to occur for this purpose if (i) a person or
group becomes the beneficial owner of 30 percent or more of Battle
Mountain's outstanding voting securities, (ii) a tender offer, merger or
other business combination or a contested election results in a change in
the composition of a majority of the Battle Mountain Board of Directors,
(iii) a merger or consolidation results in less than 70 percent of the
outstanding voting securities of the surviving or resulting corporation
being owned by former shareholders of Battle Mountain (other than parties
to the merger or consolidation or their affiliates), (iv) a tender offer is
consummated for 30 percent or more of Battle Mountain's outstanding voting
securities or (v) Battle Mountain transfers all or substantially all of its
assets to another corporation not a wholly owned subsidiary of Battle
Mountain.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised. There is no assurance the value realized by
an executive will be at or near the value determined using the
Black-Scholes model. The assumptions used under that model include a
volatility of 43.8 percent based on one-year historical volatility of the
Battle Mountain Common Stock prior to the grant date, a risk-free rate of
return of 7.1 percent based on the ten-year zero coupon treasury bond yield
at the time of grant, a dividend yield of 0.4 percent based on the current
dividend rate and an option term equal to the full ten-year stated option
term. The estimated grant date value does not reflect any discount on
account of vesting or forfeiture provisions or prohibitions on transfer.
137
<PAGE> 146
Option Exercises and Year-End Values Table -- The table set forth below
contains information with respect to (i) the unexercised options to purchase
Battle Mountain Common Stock granted in 1995 and prior years under Battle
Mountain's 1994 Long-Term Incentive Plan, 1985 Stock Option Plan and 1988
Deferred Income Stock Option Plan to the executive officers named in the Summary
Compensation Table and held by them at December 31, 1995 and (ii) the aggregate
number of shares acquired by such executive officers upon the exercise during
1995 of options to purchase Battle Mountain Common Stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1995 DECEMBER 31, 1995(1)
ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Karl E. Elers............ 0 US$ 0 284,777 103,334 US$253,557 US$74,968
Kenneth R. Werneburg..... 0 0 196,566 81,734 258,745 58,718
R. Dennis O'Connell...... 0 0 62,333 43,967 63,266 31,634
Andre J. Douchane........ 38,933 87,599 0 0 0 0
Joseph L. Mazur.......... 0 0 135,455 42,667 98,645 31,634
</TABLE>
- ---------------
(1) Based on the closing price of the Battle Mountain Common Stock on the NYSE
Composite Tape on December 29, 1995 (US$8.50).
Retirement Plan and Supplemental Agreements -- Battle Mountain maintains a
non-contributory tax-qualified retirement plan generally available to U.S.
salaried employees (the "Retirement Plan"). The Retirement Plan is a defined
benefit plan under which employer contributions are actuarially determined each
year and is administered by an Administrative Committee appointed by the Battle
Mountain Board of Directors. The amount of an employee's retirement benefit is
based on final average compensation (as defined below) and is computed as
follows: 1.1 percent of final average compensation for each year of service,
plus 0.6 percent of final average compensation in excess of US$10,000 per year
for each year of service up to a maximum of 35 years.
138
<PAGE> 147
The following table shows the estimated annual retirement benefits under
the Retirement Plan under the formula described above for eligible employees
(including officers) who retire at age 65 (normal retirement age) and have the
average compensation levels and years of service specified in the table. The
amounts listed in the table are payable for the life of the employee and are not
subject to any reduction for Social Security benefits or other offsetting
amounts. As indicated in footnote 2 to the table, provisions of the U.S. Code
limit the annual benefit which may be paid upon retirement to US $120,000 for
1996.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
PROJECTED RETIREMENT PLAN BENEFIT AT AGE 65 WITH SERVICE
OF
FINAL AVERAGE --------------------------------------------------------
COMPENSATION(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- --------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 150,000........................... $ 37,350 $ 49,800 $ 62,250 $ 74,700 $ 87,150
175,000.......................... 43,725 58,300 72,875 87,450 102,025
200,000.......................... 50,100 66,800 83,500 100,200 116,900
225,000.......................... 56,475 75,300 94,125 112,950 131,755(2)
250,000.......................... 62,850 83,800 104,750 125,700(2) 146,650(2)
300,000.......................... 75,600 100,800 126,000(2) 151,200(2) 176,400(2)
350,000.......................... 88,350 117,800 147,250(2) 176,700(2) 206,150(2)
400,000.......................... 101,100 134,800(2) 168,500(2) 202,200(2) 235,900(2)
450,000.......................... 113,850 151,800(2) 189,750(2) 227,700(2) 265,650(2)
500,000.......................... 126,600(2) 168,800(2) 211,000(2) 253,200(2) 295,400(2)
600,000.......................... 152,100(2) 202,800(2) 253,500(2) 304,200(2) 354,900(2)
700,000.......................... 177,600(2) 236,800(2) 296,000(2) 355,200(2) 414,400(2)
800,000.......................... 203,100(2) 270,800(2) 338,500(2) 406,200(2) 473,900(2)
900,000.......................... 228,600(2) 304,800(2) 381,000(2) 457,200(2) 533,400(2)
1,000,000.......................... 254,100(2) 338,800(2) 423,500(2) 508,200(2) 592,900(2)
</TABLE>
- ---------------
(1) Final average compensation means the average of covered remuneration for the
five consecutive years, out of the ten years immediately preceding
retirement, in which the participant's covered remuneration was the
highest. Covered compensation includes salary, bonus and most other
compensation paid or deferred in the year (including performance unit
payments under Battle Mountain's 1988 Long-Term Performance Unit Plan and
1994 Long-Term Incentive Plan but excluding amounts realized from
restricted stock and stock options). However, Section 401(a)(17) of the
U.S. Code limits the annual compensation taken into account for an employee
under the Retirement Plan. The compensation limit imposed by Section
401(a)(17) is $150,000 for 1994, 1995 and 1996 and $200,000 (indexed) for
1989-1993.
(2) Annual benefits under the Retirement Plan are limited to $120,000 for 1996
by Section 415 of the U.S. Code.
At December 31, 1995, the individuals named in the Summary Compensation
Table had the following credited years of service under the Retirement Plan: Mr.
Elers, eight years; Mr. Werneburg, six years; Mr. O'Connell, three years; and
Mr. Mazur, 26 years. Mr. Douchane resigned from Battle Mountain effective
December 31, 1995, at which time he was not vested in the Retirement Plan.
Battle Mountain has established the SERP for certain executives, including
Messrs. Elers, Werneburg, O'Connell, Douchane and Mazur. The SERP provides that
Battle Mountain will pay each respective executive officer an additional
retirement benefit equal to the greater of two benefits: the prior benefit or
the current benefit. The prior benefit is the vested portion of 50 percent of
such officer's considered compensation. The prior benefit vests 10 percent each
year beginning at the executive's age 56 and is payable in level payments for 15
years beginning at the executive's age 65. The current benefit is the benefit
the executive would have received under the Retirement Plan in the absence of
U.S. Code limits, less the amount of the participant's benefit under the
Retirement Plan. The current benefit begins on the later of the participant's
age 55 or termination of employment, and is paid as a joint and 50 percent
surviving spouse annuity. Where the
139
<PAGE> 148
current benefit would begin before the prior benefit, the present value of the
current benefit is compared with the present value of the prior benefit to
determine the better benefit.
The following table shows the estimated annual retirement benefits under
the SERP on the assumption the prior benefits are applicable for eligible
executives who retire at age 65 (normal retirement age) and have the average
compensation levels in the table:
<TABLE>
<CAPTION>
CONSIDERED
COMPENSATION ESTIMATED
AT AGE 65 BENEFIT
- ------------ -----------
<S> <C>
150,000.......................................... US$ 75,000
200,000.......................................... 100,000
250,000.......................................... 125,000
300,000.......................................... 150,000
350,000.......................................... 175,000
400,000.......................................... 200,000
450,000.......................................... 225,000
500,000.......................................... 250,000
</TABLE>
For purposes of calculating the prior benefit, considered compensation is the
officer's annualized base monthly salary at the end of the last even-numbered
calendar year preceding retirement. If the current benefit is applicable, the
estimated annual retirement benefit for a participant under the SERP would be in
an amount that, when added to the benefit under the Retirement Plan, equals the
annual benefit shown in the above Projected Retirement Plan Benefit table for
benefits under the Retirement Plan determined without regard to U.S. Code limits
referred to in footnotes (1) and (2) to that table. In calculating the current
benefit, covered compensation is the same as that under the Retirement Plan,
except that deferrals of base compensation and bonus under nonqualified deferred
compensation plans are included.
In early 1995, Battle Mountain established a split-dollar life insurance
program covering certain executive officers including those named in the Summary
Compensation Table. This program provides for life insurance coverage with a
death benefit of US$1,500,000 for Mr. Elers, US$1,250,000 for Mr. Werneburg and
US$750,000 each for Messrs. O'Connell and Mazur, with the executive to pay the
term insurance portion of the premium during a specified period of at least ten
years and Battle Mountain to pay the balance. Battle Mountain retains the right
to terminate premium payments under an executive officer's policy prior to the
end of the specified period in case of termination of employment, or otherwise
upon six months' notice. Upon death or other termination as to any executive
officer, Battle Mountain will be refunded the aggregate amount of the premium
payments made by it in respect of that officer's policy.
Change-in-Control Arrangements -- Battle Mountain has severance agreements
with each of Messrs. Elers, Werneburg, O'Connell and Mazur, which generally
provide that, in the event employment terminates as a result of a change of
control of Battle Mountain, each executive officer would receive a cash payment
equal to two times his annual salary (plus bonus and other incentive
compensation). A covered officer, under the agreement, would receive such
payment only as a result of involuntary termination or specified changes in
duties, responsibilities or benefits within three years of the date of the
change of control or voluntary termination during a 120-day period commencing
120 days following the date of the change of control. The agreements also
provide for continuation of group life, medical and dental insurance benefits
for a period of 30 months after termination on the same contributory basis as
such benefits are provided to active employees of Battle Mountain. In the event
of a change of control, payments under the agreements of executive officers
using 1995 salaries and covered incentive compensation would be approximately
US$1,626,238 for Mr. Elers, US$1,295,916 for Mr. Werneburg, US$719,548 for Mr.
O'Connell, and US$676,900 for Mr. Mazur. The 1988 Long-Term Performance Unit
Plan and the performance unit awards made in 1994 under the 1994 Long-Term
Incentive Plan also contain provisions whereby outstanding performance units
become immediately payable at the credited value if the units have already been
valued or at the target value of US$1.00 per unit if the units have not been
valued in the event of a change of control. In the event of a change of control,
payments under these plans in respect of the outstanding performance units
140
<PAGE> 149
would be approximately as follows: US$471,436 for Mr. Elers, US$375,629 for Mr.
Werneburg, US$188,574 for Mr. O'Connell, and US$178,841 for Mr. Mazur. Options
granted to these officers under Battle Mountain's 1985 Stock Option Plan and
1994 Long-Term Incentive Plan contain provisions for acceleration of vesting in
the event of a change of control and payment in cash of the then appreciated
value of the option. The above described severance agreements and awards also
contain provisions for a tax gross-up payment designed to make the officers
whole against any excise or other tax above the rate ordinarily applicable that
is occasioned by the change of control, pursuant to the provisions of Section
280G of the U.S. Code or otherwise. In addition, after a change of control,
Battle Mountain will be required to continue making premium payments until the
officer reaches age 65 under the split-dollar life insurance program described
above, whether the officer remains employed by Battle Mountain or not. Further,
under the SERP, officers would receive the greater of two recalculated SERP
benefits (described above): the prior benefit which would be fully vested or the
current benefit which would also be fully vested with the credit of four
additional years of benefit accrual. The definition of change of control in the
foregoing agreements is generally the same as that referred to in note (1) to
the Option Grants Table above. The Transaction will constitute a change of
control under the foregoing agreements. See "THE TRANSACTION -- Interests of
Certain Persons in the Transaction."
COMPENSATION OF DIRECTORS
Each director of Battle Mountain, other than those who are regularly
employed officers of Battle Mountain or its subsidiaries, receives a director's
fee of US$15,000 per annum and an additional fee of US$750 per day for
attendance at meetings of the Battle Mountain Board or its committees. Directors
of Battle Mountain are also reimbursed for their travel and other expenses
involved in attendance at Battle Mountain Board and committee meetings. Pursuant
to the terms of Battle Mountain's Deferred Compensation Plan, a director may
elect to defer his director's fee and per diem fees for payment with interest
(at the six-month Treasury bill rate) at a later date. Pursuant to the terms of
Battle Mountain's 1988 Deferred Income Stock Option Plan (the "DISOP"), a
director may elect to receive a non-qualified stock option in lieu of up to 100
percent of his director's fee and per diem fees for attending Board or committee
meetings. To participate, the director selects an option strike price at a
discount from current market value of the Battle Mountain Common Stock and
receives options on a number of shares such that the aggregate discount is equal
to the amount of fees foregone. Messrs. Pate and Wise participated in the DISOP
in 1995, acquiring an option to purchase 10,500 shares of Battle Mountain Common
Stock at an exercise price of US$9.125 per share and 9,750 shares of Battle
Mountain Common Stock at an exercise price of US$9.125 per share, respectively.
Under Battle Mountain's Nonqualified Stock Option Plan for Outside Directors,
individuals who become nonemployee directors of Battle Mountain are
automatically granted an initial option to purchase 5,000 shares of Battle
Mountain Common Stock on the date they become nonemployee directors. On the date
of the annual meeting of each year following the grant of the initial option,
each incumbent nonemployee director of Battle Mountain is granted an additional
option to purchase 1,500 shares of Battle Mountain Common Stock. Each option
granted pursuant to the Nonqualified Stock Option Plan for Outside Directors has
an exercise price per share equal to the market value of a share of Battle
Mountain Common Stock on the date the option is granted, and such options are
not exercisable until one year from the date of grant. Directors who are not
also executive officers are not eligible to participate in any other benefit
plan of Battle Mountain.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON BATTLE MOUNTAIN EXECUTIVE
COMPENSATION
The Compensation and Stock Option Committee of Battle Mountain's Board of
Directors (the "Committee") has furnished the following report on Battle
Mountain's executive compensation program. The report describes the Committee's
compensation policies applicable to Battle Mountain's executive officers and
includes a discussion of the specific relationship of corporate performance to
executive compensation for 1995. The report also discusses the Committee's bases
for the Chief Executive Officer's compensation for 1995 and corresponding
criteria for such compensation.
141
<PAGE> 150
I. COMPENSATION POLICIES
The objectives of Battle Mountain's executive compensation policies are to
provide its executives with a competitive total compensation package and to link
compensation to the achievement of the long-term business objectives of Battle
Mountain and the enhancement of stockholder value. The Committee also considers
subjective factors in its evaluation of the performance of the Chief Executive
Officer and senior executive officers, such as leadership, strategic vision and
organization development efforts that result in strengthening efficiency,
effectiveness and competitive advantage, which are considered critical to the
achievement of long-term strategic objectives and the success of Battle
Mountain.
The Committee's focus on long-term objectives in setting the parameters of
Battle Mountain's executive compensation program results from the long lead time
factors inherent in the strategic decisions of an international precious metals
company which sells primarily one commodity, gold. These long-term objectives
include, among others, increasing reserves, annual production, stock price and
total return to shareholders, while maintaining low cash production costs.
II. EXECUTIVE COMPENSATION COMPONENTS
Battle Mountain's executive compensation program is composed of fixed and
performance-based compensation. The fixed component is the executive officer's
base salary, and the performance-based component is comprised of productivity
bonuses, long-term performance awards and awards of restricted stock and stock
options.
Base Salary
The Committee determines the annual base salary of the Chief Executive
Officer and other senior executive officers based primarily on the basis of
competitive salary rates for peer companies. With regard to senior executive
officers' salaries other than the Chief Executive Officer and the President, the
Committee reviews comparative data concerning peer companies prepared by
compensation consultants and, in making its determinations, takes into account
the recommendations of the Chief Executive Officer. With regard to the Chief
Executive Officer's and the President's salaries, the Committee reviews similar
survey information from compensation consultants as to peer group executives in
comparable positions, but does not receive a recommendation from management. The
comparative salary studies are performed both on the basis of the peer companies
included in the gold peer index used in the five-year performance graph
presented below and on the basis of companies included in published industry
surveys. Base salary levels are generally targeted at the median level in
relation to the peer group companies. Effective in August 1995, the Committee
approved a 4.5 percent increase in the base salary of both the Chief Executive
Officer and the President and increases ranging from 4.5 percent to 7.5 percent
for other senior executive officers. After giving effect to the 1995 salary
increases, the Committee believes, based on advice from compensation
consultants, that base salaries of the Chief Executive Officer and other senior
executive officers were within the median range in relation to the peer group
companies. The Committee generally considers and adjusts salary levels annually.
Productivity Bonus
Under Battle Mountain's Productivity Bonus Plan, cash bonuses may be
provided to employees, including executive officers. Target bonus amounts for
the executive officers vary and range from 50 percent of base salary paid during
a semi-annual performance period for the Chief Executive Officer and the
President to 40 percent of base salary for the senior executive officers. Based
on advice from compensation consultants, Battle Mountain believes these targeted
amounts are generally at the median level in relation to annual bonuses for the
peer group companies referred to above under Base Salary. A bonus multiplier
calculation is made in which the target bonus amounts are multiplied by a factor
equal to the quotient obtained by dividing Battle Mountain's actual net cash
flows from operating activities during the bonus period by the target net cash
flows from operating activities based on Battle Mountain's currently approved
budget. The Committee has discretion to adjust items in the multiplier analysis
which it deems to be unusual or otherwise warrant special consideration in
applying the analysis to the determination of bonuses. The bonus amounts
resulting
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<PAGE> 151
from multiplying the target bonus amounts by the quotient derived from the
multiplier analysis are subject to a maximum of twice the target bonus amounts.
The Committee has discretion whether or not to approve bonus payments, even if
called for by the multiplier analysis.
Based on the results of the Productivity Bonus Plan cash flow multiplier
analysis for the first half of 1995, the Committee determined to pay a bonus of
approximately 93 percent of the level targeted for the first half. Based on the
results of the analysis for the second half of 1995, the Committee determined to
pay a bonus of approximately 97 percent of the level targeted for the second
half. The aggregate 1995 bonuses for the Chief Executive Officer and other named
officers are shown in the Bonus column of the Summary Compensation Table. The
Chief Executive Officer's 1995 bonus was determined by applying the cash flow
multiplier analysis to his targeted bonus amount on the same basis as the other
officers.
Long-Term Performance Units
Long-term performance units may be granted under the 1994 Long-Term
Incentive Plan in order to provide executive officers and key employees with
incentives to achieve long-term objectives of Battle Mountain. The terms of the
awards provide for payment of a dollar value (not to exceed US$1.50 per unit) if
Battle Mountain achieves specified long-term objectives during the course of a
three-year performance period. Payments, if any, are made following the
conclusion of the performance period.
Under the 1994 Long-Term Incentive Plan and a predecessor plan, units have
been granted every two years (most recently in 1994), with the number of units
granted to the Chief Executive Officer and the senior executive officers being
determined by formula. Each of the Chief Executive Officer and the President has
been granted a number of units which is equal to the dollar amount of 62.5
percent of his projected two-year salary. For senior executive officers, the
number has been based on 50 percent of their projected two-year salary. These
percentages have been evaluated by Battle Mountain's compensation consultants
based on a competitive analysis of manufacturing and services companies, and the
percentages have been determined to be generally at the median level. This is a
different group of companies from that utilized for base salary and productivity
bonus as a result of limited data available for long-term incentive compensation
plans of companies in the latter group.
The Committee, in its sole discretion, selects performance measures
designed to provide the Chief Executive Officer and senior executive officers
incentives to achieve selected long-term objectives of Battle Mountain. These
measures take the form of thresholds and targets and may include, among others,
such factors as targeted increases in shareholders' equity, cash flow, return on
equity, return on assets, share price, reserve and production growth, and cost
of production. The Committee can also specify the achievement of a strategic
corporate goal as a performance threshold. The Committee can select different
performance measures for different performance periods and has discretion to
adjust performance measures in any year during a performance period if, in the
Committee's judgment, such performance measures have been affected by special
factors (including material changes in accounting policies or practices,
material acquisitions or disposition of property or other unusual items).
At the end of a performance period, the performance measures are used to
calculate a multiplier which, when multiplied by the number of performance units
awarded to a participant at the beginning of the period, determines the dollar
value of an award. The multiplier component is part of the plan design
implemented with the assistance of Battle Mountain's compensation consultants.
One-half of the dollar amount credited to the account of a participant is paid
to the participant as soon as practicable after the end of that performance
period, and the balance is paid one year later. Payments may be made in the form
of cash, shares of Battle Mountain Common Stock or a combination of cash and
Battle Mountain Common Stock, as determined by the Committee.
On June 30, 1995, a three-year performance period ended under the
predecessor of the current plan. The performance measure for the period,
originally established in 1992, was consolidated cash flow return on net capital
employed in relation to business plan targets. Based on this performance
measure, the Committee authorized a payout value of US$1.418 per unit to be paid
50 percent in stock and 50 percent in cash in two annual installments. The
payout amounts for the performance period ending in 1995 are shown in the LTIP
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<PAGE> 152
payouts column of the Summary Compensation Table. The Chief Executive Officer's
payout amount was determined on the same basis as the other participants.
Restricted Stock Awards
The Committee periodically grants the Chief Executive Officer, senior
executive officers and other key employees restricted stock awards. Shares of
restricted stock may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of during a restricted period. The Committee determines
the length of the restricted period. No grants of restricted stock were made to
executive officers in 1995.
Stock Option Awards
On April 27, 1995, the Committee authorized stock option grants to the
Chief Executive Officer, senior executive officers and other key employees under
the 1994 Long-Term Incentive Plan. The option price was the fair market value on
the date of grant, and the options will vest on the first anniversary of the
grant date. The number of shares was determined based on a target percentage of
the executive's base salary at the date of grant and an estimated future value
of the option. The target percentages were determined based on the same
competitive analysis as base salary and productivity bonus and, based on advice
from compensation consultants, were generally at the median level compared to
the peer group companies.
III. POLICY WITH RESPECT TO THE US$1 MILLION DEDUCTIBILITY LIMIT
Provisions of the U.S. Code limit deductibility for federal income tax
purposes of compensation in excess of US$1 million for certain executive
officers (those named in the Summary Compensation Table who are executive
officers on the last day of the applicable tax year). Exemptions from the
deductibility limit exist for certain performance-based compensation. Battle
Mountain presently does not anticipate the payment of compensation in the next
few years to be in excess of that which is deductible, especially since stock
option grants can be structured so as to qualify for the performance-based
exclusion from the deductibility limit. Awards under Battle Mountain's current
Productivity Bonus Plan and 1994 Long-Term Incentive Plan do not qualify for the
performance-based exclusion. The Committee intends to monitor the applicability
of the deductibility limit provisions on an ongoing basis.
IV. SUMMARY
The Committee believes that Battle Mountain's executive compensation
program is competitive with compensation programs of similarly situated
companies and provides Battle Mountain's Chief Executive Officer and senior
executive officers with the appropriate incentives to achieve Battle Mountain's
long-term goals.
COMPENSATION AND STOCK OPTION
COMMITTEE
William A. Wise (Chairman)
Charles E. Childers
Jack R. Crosby
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<PAGE> 153
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The line graph set forth below represents a comparison of the yearly
percentage change in the cumulative total return of the S&P 500 Index and a gold
peer index (which includes Amax Gold Inc., Echo Bay Mines Ltd., Homestake Mining
Company, Lac Minerals Ltd. (through December 31, 1993) and Pegasus Gold, Inc.)
for the period of five fiscal years commencing December 31, 1990 and ending
December 31, 1995. The line graph is based on the assumption that the value of
the investment in Battle Mountain Common Stock, the S&P 500 Index and the gold
peer index was US$100 on December 31, 1990, and that all dividends were
reinvested. The component companies in the peer group index are weighted
according to their respective market capitalizations at the end of each year.
Lac Minerals Ltd. was dropped from the return calculation as of January 1, 1994
as a result of its being acquired during 1994, and the then market value
attributable to it was assumed to be reinvested in the other four companies in
the index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
BATTLE MOUNTAIN GOLD, S&P 500 INDEX AND A GOLD PEER INDEX
Assumes $100 Invested on December 31, 1990.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) BMG Peer Group S&P 500
<S> <C> <C> <C>
1990 100 100 100
1991 100.07 86.33 130.34
1992 72.77 62.37 140.25
1993 144.74 125.04 154.32
1994 157.99 119.22 156.42
1995 122.76 117.23 212.92
</TABLE>
145
<PAGE> 154
HEMLO GOLD MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
RESULTS OF OPERATIONS -- 1995 VERSUS 1994
Earnings
Hemlo Gold had a difficult and challenging year in 1995 as earnings dropped
to C$20.2 million or C$0.20 per share compared with C$64.5 million or C$0.67 per
share in 1994. The major reason for the reduction was that operations at the
Golden Giant Mine were interrupted for a total of 20 weeks due to a 13-week
strike and a seven-week shutdown for shaft repairs. These two events, together
with a work slowdown prior to the strike and the lead times required to get back
to full production, caused the gold output from the Golden Giant Mine to be 43
percent lower than planned for the year.
Production
Production from the Golden Giant Mine, while it was operating, was at
approximately the target rate of 3,000 tonnes per day. The grade of ore milled
declined, as expected, from the 1994 level of 13.08 grams per tonne to 12.20
grams per tonne in 1995. Recovery also declined slightly from 96.6 percent in
1994 to 95.7 percent in 1995 essentially because milling was interrupted twice.
A new agreement was negotiated with the Quarter Claim royalty holders effective
January 1, 1995. Royalties are now based on a deemed production rate of 454
tonnes per day without regard to actual production from the Quarter Claim. This
enables Hemlo Gold to schedule production from the Quarter Claim in the most
flexible and efficient manner. Gold production of 233,700 ounces was 43 percent
below plan for the year and 48 percent lower than in 1994.
GOLDEN GIANT PRODUCTION
<TABLE>
<CAPTION>
DEPOSIT NO.1 QUARTER CLAIM TOTAL
------------------ ------------------ ------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ore milled:
Tonnes (000's)......................... 555.6 1,003.4 76.0 103.9 631.6 1,107.3
Tonnes per day......................... 1,522 2,749 208 285 1,730 3,034
Grade:
Grams per tonne........................ 12.33 13.44 11.21 9.62 12.20 13.08
Ounces per tonne....................... 0.40 0.43 0.36 0.31 0.39 0.42
Recovery %............................... 95.7 96.6
Ounces gold produced..................... 207,500 415,900 26,200 31,000 233,700 446,900
</TABLE>
Hemlo Gold's share of production from the Silidor Mine decreased to 30,700
ounces in 1995 from 42,000 ounces in 1994. Early in the year, significant strike
length variations in the ore zones caused development to become out of phase
with stope preparation requirements. This led to a shortage of working places
and lower tonnages mined. The remaining low grade surface crown pillar was mined
in the second half of the year so that tonnage for the year was 97 percent of
target but the grade was 20 percent lower than forecast. The projected mine life
was reduced by about one-half of a year based on a recalculation of reserves
which was made in 1995.
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<PAGE> 155
SILIDOR PRODUCTION (HEMLO GOLD'S 55 PERCENT SHARE)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Ore mined:
Tonnes................................................................. 230,200 240,900
Tonnes per day......................................................... 631 660
Grade:
Grams per tonne........................................................ 4.41 5.77
Ounces per tonne....................................................... 0.142 0.186
Recovery %............................................................... 94.1 94.0
Ounces gold produced..................................................... 30,700 42,000
</TABLE>
As a result of the lower production from both mines, Hemlo Gold's total gold
production was 264,400 ounces in 1995 compared with 488,900 ounces in 1994.
Revenue
The average London Second Fix gold price in 1995 was US$384 per ounce,
unchanged from the 1994 average. The Canadian dollar weakened slightly against
the U.S. dollar in 1995 so that the average market price for gold was C$527 per
ounce in 1995, up C$2 from 1994. Hemlo Gold's average realized price in 1995 of
C$532 was C$5 per ounce above the market price of which roughly half was due to
the hedge protection implicit in the final gold loan deliveries and the other
half was due to the timing of spot sales since the two production interruptions
meant that gold was not sold evenly throughout the year.
AVERAGE GOLD PRICES AND EXCHANGE RATES
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Market prices:
London Second Fix US$ per oz............................................... 384 384
Exchange US$1 = C$......................................................... 1.373 1.366
London Second Fix in C$ per oz............................................. 527 525
Hemlo Gold's realized prices:
C$ per oz.................................................................. 532 523
US$ per oz................................................................. 387 383
</TABLE>
As a result of the production and price factors described above, 1995 revenue of
C$139.9 million was C$114.6 million lower than that of 1994. The variance
between the 1995 and 1994 revenues is as follows:
<TABLE>
<CAPTION>
C$ MILLIONS
-----------
<S> <C>
1994 revenue.............................................................. 254.5
Effect of:
Lower 1995 gold production.............................................. (116.8)
Weaker 1995 Canadian dollar............................................. 0.7
Higher 1995 realized gold price in U.S. dollars......................... 1.5
------
1995 revenue.............................................................. 139.9
======
</TABLE>
Expense
Aggregate operating costs decreased from C$72.6 million in 1994 to C$62.3
million in 1995. At the Golden Giant Mine, operating costs were C$48.6 million
of which C$36.1 million was incurred while the mine was operating and C$12.5
million was incurred while the mine was not operating. The costs incurred while
not operating consisted of fixed costs during the strike of C$6.8 million, fixed
costs during the shaft shutdown of C$4.0 million and shaft repair costs of C$1.7
million. The cost per tonne while operating increased from C$53
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<PAGE> 156
in 1994 to C$57 in 1995. This increase reflects the work slow down prior to the
strike, the inefficiencies in shutting down and starting up twice, and the
impact on weighted annual costs of the reduced production in the summer months
when energy use is significantly lower. The cost per ounce while operating
increased from C$133 to C$154 because of the higher cost per tonne and the lower
grade.
Silidor's costs increased by C$0.4 million or about 3 percent above the
1994 level as production came from lower levels in the mine. The cost per tonne
at C$60 was up C$4 from 1994, while the cost per ounce increased from C$318 in
1994 to C$448 in 1995 because of the higher costs and lower grades.
Hemlo Gold's aggregate cost per ounce, while the Golden Giant Mine was
operating, increased from C$149 in 1994 to C$188 in 1995 because of the higher
unit costs and lower grades at both mines. Including the costs incurred while
the Golden Giant Mine was not operating, the 1995 cost increased to C$236 per
ounce. The all-inclusive aggregate cost per ounce was US$172 in 1995 compared to
US$109 in 1994.
UNIT OPERATING COSTS
<TABLE>
<CAPTION>
1995
-------------------------
TOTAL WHILE OPERATING 1994
----- --------------- ----
<S> <C> <C> <C>
Golden Giant Mine
C$ per tonne milled.......................................... 77 57 53
C$ per oz of gold............................................ 208 154 133
US$ per oz of gold........................................... 151 112 97
Silidor Mine
C$ per tonne mined........................................... 60 60 56
C$ per oz of gold............................................ 448 448 318
US$ per oz of gold........................................... 326 326 233
Total
C$ per oz of gold............................................ 236 188 149
US$ per oz of gold........................................... 172 137 109
</TABLE>
NOTE:
Operating costs represent cash production costs. They exclude depreciation,
amortization, mine closure, royalties, administrative and general expenses,
exploration and income and mining taxes.
Depreciation, amortization and mine closure charges decreased from C$35.8
million in 1994 to C$22.8 million in 1995 as no such charges were recorded at
the Golden Giant Mine while it was not operating.
Exploration
Grass roots exploration expenditures amounted to C$16.5 million compared to
C$14.4 million in 1994. The reported exploration expense for 1994 includes C$1.0
million of business development expenditures and has been reduced by C$1.6
million of proceeds from the sale of Hemlo Gold's interest in the Mt. Townsend
joint venture in Australia.
GRASS ROOTS EXPLORATION EXPENDITURES
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
C$ MILLIONS % C$ MILLIONS %
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Canada.............................................. 8.6 52 7.1 49
United States....................................... 4.7 29 4.2 29
Central and South America........................... 1.8 11 2.9 20
Australia and Africa................................ 1.4 8 0.2 2
---- --- ---- ---
16.5 100 14.4 100
==== === ==== ===
</TABLE>
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<PAGE> 157
FINANCIAL CONDITION
Hemlo Gold's financial position remained strong despite the operating
problems of 1995. Working capital was reduced only moderately to C$104.1 million
at the end of 1995 from C$107.2 million at the end of 1994 while shareholders'
equity was essentially unchanged. Cash and cash equivalents, however, amounted
to C$114.5 million at the end of 1995, down by C$84.5 million from the year
earlier level after capital expenditures of C$38.1 million, debt repayments of
C$24.3 million and dividends of C$20.0 million.
Cash balances of C$105.9 million at the end of 1995 consisted of Canadian
Treasury Bills and other short-term money market investments. Short-term
borrowings of C$16.7 million consist of borrowings from a short-term investment
pool managed by Noranda on behalf of itself and subsidiary and associated
companies. These short-term borrowings were repaid by the end of January 1996.
Cash balances at the end of 1994 included C$102.0 million in Canadian Treasury
Bills and C$30.0 million invested in the short-term investment pool.
As part of its overall financial planning activities, Hemlo Gold has held
significant quantities of bullion over the last several year ends. This bullion
has been sold forward into the first quarter of the following year, and has been
classified as a cash equivalent because the price has been fixed and the
proceeds will be realized within three months of the year-end. The value of this
bullion amounted to C$25.3 million at December 31, 1995 compared to C$67.0
million at December 31, 1994, with the reduction being attributable to the
shutdown at the Golden Giant Mine in the fourth quarter of 1995.
At December 31, 1995, Hemlo Gold also carried, at their cost of C$18.7
million, dividend paying investments in common and preferred shares of
associated companies which do not relate to its mining activities. During 1995
these investments were reduced by C$5.0 million, bringing the total reduction in
the last two years to C$20.6 million. Hemlo Gold has not classified these
investments as current assets but does intend to make further reductions as
conditions in the equity markets in Canada permit.
Capital assets increased from C$303.1 million at the end of 1994 to C$314.4
million at the end of 1995. The net book value of the assets at the two
producing mines decreased by C$11.7 million as depreciation and amortization
charges exceeded capital expenditures. This reduction was more than offset by
the increase in the carrying value of Hemlo Gold's interest in the Holloway
Joint Venture where 1995 capital expenditures were significant. Other assets
increased by C$3.8 million as capital expenditures at New World of C$5.0 million
were partially offset by a reduction in employee housing loans.
Current liabilities decreased by C$65.0 million to C$43.1 million at the
end of 1995 from C$108.1 million at the end of 1994. Of this decrease, C$24.3
million was due to the gold loan having been fully repaid before the end of
1995, C$5.2 million was due to a reduction in accounts payable essentially
because of low fourth quarter activity at the Golden Giant Mine, and C$52.2
million was due to a reduction in income and mining taxes payable. These
decreases were offset by the C$16.7 million of short-term borrowings at the end
of 1995. The large decrease in taxes payable arose because C$30.3 million of the
1994 tax liability was not due until the end of February 1995 and, until the
shutdown of the shaft at the Golden Giant Mine in October, instalments on
account of 1995 taxes had to be made at the very high level dictated by 1994's
strong results in order to avoid the possibility of punitive interest charges.
Shareholders' equity increased by only C$0.8 million in 1995 because
earnings were roughly equal to dividends paid.
CHANGES IN FINANCIAL CONDITION
Cash flow from operating activities before the net change in non-cash
working capital balances decreased by C$48.4 million from 1994 as a result of
the much lower earnings. During 1995, there was a reduction in cash balances of
C$57.1 million arising from the net change in non-cash working capital balances
due to the reduction in accounts and taxes payable described previously. In
1994, there was an addition to cash balances of C$44.4 million arising from
increases in accounts and taxes payable. After the net change in non-cash
working capital balances, cash flow from operating activities was negative C$7.9
million in 1995 compared to positive C$141.1 million in 1994.
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<PAGE> 158
Capital spending in 1995 totaled C$38.1 million compared to C$31.5 million
in 1994, and consisted of C$9.3 million at the Golden Giant Mine, C$0.9 million
at the Silidor Mine, C$22.9 million at Holloway and C$5.0 million at New World.
At the Golden Giant Mine, C$4.9 million or 53 percent of the total represented
continuing expenditures on the major projects which commenced in 1992 to develop
the initial Block 4 reserves. A further C$3.6 million will be spent to complete
these projects in 1996. Other 1995 expenditures were on design work for the
Block 5 area, replacement of the east ore pass system, development of the paste
backfill system and investigation of tailings disposal sites. Silidor's capital
expenditures were on equipment replacement and mine development.
The expenditures at Holloway in 1995 included completion of the
administration building, construction of a cold warehouse, gate house, and truck
scale. Construction of a surface ventilation building, settling pond and
backfill plant commenced and will be completed in early 1996. Underground
development and shaft sinking continued throughout the year and some major
pieces of mobile equipment were acquired late in the year. Approximately 65,000
tonnes of development ore was mined in 1995 and the net proceeds from the sale
of the recovered gold were credited against development costs. The New World
expenditures consist of staff and consultant costs necessary to advance the
permitting process and also a significant communications effort designed to
ensure that politicians, regulators and local communities understand the facts
about the proposed mine.
Other investing activities in 1995 consisted of the realizing of C$5.0
million of proceeds on the sale of intercompany investments. During 1994, such
activities included C$15.6 million realized on intercompany investments and
C$10.0 million received from the sale of the interests in Eagle River and
Central Crude Ltd. and other assets. The acquisition of Freewest Resources Inc.
("Freewest") in 1994 had no material impact on cash flow as it was reported as
both an investing and a financing activity.
The final repayments of Hemlo Gold's gold loan amounted to C$24.3 million
in 1995, the same as in 1994. Two semi-annual dividends of C$0.10 per share were
paid in each of 1995 and 1994 and special dividends of C$0.05 and C$0.10 per
share were also paid in June and December 1994, respectively, so that total
dividend payments aggregated C$0.20 per share in 1995 and C$0.35 per share in
1994. The special dividends in 1994 reflected Hemlo Gold's strong cash flow and
financial position.
LIQUIDITY, CAPITAL RESOURCES AND HEDGING
The operating difficulties and heavy tax payments in 1995 caused a
reduction in Hemlo Gold's financial capacity from the position at the end of
1994. However, the financial position at the end of 1995 remains strong with
C$133.2 million in net financial assets and C$352.6 million of equity as shown
by the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
(C$ MILLIONS)
<S> <C> <C>
Cash............................................... C$105.9 C$132.0
Bullion............................................ 25.3 67.0
Short-term borrowings.............................. (16.7) --
------- -------
Total liquid assets.............................. 114.5 199.0
Investments........................................ 18.7 23.7
------- -------
133.2 222.7
Gold loan.......................................... -- (24.3)
------- -------
Net financial assets............................... C$133.2 C$198.4
======= =======
Shareholders' equity............................... C$352.6 C$351.8
======= =======
</TABLE>
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<PAGE> 159
Hemlo Gold intends to use its liquid assets, the proceeds from the sale of
investments and its ongoing cash flow from operating activities to:
-- make necessary capital expenditures at its operating mines
-- complete the development of the Holloway project
-- permit and develop the New World project
-- maintain or increase a C$19.5 million per year exploration program
-- continue to pay dividends
-- and acquire gold reserves when the appropriate opportunities arise.
In the event of the consummation of the Transaction, these activities will
be incorporated into the operations of the combined company and, therefore,
investment determinations for the use of available cash flow will be made by
management of the combined company. Such determinations could include the uses
listed above, as well as various investment opportunities available to Battle
Mountain. With respect to dividends, see "COMPARATIVE MARKET PRICE DATA."
Hemlo Gold believes that maintaining a low cost structure is the most
effective hedge. From time to time, however, Hemlo Gold uses other selected
hedging techniques as risk management tools to protect a portion of its
production from fluctuations in the price for gold. Because Hemlo Gold is a low
cost producer, it can finance projected capital expenditures from operating cash
flow and has only one major source of production, its current policy is not to
hedge in excess of 50 percent of any year's production. Hemlo Gold may, however,
hedge in the future for financing purposes or to ensure an acceptable return on
a specific project.
Hemlo Gold's hedge position for 1996 consists of 20,000 ounces of spot
deferred contracts at a price of US$411 per ounce. These commitments amount to
approximately 4 percent of 1996's planned production. Hemlo Gold presently has
no hedges in place beyond 1996.
FUTURE PROSPECTS
The profitability of Hemlo Gold is significantly affected by the market
price of gold stated in U.S. dollars, and by the relative values of the U.S. and
Canadian dollars. Gold prices fluctuate and have historically been affected by
numerous factors beyond Hemlo Gold's control, including changes in investment
trends and international monetary systems, the outlook for inflation, interest
rates, political and military crises and changes in the supply and demand for
gold on public and private markets. Hemlo Gold has hedged approximately 4
percent of its planned 1996 production but remains exposed to fluctuations both
in the price of gold stated in U.S. dollars and in the exchange rate between the
Canadian and U.S. dollars on its unhedged 1996 production and on all its
production after 1996. Based on planned production levels, each US$20 change in
the gold price would affect 1996 earnings by C$0.05 per share and each US$0.01
change in the US-Cdn exchange rate would affect earnings by C$0.015 per share.
On a per ounce basis, the Golden Giant Mine continues as one of the lowest
cost gold mines in the world. For the reasons noted above, 1995 results were not
indicative of past or future performance. Production is forecast to average
380,000 ounces per year for a number of years, with production varying up or
down by 5 percent from this average. Operating costs per tonne milled in 1995
were adversely affected by the strike and shut-down. It is expected that costs
per tonne in 1996 should be slightly below the 1995 level. Modest increases in
costs are predicted for 1997 and later years as production starts to shift to
the newly developed ore blocks lower down in the mine.
Following the three-month strike in 1995, a two-year collective agreement
was signed with an expiry date of July 31, 1997. The settlement of the strike
has had no long-term effect on the cost structure of the Golden Giant Mine.
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<PAGE> 160
Steps have been taken to prevent further shut-downs of the shaft at the
Golden Giant Mine. These include a full geomechanical assessment of the shaft,
stress modeling of proposed future mining areas, and additional monitoring
instrumentation in the shaft walls.
Hemlo Gold's share of production from the Silidor Mine should average
25,000 ounces per year for its final two years. Costs per tonne are forecast to
decrease slightly as a result of manpower reductions and the phasing out of
development activity. The retention of an experienced workforce will be a
critical factor in view of the scheduled closure at the end of 1997.
Production from Holloway is scheduled to commence in the third quarter of
1996 with Hemlo Gold's share of 1996 production expected to be about 25,000
ounces. For 1997 and subsequent years, Hemlo Gold's share of production should
be about 85,000 ounces per year. Unit operating costs will be about C$70 per
tonne mined and treated in 1996 but should decline to about the C$60 per tonne
level in 1997.
Hemlo Gold's total gold production in 1996 is targeted at between 430,000
and 450,000 ounces.
Exploration expenditures are planned at a minimum of C$19.5 million per
year in 1996 and thereafter.
Hemlo Gold's effective tax rate will increase slightly in 1996 because a
greater proportion of exploration spending will be outside North America and
because about 40 percent of the Holloway amortization charge, representing the
acquisition cost of Freewest's former interest in the joint venture, is not
deductible for tax purposes.
Capital expenditures at the Golden Giant Mine are planned at C$11.7 million
in 1996 of which approved amounts total C$4.2 million, mostly relating to the
completion of development of Block 4. Other projects planned for 1996 include
the construction of a paste fill plant which will allow up to 2,000 tonnes per
day of mill tailings to be returned underground as backfill, the commencement of
diamond drilling and development in Block 5 and continuing work on replacing the
east ore pass system.
Major capital expenditure projects at the Golden Giant Mine which have not
yet been approved but which are included in Hemlo Gold's plans beyond 1996 are
as follows:
<TABLE>
<CAPTION>
BEYOND
1997 1998 1998
---- ---- -------
(C$ MILLIONS)
<S> <C> <C> <C>
Lower Block 4 access and ore handling........................ 3.0 1.0 --
Block 5 access and ore handling.............................. 8.0 7.0 --
Tailings disposal............................................ 0.5 -- 10.0
---- ---- ----
11.5 8.0 10.0
==== ==== ====
</TABLE>
The Lower Block 4 expenditures will continue the ramp access to the bottom
of the block. The Block 5 reserve contains 1.1 million tonnes at an average
grade of 13.4 grams of gold per tonne, cannot be accessed from existing workings
and extends more than 300 metres below the present shaft bottom. The indicated
expenditures are to provide access and ore handling facilities similar to those
under development and planned for Block 4.
The need for construction of a new tailings facility, previously scheduled
to commence in 1996, has been deferred by the construction of the paste fill
plant described above. Construction of the new tailings facility is not
anticipated until 1999 at the earliest. Potential disposal sites are being
re-evaluated as a result of this deferral.
Hemlo Gold's cash flow is sufficient to fund these capital expenditures,
the relatively small ongoing capital expenditures at the Silidor Mine and the
C$7.8 million of expenditures in 1996 required to complete the development of
Holloway to production.
Expenditures at Crown Butte's New World project in 1996 are planned at C$5
million, all of which will again be directed to advancing the permitting
process. Crown Butte exhausted its own cash resources by mid-1995 and Hemlo Gold
has advanced a total of C$2.2 million, including interest at prime rate plus 1
percent, to Crown Butte up to December 31, 1995. It is expected that Crown Butte
will raise some additional funds in
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<PAGE> 161
1996 to repay Hemlo Gold and provide financing through the remainder of the
permitting process. The form and timing of the financing are contingent upon the
receipt of the draft Environmental Impact Statement referred to below.
During the past three years, the U.S. Congress considered a number of
proposed amendments to the General Mining Law of 1872, as amended, which governs
Crown Butte's mining claims and related activities on federal lands. In 1992, a
holding fee of US$100 per claim was imposed upon unpatented mining claims
located on federal lands. In October 1994, a one-year moratorium on the
processing of new patent applications was approved. While such moratorium
currently remains in effect, its future in unclear. In addition, a variety of
legislation is now pending before the U.S. Congress to further amend the General
Mining Law. The proposed legislation would, among other things, change the
current patenting procedures, impose royalties, and enact new reclamation,
environmental control and restoration requirements. The royalty proposals range
from a 2 percent royalty on "net profits" from mining claims to an 8 percent
royalty on modified gross income/net smelter returns. Although the extent of any
such changes is not presently known, less than 10 percent of Crown Butte's
claims are on federal lands and Hemlo Gold does not believe that the economics
of the New World deposit will be materially affected by any proposed royalty.
In January 1995, two special interest groups filed a complaint against
Crown Butte with the United States Department of the Interior, effectively
asking that a patent, to which Crown Butte is entitled under current law, not be
issued. The complaint seeks to change a long-standing interpretation of the
General Mining Law and Crown Butte regards this action as misguided and believes
it should have no effect on the patenting or permitting processes.
Based on information received from the two co-lead permitting authorities,
the Montana Department of Environmental Quality (formerly the Montana Department
of State Lands) and the U.S. Forest Service, Crown Butte believes that it is
likely that a draft of the Environmental Impact Statement will be issued for
public comment in mid 1996. The duration of the permitting effort is difficult
for Hemlo Gold to predict since it is contingent upon many variables not within
Crown Butte's control including possible administrative and judicial appeals,
and inter-governmental coordination. Several special interest groups have
indicated their opposition to the New World project. There can accordingly be no
assurance that further delays will not occur. Once all permits are obtained,
construction of a mine will require two summer seasons to complete. A
feasibility report completed in April 1991 projected that total capital costs
would amount to US$80 million. By agreement with Crown Butte, Hemlo Gold is
committed to arrange financing for the project on arm's length terms.
During 1995, Hemlo Gold restructured its exploration group by establishing
its own dedicated exploration staff working out of five offices in Canada, the
United States and Mexico. The exploration budget was increased from C$15.0
million in 1994 to C$16.5 million in 1995 and a further increase to C$19.5
million has been approved for 1996. At the end of 1995, the exploration staff
totalled 65 full-time employees of whom 46 were geologists.
The most critical long-term objective of Hemlo Gold has been the
replacement of its ore reserves. As a means of addressing this objective, Hemlo
Gold has entered into the Combination Agreement. In addition to the ore reserves
and exploration and development opportunities added through the combination with
Battle Mountain, the combined company anticipates funding a strong exploration
effort.
THE ENVIRONMENT
Hemlo Gold remains committed to a program of environmental protection at
its operating mines, development projects and exploration sites, and was in
compliance with governmental regulations in 1995, with one exception. At
Holloway, the limit for suspended solids in the effluent discharge was exceeded
during the last half of the year. Close communications were kept with the
Ministry of the Environment throughout this period. Corrective action included
the completion of a second settling pond and a new sump in December. The
suspended solids in the effluent were at levels similar to those naturally
occurring in the receiving waters.
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<PAGE> 162
Future removal and site restoration costs are presently estimated at C$13
million at the Golden Giant Mine, and C$0.2 million at the Silidor Mine.
Provision for these costs, together with C$6.9 million of other mine closure
costs, is being made over the lives of the two mines. Removal and site
restoration costs at Holloway are estimated at C$0.9 million and this will be
provided for over Holloway's mine life once production commences. Estimates are
based on compliance with existing reclamation standards and practices. The laws
and regulations are constantly changing and the estimates are accordingly
reviewed annually. The Golden Giant Mine submitted a draft closure plan to the
Ontario government for comment in April 1994 and Holloway filed such a plan in
January 1996. Recent changes to regulations will not require Hemlo Gold to
provide financial assurance to the Ontario government.
Other than the new tailings disposal facility at the Golden Giant Mine
referred to above, no major environmental capital expenditures or significant
increases in operating costs are required for Hemlo Gold to conform to current
environmental regulations. Environmental laws, however, are constantly evolving
and there can be no assurance that future changes in standards and regulations
will not impact negatively on future operating results.
Crown Butte Litigation and Related Matters
Crown Butte's New World property is located two miles northeast of the
Yellowstone National Park boundary. Notwithstanding the fact that it is in a
previously mined historic mining area, its location makes it environmentally
sensitive. Hemlo Gold recognizes the sensitivity of the area and has been
working since the permitting process began in 1990 with the regulatory agencies
to ensure compliance with all environmental guidelines and regulations.
In September 1993, several special interest groups filed a complaint
against Crown Butte in U.S. District Court, alleging that Crown Butte failed to
obtain permits for the discharge of pollutants. The alleged unlawful discharges
involve waters associated with exploration and reclamation activities by Crown
Butte as well as inactive historic mine disturbances, some of which date back to
the early part of this century and pre-date the acquisition of any property
interests by Crown Butte. On October 13, 1995, the district court issued a
Memorandum and Order which ruled that Crown Butte was in violation of the
Federal Clean Water Act for not having obtained a permit for water coming from a
historic mine adit and two historic mine pits. Crown Butte had applied for the
permit in October 1992, but the State of Montana has not yet issued that permit.
Crown Butte has appealed the decision to the Ninth Circuit Court of Appeals.
On March 1, 1996 the Ninth Circuit Court of Appeals denied permission to
appeal this decision. The plaintiffs then requested that the stay of proceedings
in the U.S. District Court be lifted, and that the district court set the matter
for a trial on the issue of civil penalties. The trial is scheduled to commence
November 4, 1996. It is anticipated that the issues to be resolved at trial will
include the amount of such penalties and that in determining penalties the
district court will consider the seriousness of the violation, the economic
benefit (if any) resulting from the violation, any history of such violation,
any good faith efforts to comply with the applicable requirements, the economic
impact of the penalty on the violator, and other matters as justice may require
in deciding the amount of the penalties. For this reason, it is not possible to
predict the amount of any penalties which may be assessed. The district court
also has the discretion to award attorneys fees and costs to the plaintiffs.
Crown Butte would consider appealing any adverse decision.
In 1994, following a complaint by special interest groups, the United
States Army Corps of Engineers ("Corps") alleged that some of Crown Butte's past
reclamation activities required a permit under the Clean Water Act. Crown Butte
has vigorously denied those allegations and submitted information to the Corps
in support of that denial. In September 1995, the Corps issued Crown Butte a
Section 404 permit authorizing future reclamation activities.
In August 1995, the U.S. Environmental Protection Agency ("EPA") conducted
a site investigation of the New World Mining District pursuant to the
Comprehensive, Environmental Response, Compensation and Liability Act (CERCLA).
At this time, Crown Butte is not aware of any further investigation by the EPA
and has not been notified when or if the EPA will make a decision whether to
proceed with any further investigation or other action with respect to the New
World Mining District.
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<PAGE> 163
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
RESULTS OF OPERATIONS -- FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
Earnings for the first quarter of 1996 were C$12.6 million (C$0.13 per
share) compared to earnings of C$13.6 million (C$0.14 per share) during the
similar period in 1995 as an increase in mining income was offset by higher
exploration and evaluation expenses and lower investment income.
The following table presents significant operating and financial
statistics:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1996 1995
------- -------
<S> <C> <C>
Gold produced -- oz. ............................................ 110,836 108,149
Average gold prices
London Second Fix US$ per oz. ................................. 400 379
Hemlo Gold's realized prices:
C$ per oz. of gold.......................................... 553 535
US$ per oz. of gold......................................... 404 380
Unit operating costs:
C$ per oz. of gold............................................. 167 174
US$ per oz. of gold............................................ 122 124
</TABLE>
First quarter 1996 gold production increased by 2,687 ounces over the year
earlier level because of slightly higher grades at both the Golden Giant and
Silidor mines. Hemlo Gold's realized price for gold increased by 6% to US$404
per ounce because of the higher market price and the closing out of 20,000
ounces of spot deferred contracts which matured at the end of March 1996. As a
result of these production and price factors, 1996 revenue increased by C$3.4
million over that of the prior year.
Operating costs declined marginally to US$122 per ounce from US$124 per
ounce in the first quarter of 1995 and total operating expense was within 1% of
the prior year amount. Exploration and evaluation expense increased to C$6.2
million in the quarter ended March 31, 1996 from C$2.8 million a year earlier,
reflecting the higher annual budget for 1996, heavy first quarter activity at
projects in Australia and Ghana, and the inclusion of C$1.0 million of financial
advisory, legal and other costs related to the proposed combination with Battle
Mountain.
Net investment income declined from C$3.7 million in the first quarter of
1995 to C$2.2 million in the first quarter of 1996 as a result of lower interest
rates and a lower average balance of investments and cash. Hemlo Gold's
effective tax rate increased marginally in the first quarter of 1996 compared to
the year earlier period as a greater proportion of exploration expenditures were
conducted outside North America where no tax deductions are currently available.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents increased by C$18.0 million during the first
quarter of 1996 to a balance of C$132.5 million at March 31, 1996.
Cash flow from operating activities before the net change in non-cash
working capital balances decreased from C$23.1 million in the first quarter of
1995 to C$20.5 million in the first quarter of 1996 as a result of the slightly
lower earnings and a switch from a deferral position to a draw-down position in
Hemlo Gold's deferred income and mining taxes.
In the first quarter of 1996, there was an increase of C$5.3 million in
cash arising from the net change in non-cash working capital balances whereas in
the year-earlier period there was a decrease of C$33.8 million from this source.
The large 1995 decrease was attributable chiefly to the fact that C$30.3 million
of the 1994 tax liability was due at the end of February 1995.
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<PAGE> 164
Capital spending in the first quarter of 1996 totalled C$8.8 million
compared to C$9.5 million a year earlier. Lower net expenditures at Holloway
were largely responsible for the reduction as revenue from the sale of
preproduction tonnage is being credited against capital costs.
No dividends were declared or paid in either the first quarter of 1996 or
1995. A dividend of C$0.10 per share was declared on May 1, 1996 and is payable
on June 27, 1996 to shareholders of record on June 6, 1996.
INFORMATION CONCERNING HEMLO GOLD
INCORPORATION AND SUBSIDIARIES
Hemlo Gold is a gold mining company existing under the laws of the Province
of Ontario, Canada and is governed by the Business Corporations Act (Ontario).
It was continued by articles of amalgamation on January 1, 1995 and its earliest
predecessor corporation was incorporated December 31, 1968. The registered and
executive office is at 1 Adelaide Street East, Suite 2902, Toronto, Ontario,
Canada, M5C 2Z9.
Hemlo Gold also owns 5,587,623 common shares (60 percent) of Crown Butte.
Crown Butte's wholly-owned subsidiary, Crown Butte Mines, Inc., which was
incorporated under the laws of the State of Montana, U.S.A., is the owner of the
New World project in Montana.
GENERAL DEVELOPMENT OF THE BUSINESS
Overview
Hemlo Gold's core asset is the Golden Giant Mine. The Golden Giant Mine is
in the Hemlo area, which is located near Marathon on the north shore of Lake
Superior, 350 kilometres east of Thunder Bay, Ontario, Canada. The Hemlo ore
deposits were discovered in 1982. Construction of the Golden Giant Mine began in
1983 and the first gold bullion was poured on April 6, 1985. In the fourth
quarter of 1988, mine production first reached the design rate of 3,000 tonnes
of ore per day. In 1995 the Golden Giant Mine produced 233,700 ounces of gold
from 631,600 tonnes of ore grading 12.20 grams of gold per tonne at an operating
cost, while operating, of US$112 per ounce of gold. The production in 1995 was
not indicative of past or future performance as the mine did not operate for a
total of 20 weeks due to a strike and a shut down for shaft rehabilitation
purposes. At December 31, 1995, the Golden Giant Mine had proven and probable
ore reserves totalling 9.95 million tonnes at an average grade of 11.04 grams of
gold per tonne. There are about 3.5 million ounces of mineable gold contained in
these reserves, enough for 10 years of production at projected mining rates.
Hemlo Gold also owns a 55 percent interest in and operates the Silidor Mine
located near Rouyn-Noranda, Quebec. The mine is a joint venture between Hemlo
Gold (55 percent) and Cambior Inc. (45 percent). The mine commenced production
in April 1990. Design capacity of 400,000 tonnes of ore per year was reached in
the last quarter of 1990. In 1995 Hemlo Gold's share of production from the
Silidor Mine was 30,700 ounces of gold from 230,200 tonnes of ore grading 4.41
grams of gold per tonne at an operating cost of US$326 per ounce of gold. At
December 31, 1995 the Silidor Mine, on a 100 percent basis, had proven and
probable reserves totalling 617,000 tonnes at an average grade of 4.68 grams of
gold per tonne. There are about 92,800 ounces of gold contained in these
reserves, enough for 2 years of production at projected mining rates.
Hemlo Gold carries on an active exploration and development program for
precious metals. Hemlo Gold's two major development projects are the Holloway
project in Ontario and the New World project in Montana, U.S.A. In 1995, Hemlo
Gold's exploration and development expenditures totalled C$44.4 million
(1994 -- C$28.0 million) comprising C$16.5 million (1994 -- C$14.4 million) on
grassroots projects and C$27.9 million (1994 -- C$13.6 million) on development
projects.
At December 31, 1995, Hemlo Gold had 583 full-time employees.
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<PAGE> 165
General Development
Prior to February 1987, the Golden Giant Mine was operated directly by
Noranda or by Noranda Hemlo Gold Inc. ("Noranda Hemlo Gold"), a wholly owned
subsidiary of Noranda, subject to various joint venture and royalty agreements
with Goliath Gold Mines Ltd. ("Goliath"), Golden Sceptre Resources Ltd. ("Golden
Sceptre") and Hemglo Resources Ltd. ("Hemglo"). As part of a reorganization in
February 1987, Noranda Hemlo Gold, Goliath, Golden Sceptre and Hemglo
amalgamated as HGM Inc. with Noranda and the shareholders of Goliath, Golden
Sceptre and Hemglo receiving Common Shares of Hemlo Gold. When all of the
transactions were completed, Noranda owned 50.1 percent of the outstanding
Common Shares of Hemlo Gold, Hemlo Gold owned all of the outstanding common
shares of HGM Inc., and HGM Inc. owned all of the interests in the Golden Giant
Mine.
Pursuant to an agreement made July 17, 1991 with Noranda, Hemlo Gold
acquired all of Noranda's gold assets as of an effective date of May 1, 1991 in
exchange for 8,611,410 Common Shares of Hemlo Gold (the "Gold Asset
Transaction"). The gold assets acquired from Noranda included the 55 percent
interest in the Silidor Mine, joint venture interests in the Holloway project in
Ontario and the Brewery Creek property in the Yukon Territory, Noranda's 12
percent equity interest in Freewest Resources Inc. ("Freewest") and its 60
percent equity interest in Crown Butte, as well as approximately 290 gold
exploration properties throughout North America and elsewhere in the world. In
September 1993, Hemlo Gold sold its interest in the Brewery Creek property.
In addition to the issue of shares, Hemlo Gold agreed to pay Noranda
additional cash consideration that could have reached a maximum of C$10 million
during the five-year period ending July 17, 1996. Payments, if any, would be
calculated on the basis of additional reserves on the acquired properties and/or
increases in the price of gold. These payments would be reduced by one half if a
production decision had not been made and all necessary permits obtained at
either of the Holloway or New World projects within the five-year period. To
date, no such payments have been made and Hemlo Gold believes that no such
payments will be due unless the gold price averages US$475 per ounce or more
throughout any 90-day period from the date hereof to July 17, 1996. Noranda
agreed not to compete with Hemlo Gold for gold opportunities, and Hemlo Gold
agreed not to compete with Noranda for base metal opportunities, both within the
same five-year period.
Pursuant to a reorganization agreement made November 8, 1994, the assets
and liabilities of Freewest, other than those pertaining to the Holloway project
and other mining properties in the surrounding area including 50,000 shares of
Teddy Bear Valley Mines, Limited ("Teddy Bear"), were transferred to a
subsidiary of Freewest. The shares of the subsidiary were distributed by way of
a dividend in kind to the shareholders of Freewest other than Hemlo Gold.
Freewest then amalgamated with a subsidiary of Hemlo Gold incorporated for the
purpose and the shareholders of Freewest became entitled on the amalgamation to
one Common Share of Hemlo Gold for each 4.1 common shares of Freewest. The
amalgamated company was continued under the Business Corporations Act (Ontario)
and amalgamated with Hemlo Gold effective January 1, 1995. As a result of these
transactions, Hemlo Gold now owns directly 84.65 percent of the interests in the
Holloway project.
HGM Inc. was also amalgamated with Hemlo Gold effective January 1, 1995 so
Hemlo Gold now owns directly all of the interests in the Golden Giant Mine.
Relationship with Noranda
At December 31, 1995, Noranda owned 44,082,788 Common Shares of Hemlo Gold
or 44.1 percent of the issued and outstanding Common Shares.
Hemlo Gold is an associated company of Noranda. Noranda uses the term
"Noranda Group" to refer to that group of companies comprising Noranda and its
subsidiaries and associates, including Noranda Mining and Exploration Inc.
("Norminex"), Noranda Metallurgy Inc. ("Normet") and, until January 1, 1995,
Noranda Exploration Company, Limited (No Personal Liability) ("Norex") and
Noranda Minerals Inc. ("Noranda Minerals"). All of the arrangements between
Hemlo Gold and the Noranda Group are on arm's length terms. All material
transactions between Hemlo Gold and the Noranda Group are approved by the
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<PAGE> 166
directors of Hemlo Gold with directors who are also directors and/or officers of
Noranda abstaining from voting.
Prior to July 1991, the Noranda Group provided corporate management
services, as well as operating, technical and administrative support, to Hemlo
Gold for a fee. Hemlo Gold has subsequently developed a full-time senior
management group to manage its direction, finances and exploration. The Noranda
Group does however continue to provide certain services to Hemlo Gold for a fee
as such services are required. This arrangement enables Hemlo Gold to benefit
from Noranda's expertise without having to duplicate staff and overhead
expenses. The fee for services provided by the Noranda Group in 1995 was
C$538,400 (1994 -- C$838,700).
Under an agreement dated January 1, 1987, as amended, Hemlo Gold has the
exclusive right, as between Noranda and Hemlo Gold, to explore for and develop
precious metal mining properties within a defined area of northwestern Ontario
of approximately 15,000 square kilometres surrounding the Golden Giant Mine (the
"Area of Exclusivity"). If Hemlo Gold decides not to pursue a particular
precious metal mining property in this Area, it may be pursued by Noranda. The
agreement of Noranda not to compete in the Area of Exclusivity will continue so
long as Noranda is a holder of 30 percent or more of the Hemlo Gold Common
Shares. Consequently, this agreement will terminate upon completion of the
Transaction.
Effective January 1, 1995, Hemlo Gold established its own stand-alone
exploration staff of 60 including 40 geologists to carry out Hemlo Gold's
exploration activities. On January 1, 1995, Hemlo Gold acquired, from Norminex,
the offices and exploration staff in Timmins and Hemlo Gold, Ontario; Vancouver,
British Columbia; and Reno, Nevada. These offices were involved primarily in
gold exploration and the majority of their funding was already being provided by
Hemlo Gold.
Hemlo Gold also opened an exploration office in Hermosillo, Mexico and
staffed it largely with personnel formerly employed by Norminex.
Commencing April 1, 1996, Hemlo Gold will no longer utilize the marketing
services of Normet as described under "-- Principal Product and Sales."
Hemlo Gold spent C$541,000 on research in 1995 (1994 -- C$574,000), the
majority of which was conducted at the Noranda Technology Centre.
BUSINESS AND PROPERTY OF HEMLO GOLD
Golden Giant Mine
Hemlo Gold's Golden Giant Mine is located near Marathon, Ontario, Canada,
on the north shore of Lake Superior. There are two other major gold mines in the
immediate area: the Williams Mine and the David Bell Mine. The main access to
the Golden Giant Mine is by a two-kilometre road from the Trans-Canada Highway.
The shaft and some of the surface facilities of the Golden Giant Mine are
located on approximately one-quarter of a mining claim ("Quarter Claim") and
other related surface rights acquired from Teck Corporation and International
Corona Corporation, now Homestake Canada Inc., (together, the "Vendors"), the
owners of the adjacent David Bell Mine. Pursuant to an agreement dated February
25, 1983, as amended and restated, among Hemlo Gold, Norex and the Vendors,
Hemlo Gold was obligated to mine the Quarter Claim at a rate of 500 tons of ore
per day and to pay a royalty equal to 50 percent of net profits therefrom to the
Vendors, after recovery of development costs referable solely to the Quarter
Claim plus interest and after payment of a 3 percent net smelter return royalty
to the original Quarter Claim prospectors. Production from the Quarter Claim in
1994 was well below the 500 tons per day obligation because of the rescheduling
of production to optimize ore recovery in accordance with good mining practice
as provided for in the royalty agreement. During the second quarter of 1995,
negotiations were completed with the royalty holders to amend the original
Quarter Claim Agreement so that, effective January 1, 1995, the net profits
royalty is based on a deemed production rate of 500 tons per day at the average
grade of Quarter Claim ore without regard to Hemlo Gold's actual production from
the Quarter Claim. This enables Hemlo Gold to mine the Quarter Claim in the most
flexible and efficient manner. The calculations of the royalties were not
affected in any other material respect.
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Geology and Ore Reserves. The Golden Giant orebody consists of a main zone
and a lower zone. The main ore zone has an indicated strike length of 500 metres
at an azimuth of 115(++), a dip to the northeast of 60(++) to 70(++) and an
average thickness of about 20 metres. The gold mineralization occurs along the
contact between metasedimentary and felsic metavolcanic rocks. The ore zone is
pyrite-rich and occasionally barite-rich. The main zone is tabular in nature and
is characterized by its regularity and consistent gold values. The zone is cut
by several diabase dykes. The gold occurs primarily as finely-disseminated
native gold with minor quantities of silver in pyritiferous schists. The lower
zone lies 30 to 80 metres stratigraphically below the main zone. It is similar
to the main zone, is narrower and less continuous and for the most part is below
the lowest current mining level.
The following table is a summary of ore reserves at the Golden Giant Mine,
comprising Deposit No. 1 (which is that portion of the Golden Giant orebody
wholly-owned by Hemlo Gold) and the Quarter Claim, for the two years ended
December 31, 1995, prepared by Golden Giant geologists:
<TABLE>
<CAPTION>
AVERAGE GOLD AVERAGE GOLD CONTAINED
GRADE TONS GRADE GOLD
TONNES ------------- ------ -------------- ---------
------ (GRAMS/TONNE) 000'S (OUNCES/TON) (OUNCES)
000'S
<S> <C> <C> <C> <C> <C>
1994 Proven Reserves
Deposit No. 1................... 8,478 11.02 9,345 0.32 3,004,000
Quarter Claim................... 969 8.61 1,068 0.25 268,000
------ ----- ------ ---- ---------
Total Proven Reserves........... 9,447 10.77 10,413 0.31 3,272,000
------ ----- ------ ---- ---------
1994 Probable Reserves
Deposit No. 1................... 1,026 14.38 1,131 0.42 475,000
Quarter Claim................... 109 9.85 120 0.29 34,000
------ ----- ------ ---- ---------
Total Probable Reserves......... 1,135 13.95 1,251 0.41 509,000
------ ----- ------ ---- ---------
Total Reserves as of December 31,
1994............................ 10,582 11.11 11,664 0.32 3,781,000
====== ===== ====== ==== =========
1995 Proven Reserves
Deposit No. 1................... 7,922 10.93 8,732 0.32 2,783,000
Quarter Claim................... 893 8.39 984 0.24 241,000
------ ----- ------ ---- ---------
Total Proven Reserves........... 8,815 10.67 9,716 0.31 3,024,000
------ ----- ------ ---- ---------
1995 Probable Reserves
Deposit No. 1................... 1,026 14.38 1,131 0.42 475,000
Quarter Claim................... 109 9.85 120 0.29 34,000
------ ----- ------ ---- ---------
Total Probable Reserves......... 1,135 13.95 1,251 0.41 509,000
------ ----- ------ ---- ---------
Total Reserves as of December 31,
1995............................ 9,950 11.04 10,967 0.32 3,533,000
====== ===== ====== ==== =========
</TABLE>
The 1995 reserves represent approximately 10 years of production at projected
mining rates.
The main zone reserves are classified as proven ore reserves and the lower
zone reserves are classified as probable ore reserves. There are no reserves
classified as possible ore reserves. Proven ore is ore which is generally within
25 metres of diamond drill intersections. Probable ore is ore which has been
drill tested by more widely spaced holes, generally about 50 metres apart, and
where continuity between intersections is unconfirmed. The proven reserves were
calculated using uncut assays, a 5 percent grade reduction factor and 10 percent
dilution at zero grade, a minimum cutoff grade of 2.8 grams of gold per tonne
and a minimum mining width of 3.0 metres. The probable reserves were calculated
using uncut assays, a 10 percent grade reduction factor and 20 percent dilution
at zero grade, a minimum cutoff grade of 2.8 grams of gold per tonne and a
minimum mining width of 3.0 metres.
159
<PAGE> 168
Reconciliation of Reserves. The following tables show the reconciliation of
ore reserves at the Golden Giant Mine by tonnage and by contained ounces as at
December 31, 1994 to December 31, 1995:
<TABLE>
<CAPTION>
TONNAGE RECONCILIATION
----------------------------------
PROVEN PROBABLE TOTAL
------ -------- ------
(000'S OF TONNES)
<S> <C> <C> <C>
December 31, 1994.................................... 9,447 1,135 10,582
Mined in 1995...................................... 632 -- 632
----- ----- ------
December 31, 1995.................................... 8,815 1,135 9,950
===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
CONTAINED OUNCES
RECONCILIATION
----------------------------------
PROVEN PROBABLE TOTAL
------ -------- ------
(000'S OF OUNCES)
<S> <C> <C> <C>
December 31, 1994.................................... 3,272 509 3,781
Mined in 1995...................................... 248 -- 248
----- --- -----
December 31, 1995.................................... 3,024 509 3,533
===== === =====
</TABLE>
Mine, Concentrator and Surface Facilities. Contiguous to the Golden Giant
Mine, Hemlo Gold holds a land position consisting of an area of 2,491 hectares
under eight standard Crown mining leases and four freehold patents. The mine
property consists of approximately 26 hectares. The mine and most facilities are
located on the freehold patents. The leases are for 21-year terms ending in the
years 2004 and 2005, and are renewable for additional 21-year terms at the
discretion of the Crown. A Crown lease gives the holder the right to carry out
mining operations on the property provided that the rental and other obligations
of the lease are met. The current policy of the Government of Ontario permits
renewal if, among other things, actual production has taken place during the
term of the lease. However, legislation has been passed that provides that the
Government shall refuse to renew a lease unless production has occurred
continuously for more than one year or a reasonable effort has been made to
bring the property into production.
The mine is accessed by a six-compartment, 1,144 metre deep shaft located
on the eastern boundary of the Quarter Claim with access from the shaft to the
working levels at 150 metre intervals on the upper levels and at 100 metre
intervals on the lower levels. Access to the stoping blocks and the main levels
is provided by an internal ramp. Mining is done in a continuous retreat mining
sequence from the bottom up and out in pyramid fashion. Stopes are 66 metres
high by 15 metres long by the width of the orebody. After each stope has been
extracted it is backfilled with waste rock to which cement and fly ash are added
and the adjacent stope is mined against the fill wall. The mine operates with
modern trackless scooptrams, haulage trucks and other equipment and has a rail
haulage system on the 4335 tramming level which utilizes remote control trains
with automated loading and unloading facilities, and a jaw crusher on the 4295
level.
The concentrator at the Golden Giant Mine can treat in excess of 3,000
tonnes of ore per day. Milling operations, tailings disposal and effluent
treatment facilities have been designed to address the specific nature of
mineralization associated with the orebody. Ore is drawn from the blasted stopes
and then fed to an underground primary jaw crusher. It is then hoisted to
surface and conveyed to another crushing facility where it is once again reduced
in size and transported to a ball mill grinding circuit to be pulverized so that
the gold is separated from the surface of the rock. A cyanide leach circuit
extracts the gold into solution from which the gold is then recovered by
activated carbon which adsorbs the gold. Finally, the gold is stripped from the
carbon and, after electro-winning and refining, dore bars (i.e., bars of
bullion) are produced.
Surface production facilities include a headframe, hoistroom, mine dry,
mill, service shops, administration building, roads, effluent treatment
facilities and a tailings impoundment pond in a containment area of 140 hectares
located 2.8 kilometres from the mine site. The tailings pond water is treated to
levels that satisfy current government requirements before being released to the
White River watershed. Two expansions of the existing tailings disposal area
have been completed since 1992. The need for construction of a new tailings
facility, previously scheduled for 1996, has been deferred with the planned use
of up to 2,000 tonnes per day of
160
<PAGE> 169
mill tailings as paste backfill underground. Accordingly, construction of a new
tailings facility is not now anticipated until 1999. Potential disposal sites
are being re-evaluated.
Production. Since commencement of production in 1985, 10.1 million tonnes
of ore have been mined from the Golden Giant Mine and over 3.8 million ounces of
gold have been recovered by the end of 1995.
Annual production at the Golden Giant Mine for the five years ended
December 31, 1995, was as follows:
<TABLE>
<CAPTION>
ORE MILLED AVERAGE GOLD GRADE MILLED GOLD PRODUCTION
---------- -------------------------------- ---------------
(TONNES) (GRAMS/TONNE) (OUNCES/TONNE) (OUNCES)
<S> <C> <C> <C> <C>
1991(1)...................... 1,154,700 12.37 0.40 443,400
1992(1)...................... 1,071,900 13.88 0.45 451,400
1993......................... 1,103,300 12.28 0.39 422,000
1994......................... 1,107,300 13.08 0.42 446,900
1995(2)...................... 631,600 12.20 0.39 233,700
</TABLE>
NOTES:
- ---------------
(1) During 1991, the Sceptre pit, located on the Golden Giant Mine property, was
mined to supply waste rock for the expansion of the tailings impoundment.
This mining exposed material containing sufficient gold to warrant
processing through the mill during 1991 and 1992 as follows: 1991: 87,300
tonnes milled and 6,500 ounces recovered; 1992: 8,200 tonnes milled and 400
ounces recovered. There was no Sceptre pit material processed in 1993, 1994
or 1995.
(2) During 1995, production was affected by a strike and shutdown for shaft
repairs as described below.
For the year ended December 31, 1995, the metallurgical recovery of gold
averaged 95.7 percent (1994 -- 96.6 percent).
In 1995, a total of 631,600 tonnes of ore were milled and 233,700 ounces of
gold recovered. These numbers are approximately 40-45 percent below the expected
results. The shortfall in production is attributable to two major production
interruptions of the operation during the period. The first was a three-month
strike by the bargaining unit employees who are members of local 9364 of the
United Steelworkers of America. The strike started at midnight on June 16 and
was settled when an agreement was ratified by the membership on September 17.
Employees were called back to work immediately and the mill was operating at
full capacity by October 7. The second interruption occurred when the production
shaft was temporarily shut down on October 26 as a result of safety
considerations after a monitoring system indicated localized fracturing of the
wall rock of the shaft at a depth of 700 metres. Following the early detection
of the affected area by the ground monitoring system, Hemlo Gold, together with
its consultants, completed an extensive inspection and analysis of the shaft.
This review, which included drill testing of the fractured areas, confirmed that
the fracturing was confined to a thin skin of wall rock within the affected area
and that the shaft itself is structurally sound. The shaft rehabilitation, using
conventional methods, was completed on December 11, and the mill reached a
stable production rate of 3,000 tonnes per day on December 15.
161
<PAGE> 170
Operating Costs. The average operating costs, which are the minesite cash
production costs excluding depreciation, amortization, mine closure, royalties,
corporate administrative and general expense, exploration and income and mining
taxes, for the two years ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
OPERATING COSTS/TONNE
MILLED
-------------------------
1995 1994
---------- ---------
<S> <C> <C>
Mine...................................................... C$23.90 C$21.10
Mill...................................................... 11.50 11.00
Plant services............................................ 10.60 9.60
Site administration....................................... 11.10 11.70
--------- ---------
Total cost per tonne milled............................... C$57.10 C$53.40
========= =========
Total cost per ounce of gold produced..................... US$112.00 US$97.00
========= =========
</TABLE>
The above operating costs for 1995 are the costs while the mine was operating
and exclude C$12.5 million of costs incurred during the strike and shaft
rehabilitation shut-down. If such costs were included, the total cost per tonne
milled in 1995 would have been C$76.90 and the total cost per ounce of gold
produced in 1995 would have been US$151.00.
Capital Expenditures. In 1995, capital expenditures at the mine were C$9.3
million (1994 -- C$17.1 million), covering the ongoing work on the Block 4
development including ore handling facilities, design work for the Block 5 area,
the replacement of the east ore pass system, development of a paste backfill and
the investigation of potential tailings disposal sites. Delineation and
exploration drilling also continued in the lower part of the mine. Block 4 is
that portion of the main zone below the current mine workings and it contains
3.0 million tonnes grading 12.4 grams of gold per tonne. Block 5 is the lower
zone and it contains 1.1 million tonnes grading 13.9 grams of gold per tonne.
Silidor Mine
The Silidor Mine is located approximately five kilometres west of
Rouyn-Noranda, Quebec, Canada within one kilometre of Highway 117. The project
is a joint venture between Hemlo Gold (55 percent) and Cambior Inc. (45
percent). Hemlo Gold acquired its interest in the Silidor Mine effective May 1,
1991 from Noranda as part of the Gold Asset Transaction. Hemlo Gold is the
operator. The property is held under a mining licence covering 89 hectares. The
licence has a 20-year term, expiring in 2010. Exploration commenced in 1985 and
continued until 1987, when a deposit of approximately 5 million tonnes of
geological reserves grading 6.0 grams of gold per tonne was outlined. An
underground exploration and mine development program was completed in April 1990
at a total cost of C$65 million. The Silidor Mine started production in April
1990, and reached its design capacity of 400,000 tonnes of ore per year
approximately seven months later. The mine has operated since 1991 at about
430,000 tonnes per year.
Geology and Ore Reserves. The Silidor deposit is hosted by Archean
intrusive rocks, primarily tonalite. The gold mineralization occurs in a quartz
vein which strikes northwest and dips northeast at 55(++) to 70(++). The quartz
vein varies in width up to 8 metres and averages about 3.5 metres.
162
<PAGE> 171
The following table is a summary of ore reserves at the Silidor Mine for
the two years ended December 31, 1995, prepared by Silidor Mine geologists. It
includes 100 percent of the ore reserves in which Hemlo Gold has a 55 percent
interest:
<TABLE>
<CAPTION>
AVERAGE GOLD AVERAGE GOLD CONTAINED
TONNES GRADE TONS GRADE GOLD
------ ------------- ------ ------------ ---------
(000'S) (GRAMS/TONNE) (000'S) (OUNCES/TON) (OUNCES)
<S> <C> <C> <C> <C> <C>
1994 Reserves
Proven Reserves.................... 287 5.02 316 0.15 46,400
Probable Reserves.................. 1,127 4.82 1,242 0.14 174,600
----- ---- ---- ------- -------
Total Reserves as of December 31,
1994............................... 1,414 4.86 1,558 0.14 221,000
===== ==== ==== ======= =======
1995 Reserves
Proven Reserves.................... 384 4.81 423 0.14 59,400
Probable Reserves.................. 233 4.46 257 0.13 33,400
----- ---- ---- ------- -------
Total Reserves as of December 31,
1995............................... 617 4.68 680 0.14 92,800
===== ==== ==== ======= =======
</TABLE>
The 1995 reserves represent approximately two years of production at planned
mining rates.
In determining these ore reserves, a cutoff grade of 3.0 grams of gold per
tonne over a true minimum width of 2.0 metres was used. Locally, grades lower
than cutoff grade are used to maintain zone continuity. Assays higher than 34
grams of gold per tonne were cut to 34 grams of gold per tonne. Dilution for the
1995 reserves was increased to 16.7 percent at a grade of 1.15 grams of gold per
tonne from 12.5 percent at a grade of 1.6 grams of gold per tonne in 1994. This
modification reflects actual experience and the lower average width of the
remaining ore reserves. Proven ore is ore which is within 13 metres of diamond
drill intersections or exploration and development drifts which have intersected
ore grade material. Probable ore is ore which is at least 13 metres from a
diamond drill intersection or exploration and development drift up to a maximum
of 60 metres.
A five-hole surface exploration diamond drilling program, designed to test
the downdip extension of the Silidor deposit onto the adjacent Don Rouyn
property (under option) which had started in 1994, was completed in 1995. The
original results could not be duplicated and the program was abandoned.
Reconciliation of Reserves. The following tables show the reconciliation of
ore reserves at the Silidor Mine by tonnage and by contained ounces as at
December 31, 1994 to December 31, 1995:
<TABLE>
<CAPTION>
TONNAGE RECONCILIATION
---------------------------------
PROVEN PROBABLE TOTAL
------ -------- -----
(000'S OF TONNES)
<S> <C> <C> <C>
December 31, 1994..................................... 287 1,127 1,414
Mined in 1995....................................... (292 ) (127) (419)
Revisions........................................... 389 (767) (378)
----- ------ -----
December 31, 1995..................................... 384 233 617
===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
CONTAINED OUNCES
RECONCILIATION
---------------------------------
PROVEN PROBABLE TOTAL
------ -------- -----
(000'S OF TONNES)
<S> <C> <C> <C>
December 31, 1994..................................... 46.4 174.6 221.0
Mined in 1995....................................... (45.3 ) (17.1) (62.4)
Revisions........................................... 58.3 (124.1) (65.8)
----- ------ -----
December 31, 1995..................................... 59.4 33.4 92.8
===== ====== =====
</TABLE>
163
<PAGE> 172
The revisions to the ore reserves are based on new geological and assay
information gained as mining proceeds and on detailed ore definition drilling.
Most of the tonnage reduction in 1995 occurred in both the lower portion of the
deposit below the bottom of the shaft and at the outer limits of the ore zones.
Mine and Surface Facilities. The mine is accessed by a four-compartment,
560 metre deep shaft located on the property. A ramp provides a second exit from
the mine and to date has been driven to the 587 metre level. This ramp will be
deepened as mining proceeds in the lower levels. Mining is accomplished by
sub-level retreat methods.
Most of the surface facilities are located within one major complex which
includes areas for hoisting, compressed air, maintenance services, offices, mine
dry and warehousing. Each co-owner takes delivery of its respective share of the
ore produced at the property and makes its own arrangements for treatment of the
material.
Treatment. In 1995, about half of Hemlo Gold's share of Silidor ore was
treated at the Kidd Creek facility of Falconbridge Limited (46.3 percent owned
by Noranda) in Timmins, Ontario, some 200 kilometres away. The other half of
Hemlo Gold's share of Silidor ore was treated at Cambior's Yvan Vezina mill
located about 40 kilometers north of Rouyn-Noranda, Quebec. The agreement with
Kidd Creek expires in September 1996. The agreement with Cambior was renewed in
November 1994. The agreement is extended on a monthly basis and can be cancelled
by either party by providing 6 months written notice.
Production. Hemlo Gold's 55 percent share of gold production for the eight
months ended December 31, 1991, and for the four years ended December 31, 1995,
was as follows:
<TABLE>
<CAPTION>
ORE MINED AVERAGE GOLD GRADE MINED GOLD PRODUCTION
--------- -------------------------------- ---------------
(TONNES) (GRAMS/TONNE) (OUNCES/TONNE) (OUNCES)
<S> <C> <C> <C> <C>
1991(1)....................... 157,300 5.52 0.18 25,900
1992.......................... 240,500 5.56 0.18 40,700
1993.......................... 242,200 4.88 0.16 35,800
1994.......................... 240,900 5.77 0.19 42,000
1995.......................... 230,200 4.41 0.14 30,700
</TABLE>
NOTE:
(1) Hemlo Gold acquired the 55 percent interest in the Silidor Mine from Noranda
effective May 1, 1991.
Early in 1995 it became apparent that significant strike length variations
in the ore zones were causing development to become out of phase with stope
preparation requirements. In order to recover some of the early production
shortfall, mining of the remaining surface crown pillar was undertaken in the
third and fourth quarters. This provided 30,000 tonnes of low grade material. As
a result, the tonnage for the year was very close to plan but the head grades
were 20 percent lower than forecast.
For the year ended December 31, 1995, the amount of gold recovered by the
various treatment facilities was 94.1 percent. (1994 -- 94.0 percent).
Operating Costs. The average operating costs (defined on the same basis as
set out above for the Golden Giant Mine) for the two years ended December 31,
1995, were as follows:
<TABLE>
<CAPTION>
OPERATING COSTS/TONNE
MINED
--------------------------
<S> <C> <C>
1995 1994
--------- ---------
Mining................................................... C$31.00 C$26.90
Site administration...................................... 5.50 6.50
Treatment and marketing.................................. 23.10 22.10
------- -------
Total cost per tonne mined............................... C$59.50 C$55.50
======= =======
Total cost per ounce of gold produced.................... US$326 US$233
======= =======
</TABLE>
164
<PAGE> 173
The large increase in the total cost per ounce of gold produced in 1995 was
caused by the higher operating cost per tonne and the much lower ore grade.
Capital Expenditures. Hemlo Gold's share of capital expenditures in 1995
was C$0.9 million (1994 -- C$0.8 million), largely for mine development and mine
equipment replacement.
PRINCIPAL PRODUCT AND SALES
The principal product of Hemlo Gold is gold. Dore bars produced at the
Golden Giant Mine are further refined at a commercial refinery to produce gold
bullion bars that meet international delivery standards.
A Marketing Services Agreement between Hemlo Gold and Noranda Sales
Corporation Limited ("Noranda Sales"), a wholly owned subsidiary of Normet, was
negotiated in 1992 and formally expired at the end of 1995. Under this agreement
Noranda Sales, acting as agent for and as directed by Hemlo Gold, sold physical
gold, arranged hedging positions and generally assisted in other marketing
services relating to Hemlo Gold's gold production. For these services during
1995 and 1994 Hemlo Gold paid an annual fee of US$150,000 to Noranda Sales. The
Agreement has been extended to March 31, 1996 at a fee of US$37,500. Commencing
April 1, 1996, Hemlo Gold's own employees will perform these functions.
Gold contained in that part of Silidor's ore which is processed at Kidd
Creek is sold to Kidd Creek under terms set out in contracts which are similar
to those commonly used in the industry. Gold contained in that part of Silidor's
ore which is processed at Cambior's Vezina mill is returned to Hemlo Gold after
commercial refining and is sold by Noranda Sales.
In 1995, Hemlo Gold's consolidated revenue was C$139.9 million
(1994 -- C$254.5 million). Such revenue included sales to three customers
aggregating 84 percent of consolidated revenue in 1995 (1994 -- four customers
aggregating 79 percent). In 1995, 65 percent of sales were made to customers in
the U.S.A. and 35 percent of sales were made to customers in Canada (1994 -- 79
percent of sales to customers in the U.S.A. and 21 percent of sales to customers
in Canada).
Gold can readily be sold on numerous markets throughout the world and, at
any particular time, it is not difficult to ascertain the current market price.
Even though it may sell significant quantities of gold to certain major
customers, Hemlo Gold is not dependent upon any one customer or group of
customers.
The following table sets forth, for the periods indicated, the annual high,
low and average afternoon fixing ("Second Fix") prices of gold in U.S. dollars
per troy ounce in the London bullion market and the annual average Second Fix
prices in Canadian dollars per troy ounce (converted at the annual average Bank
of Canada noon rates of exchange):
<TABLE>
<CAPTION>
LONDON BULLION MARKET SECOND FIX
-------------------------------------------
(US $ PER OUNCE) (C$ PER OUNCE)
------------------------ --------------
HIGH LOW AVERAGE AVERAGE
---- --- ------- --------------
<S> <C> <C> <C> <C>
1991........................................... 403 344 362 415
1992........................................... 360 330 344 415
1993........................................... 406 326 360 464
1994........................................... 396 370 384 525
1995........................................... 396 372 384 527
</TABLE>
On May 31, 1996 the afternoon fixing (Second Fix) price of gold in U.S.
dollars per troy ounce in the London bullion market was US$390.55.
A minor amount of silver is also produced at the Golden Giant Mine
(1995 -- 12,800 ounces; 1994 -- 22,870 ounces).
165
<PAGE> 174
HEDGING ACTIVITIES
Hemlo Gold employs, from time to time, a number of hedging and financing
techniques with the objective of mitigating the impact of a downturn in the gold
market while maintaining significant upside potential in a market upturn. Hemlo
Gold's hedge position in 1995 consisted only of the final deliveries under the
Gold Loan described below. In 1994, Hemlo Gold's hedge position included forward
sales, spot deferred contracts, and the Gold Loan. For the five years ended
December 31, 1995, the revenue received per ounce of gold produced was as
follows:
<TABLE>
<CAPTION>
REVENUE PER
OUNCE
PRODUCED
-------------
US$ C$
--- ---
<S> <C> <C>
1991.................................................................. 385 441
1992.................................................................. 359 434
1993.................................................................. 370 477
1994.................................................................. 383 523
1995.................................................................. 387 532
</TABLE>
GOLD LOAN
Pursuant to an agreement dated April 23, 1987, Hemlo Gold borrowed 380,000
ounces of gold from a consortium of Canadian banks (the "Gold Loan"), and sold
the gold at C$543.63 per ounce to realize proceeds of C$206.6 million. These
proceeds were used to redeem preferred shares of HGM Inc. held by Noranda. The
Gold Loan required semi-annual deliveries of 22,353 ounces until October 1995.
The Gold Loan bore interest at a floating rate (based upon the market value of
the borrowed gold), which approximated 1.4 percent per annum in 1995. Interest
expense on the Gold Loan amounted to C$214,000 in 1995 (1994 -- C$442,000). As
at December 31, 1994, 44,706 ounces were outstanding. These ounces were
delivered in 1995.
EXPLORATION
Hemlo Gold carries on an active exploration and development program for new
sources of precious metals production in Canada, the United States, Australia,
Mexico, Chile and Ghana with the objective of building on the foundation of
production from the existing operations.
Hemlo Gold spent C$16.5 million on grassroots gold exploration projects in
1995 (1994 -- C$14.4 million). Joint venture parties contributed an additional
C$0.4 million (1994 -- C$1.0 million) towards exploration activities on
properties in which Hemlo Gold held interests.
Exploration was conducted on 57 properties throughout North America in
1995, comprising 36 properties in Canada and 19 in the U.S.A. (1994 -- 52
properties, comprising 36 in Canada and 16 in the U.S.A.).
Exploration activities in Canada in 1995 were concentrated in Ontario,
Quebec, British Columbia and the Yukon Territory, with Hemlo Gold's expenditures
in Canada totalling C$8.6 million (1994 -- C$7.1 million).
Hemlo Gold holds varying interests in land packages in the Hemlo Gold area
close to the Golden Giant Mine and also has interests in a land package in the
Harker-Holloway area surrounding the Holloway project (see "-- Development
Projects -- Holloway Project"). Hemlo Gold has entered into an agreement to sell
a property in the Harker-Holloway area, which, if consummated, will result in
the realization of proceeds of approximately C$3.0 million.
Work in the United States was mainly in Nevada and Alaska where Hemlo
Gold's expenditures in 1995 totalled C$4.7 million (1994 -- C$4.2 million). In
Nevada, property positions have been established in several areas along the main
producing gold trends.
Project generative work, property evaluations, and acquisitions were
undertaken in Mexico with Hemlo Gold expenditures in 1995 of C$1.4 million
(1994 -- C$1.8 million).
166
<PAGE> 175
Work in Chile involved the acquisition and drilling of exploration
properties in the Maricunga Gold belt with Hemlo Gold expenditures of C$0.4
million in 1995 (1994 -- C$1.1 million).
In Australia, Hemlo Gold has expended C$0.3 million in 1995 (1994 -- C$0.2
million) on one joint venture property in Western Australia.
In 1995, Hemlo Gold expended C$0.9 million on one joint venture property
located in the Ashanti Gold Belt in Ghana and reviewed opportunities elsewhere
in West Africa, Tanzania and Uganda with expenditures totalling C$0.2 million in
1995.
In January 1995, Hemlo Gold established its own dedicated exploration staff
of 60 including 40 geologists working out of five exploration offices in
Timmins, Hemlo, Vancouver, Reno and Hermosillo.
Hemlo Gold, prior to entering into the Combination Agreement, budgeted a
total of C$19.5 million for grassroots exploration in 1996. Assuming the
consummation of the Transaction, exploration budgeting will be performed by the
combined company. See "THE COMPANIES AFTER THE TRANSACTION -- Plans and
Proposals."
DEVELOPMENT PROJECTS
As soon as management determines that a property has geological reserves
which have the potential of being economically recoverable, the property is
upgraded to development project status. The following is a summary description
of the projects that have reached this stage.
Holloway Project
The Holloway project, which is located 60 kilometres east of Matheson,
Ontario, comprises 22 patented claims in three claim blocks covering an area of
319 hectares. The three claim blocks are: the Cryderman block (5 claims), the
Cadden block (2 claims), and the Teddy Bear block (15 claims). The three claim
blocks have an exploration history dating from 1922. In 1985, Norex commenced
exploration on the Cryderman claims. Freewest subsequently earned a 40 percent
interest in certain of the claims. The claim blocks are subject to various
underlying royalty interests which, on average, amount to a 1 percent net
smelter return royalty.
Hemlo Gold acquired its original interest in the project from Noranda as
part of the Gold Asset Transaction. Hemlo Gold and Freewest had a 60 percent/40
percent joint venture interest in the Cryderman and Cadden claims and, together
with Newmont Mines Limited ("Newmont"), which holds a 10 percent net profits
royalty, had a 60 percent joint venture interest in the Teddy Bear claims. Hemlo
Gold, Freewest and Newmont had an option to increase their ownership in the
Teddy Bear claims by a further 10 percent for a total of 70 percent but chose
not to exercise it. Noranda and Freewest acquired their interests in the Teddy
Bear claims from Newmont in 1989.
The deposit outlined to date is located mainly on one of the Cryderman
claims and dips onto the adjoining Teddy Bear claims. In 1992, a new joint
venture was formed covering an area of 34 hectares for the purpose of funding,
developing and operating the deposit, which straddles the boundary of the
Cryderman and Teddy Bear properties, as one mine. From 1992 to December 16,
1994, the partners' direct interests in the new unitized joint venture, known as
the "Holloway Joint Venture," were Hemlo Gold -- 50.79 percent,
Freewest -- 33.86 percent and Teddy Bear -- 15.35 percent. Hemlo Gold is the
project operator. Pursuant to agreements made as of November 8, 1994, Hemlo Gold
acquired all of the outstanding shares of Freewest effective December 16, 1994.
Prior to the effective date, Hemlo Gold owned 19.0 percent of Freewest's common
shares. This acquisition increased Hemlo Gold's direct interest in the Holloway
Joint Venture from 50.79 percent to 84.65 percent. In addition, Hemlo Gold also
acquired in the Freewest acquisition other properties near the Holloway Joint
Venture and 50,000 shares of Teddy Bear. Hemlo Gold, as of December 31, 1995,
has a 9.3 percent equity interest in Teddy Bear. Accordingly, Hemlo Gold's
direct and indirect interest in the unitized project is about 86.1 percent.
167
<PAGE> 176
Hemlo Gold spent C$22.9 million in 1995 and C$10.6 million in 1994 on the
Holloway project. The carrying value of the Holloway project in the financial
statements at December 31, 1995, including acquisition costs, was C$97.7
million.
Geology and Reserves. Drilling on the various claim blocks has outlined a
gold deposit called the Lightning Zone. The Lightning Zone gold deposit occurs
at the contact between altered mafic volcanic rocks and underlying ultramafic
rocks. The deposit occurs adjacent to the Destor-Porcupine Fault Zone which runs
east-west from Timmins, Ontario to Destor, Quebec, through Harker and Holloway
Townships. The Destor-Porcupine Fault Zone is a regional structural feature
which is closely associated with many gold deposits in the area. The deposit
strikes east and west for 800 metres and dips an average 50() to 70() to the
south. The deposit starts at 200 metres below the surface and extends to 800
metres below surface. The deposit is open at depth. The average thickness of the
deposit is 8 metres. The Lightning Zone exhibits variability in width, grade,
dip and continuity, notably in the central part of the zone. Most commonly, gold
values occur within massive grey silicified and albitised zones containing 5-10
percent disseminated fine pyrite. There are very few occurrences of visible
gold.
The following table is a summary of ore reserves prepared by Hemlo Gold
geologists for the Holloway project for the two years ended December 31, 1995.
It includes 100 percent of the reserves in which Hemlo Gold has a direct
interest of 84.7 percent.
<TABLE>
<CAPTION>
AVERAGE GOLD AVERAGE GOLD
TONNES GRADE TONS GRADE CONTAINED GOLD
------ ------------- ----- ------------ --------------
(000'S) (GRAMS/TONNE) 000'S (OUNCE/TON) (OUNCES)
<S> <C> <C> <C> <C> <C>
1994 Reserves
Proven Reserves................. 2,063 7.68 2,274 0.22 510,000
Probable Reserves............... 3,768 6.22 4,153 0.18 755,000
----- ---- ----- ---- ---------
Total Reserves as of December 31,
1994............................ 5,831 6.74 6,427 0.20 1,265,000
===== ==== ===== ==== =========
1995 Reserves
Proven Reserves................. 1,998 7.74 2,202 0.23 498,000
Probable Reserves............... 3,768 6.22 4,153 0.18 755,000
----- ---- ----- ---- ---------
Total Reserves as of December 31,
1995............................ 5,766 6.75 6,355 0.20 1,253,000
===== ==== ===== ==== =========
</TABLE>
Reserves are sufficient for 13 years of production at projected mining
rates. The deposit remains open at depth.
In determining these reserves, a cutoff grade of 3.0 grams of gold per
tonne over a minimum width of 2.0 metres was used. Assays higher than 34 grams
of gold per tonne were cut to 34 grams of gold per tonne. Prior to December 31,
1994 a total of 107,000 metres of drilling was completed. The underground
reserve validation program, completed in September 1993, comprised 25,650 metres
of drilling, 1,100 metres of development drifting and two bulk samples
aggregating about 8,000 tonnes. The underground drilling, which covered the full
strike length of the deposit at 25 metre spacing, tested about 40 percent of the
deposit. Reserves were calculated by the polygonal and sectional method. Proven
reserves are based on the results of the exploration program and are generally
reserves within 25 metres of a drill hole intersection. Probable reserves are
generally between 25 and 50 metres of a drill hole intersection. The average
mining dilution is 19 percent at a grade of 0.69 grams of gold per tonne (0.02
ounces of gold per ton). Projected gold processing recovery is 94 percent.
In 1995, a definition diamond drilling program from the underground
openings was continued and 13,000 metres in total were drilled. The results of
this program will be calculated in early 1996. Also in 1995, a total of 65,000
tonnes of ore were mined from the proven reserve and were milled at Barrick
Gold's Holt-McDermott mill. The results from this milling campaign show a high
degree of consistency between the diamond drill results, muck samples, surface
samples, and mill recoveries. The proceeds from the sale of the recovered gold
were netted against development costs.
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<PAGE> 177
Reconciliation of Reserves. The ore reserve for December 31, 1995 was
calculated by subtracting the 65,000 tonnes at 5.85 grams of gold per tonne
mined in 1995 from the December 31, 1994 calculated ore reserves.
Progress to Date. The feasibility study completed in March 1994 indicated
that it would cost C$55 million, net of pre-production revenue to construct and
develop a 1,250 tonnes per day underground mining operation. A mill will not be
built. A milling agreement has been signed with Barrick Gold Corporation to
custom mill at least 800 tonnes per day of Holloway project ore. The
Holt-McDermott mill has been expanded from 1,250 tonnes per day to 2,000 tonnes
per day. The Holloway Joint Venture has provided C$4 million for this expansion.
These funds will be recovered once production begins through a reduction in
custom milling charges. The balance of the mine production will be treated at
other mills in the area.
Construction and development started in the second quarter of 1994. Shaft
sinking commenced on January 16, 1995 and was down to the 650 metre level at
year end. Initially, the advancement in the shaft was affected by the
combination of water inflows and associated adverse ground conditions. By early
July, general ground conditions had improved and the rate of progress in the
shaft improved. The problems in the first half of 1995 resulted in a delay in
the projected start-up of commercial production from the second quarter to the
third quarter of 1996. The extra costs incurred because of the shaft delay will
be offset by the extra gold recovered during the pre-production period, and the
project accordingly remains essentially on budget. All other aspects of the
project continued as planned. Once in operation, the mine is expected to employ
130 people and will produce 100,000 ounces of gold per year.
New World Project
The New World project, 100 percent owned by Crown Butte, is located in
south-central Montana, U.S.A. in the historic New World Mining District, four
miles north of Cooke City and two miles northeast of the Yellowstone National
Park boundary. The property lies at an elevation of between 8,500 and 10,500
feet and easy access is limited to about six months of the year due to
substantial snowfall. The property consists of 516 claims covering an area of
approximately 3,200 acres, some of which are subject to various underlying
royalty interests which on average amount to a 5 percent net smelter return
royalty.
Consistent with mining industry practice in the United States, Crown Butte
attempts to acquire and maintain with respect to each mining claim that form of
title which reflects to the satisfaction of Crown Butte the value of the claim
in terms of its actual or potential mineral contents, the amount invested in
exploration and development, its proximity to known mineral occurrences in the
area or a combination of these factors. It is impossible to ascertain the
validity of unpatented mining claims from public real estate records and,
therefore, it can be difficult or impossible to confirm that all of the required
steps have been followed for location and maintenance of a claim. If the
validity of an unpatented mining claim is challenged by the U.S. Bureau of Land
Management or U.S. Forest Service on the grounds that mineralization has not
been demonstrated, the claimant has the burden of proving the present economic
feasibility of mining minerals located thereon. Challenges may also be raised
upon submittal of a patent application.
Gold and silver mining began in the New World Mining District in the late
1800s when numerous small mines and a copper smelter operated in the area. Small
scale mining began on the New World property in 1933 and continued
intermittently until 1951. Crown Butte was formed in 1987 to explore the
property. Norex negotiated an option in 1987 to acquire 60 percent of Crown
Butte by funding exploration and committing to complete a feasibility report by
April 1991, which has been done. Hemlo Gold acquired Noranda's 60 percent
interest in Crown Butte as part of the Gold Asset Transaction.
Crown Butte spent C$5.0 million in 1995 and C$3.0 million in 1994 on the
New World project. In 1995, Crown Butte embarked on a communications program to
ensure that those making decisions about, and affected by, the proposed
development are fully aware of the facts about New World. This step was taken in
response to the attention being paid to New World by a number of special
interest groups whose goal is to stop the project. The carrying value of the New
World project in Hemlo Gold's financial statements at December 31, 1995 was
C$47.5 million on a consolidated basis of which Hemlo Gold's 60 percent share
was C$28.5 million.
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<PAGE> 178
Geology and Reserves. There are five known deposits on the New World
property, four of which occur in Cambrian limestone at its contact with tertiary
quartz diorite intrusive rocks. Gold is associated with gold-copper-silver
replacement mineralization in the limestone. High gold values often occur with
high copper sulphide content. Mineralization within the fifth deposit is
generally associated with replaced breccia clasts in zones of remnant or "ghost"
limestone within the Breccia pipe. Crown Butte is seeking permits to mine only
the Miller Creek and Homestake deposits which are high grade and only mineable
by underground methods. Permits are not being sought to mine the other three
deposits.
The following table is a summary of reserves for the New World project for
the year ended December 31, 1995, prepared by Hemlo Gold geologists. It includes
100 percent of the reserves in which Hemlo Gold has an indirect interest of 60
percent:
<TABLE>
<CAPTION>
AVERAGE GRADE
---------------------------------- CONTAINED GOLD
GOLD SILVER COPPER --------------
TONS ------------ ------------ ------
------ (OUNCES/TON) (OUNCES/TON) (%) (OUNCES)
(000'S)
<S> <C> <C> <C> <C> <C>
Probable Underground Reserves
Miller Creek......................... 2,365 0.264 1.49 0.85 623,200
Homestake............................ 5,847 0.182 0.86 0.68 1,060,300
----- ----- ---- ---- ---------
Total Reserves as of December 31,
1995................................. 8,212 0.206 1.04 0.73 1,683,500
===== ===== ==== ==== =========
</TABLE>
In determining these reserves, a cutoff grade of 0.10 ounces of gold per
ton over a minimum width of 10 feet was used. Gold assays greater than one ounce
per ton were cut to one ounce per ton. Reserves were calculated from cross
sections spaced 50 to 100 feet apart. Probable reserves are within 50 feet of a
drill intersection. These reserves are undiluted. Projected processing
recoveries are 90 percent for gold, 75 percent for silver and 85 percent for
copper.
Reconciliation of Reserves. Reserves as of December 31, 1995 are unchanged
from reserves as of December 31, 1994.
Progress to Date. The permitting process began formally in November 1990.
Following six reviews of the Operating Permit Application, the Application was
declared complete on April 2, 1993. Completion of this Application allowed Crown
Butte to commence work on the Environmental Impact Statement (EIS). This
permitting procedure and environmental studies continued in 1995 to be the main
project activities and these will continue in 1996.
In 1994, Crown Butte was advised by the two co-lead permitting authorities,
the Montana Department of Environmental Quality (formerly the Montana Department
of State Lands) and the U.S. Forest Service, that a draft of the Environmental
Impact Statement would be issued for public comment by the end of the second
quarter of 1995. This date was not met and Crown Butte was subsequently advised
by the State of Montana that the draft EIS would be released in late 1995. This
date was also not met and additional delays arose as a result of the furlough of
Forest Service employees late in the year. Crown Butte has now been given a new
date of early summer 1996 for the release of the draft EIS. Crown Butte is aware
that preliminary drafts of the draft EIS are circulating amongst the more than
20 state and federal agencies involved. The duration of the permitting effort is
difficult for Hemlo Gold to predict since it is contingent upon many variables
not within Crown Butte's control including possible administrative and judicial
appeals, and inter-governmental coordination. Several special interest groups
have indicated their opposition to the New World project. There can accordingly
be no assurance that further delays will not occur, nor can there be any
assurance that the necessary permits will be issued.
In a feasibility report completed in April 1991, production is projected at
1,000 to 1,500 tons per day. This study will be updated upon completion of the
EIS. It is estimated that mine construction will take two summer seasons to
complete. Capital costs for the mine and surface facilities were projected to
amount to about US$80 million. Hemlo Gold is committed to arrange financing for
Crown Butte for commercial development as set forth in the feasibility report,
such financing to be reasonably acceptable to Crown Butte
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<PAGE> 179
and at competitive rates and on competitive terms with financing which would be
available from arm's length third parties.
During the past three years, the U.S. Congress considered a number of
proposed amendments to the General Mining Law of 1872, as amended, which governs
Crown Butte's mining claims and related activities on federal lands. In 1992, a
holding fee of US$100 per claim was imposed upon unpatented mining claims
located on federal lands. In October 1994, a one-year moratorium on the
processing of new patent applications was approved. While such moratorium
currently remains in effect, its future in unclear. In addition, a variety of
legislation is now pending before the U.S. Congress to further amend the General
Mining Law. The proposed legislation would, among other things, change the
current patenting procedures, impose royalties, and enact new reclamation,
environmental controls and restoration requirements. The royalty proposals range
from a 2 percent royalty on "net profits" from mining claims to an 8 percent
royalty on modified gross income/net smelter returns. Although the extent of any
such changes is not presently known, less than 10 percent of Crown Butte's
claims are on federal lands and Hemlo Gold does not believe that the economics
of the New World deposit will be materially affected by any proposed royalty.
Legislation has recently been introduced in both the U.S House and Senate that
could severely restrict the development of mines in the area of Yellowstone
Park. At this time, Crown Butte does not believe that such legislation is likely
to be enacted.
Crown Butte Litigation and Related Matters
In September 1993, several special interest groups filed a complaint
against Crown Butte in U.S. District Court, alleging that Crown Butte failed to
obtain permits for the discharge of pollutants. The alleged unlawful discharges
involve waters associated with exploration and reclamation activities by Crown
Butte as well as inactive historic mine disturbances, some of which date back to
the early part of this century and pre-date the acquisition of any property
interests by Crown Butte. On October 13, 1995, the district court issued a
Memorandum and Order which ruled that Crown Butte was in violation of the
Federal Clean Water Act for not having obtained a permit for water coming from a
historic mine adit and two historic mine pits. Crown Butte had applied for the
permit in October 1992, but the State of Montana has not yet issued that permit.
Crown Butte appealed the decision to the Ninth Circuit Court of Appeals, but on
March 1, 1996 that court denied permission to appeal. The plaintiffs then
requested that the stay of proceedings in the U.S. District Court be lifted, and
the district court set the matter for a trial on the issue of civil penalties.
The trial is scheduled to commence on November 4, 1996. It is anticipated that
the issues to be resolved at trial will include the amount of such penalties and
that in determining penalties the district court will consider the seriousness
of the violation, the economic benefit (if any) resulting from the violation,
any history of such violation, any good faith efforts to comply with the
applicable requirements, the economic impact of the penalty on the violator, and
other matters as justice may require in deciding the amount of the penalties.
For this reason, it is not possible to predict the amount of any penalties which
may be assessed. The district court also has the discretion to award attorneys
fees and costs to the plaintiffs. Crown Butte would consider appealing any
adverse decision.
In 1994, following a complaint by special interest groups, the United
States Army Corps of Engineers ("Corps") alleged that some of Crown Butte's past
reclamation activities required a permit under the Clean Water Act. Crown Butte
has vigorously denied those allegations and submitted information to the Corps
in support of that denial. In September 1995 the Corps issued Crown Butte a
Section 404 permit authorizing future reclamation activities.
In January 1995, two special interest groups filed a complaint against
Crown Butte with the United States Department of the Interior, effectively
asking that a patent, to which Crown Butte is entitled under current law, not be
issued. The complaint seeks to change a long-standing interpretation of the
General Mining Law and Crown Butte regards this action as misguided and believes
it should have no effect on the patenting or permitting processes. There has
been no indication from the Department of the Interior as to how they intend to
treat this complaint.
In August 1995, the EPA conducted a site investigation of the New World
Mining District pursuant to the Comprehensive, Environmental Response,
Compensation and Liability Act (CERCLA). At this time,
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<PAGE> 180
Crown Butte is not aware of any further investigation by the EPA and has not
been notified when or if the EPA will make a decision whether to proceed with
any further investigation or other action with respect to the New World Mining
District.
As a result of the above proceedings, Crown Butte is unable to predict when
it will obtain all the permits necessary to be able to commence commercial
production of its reserves.
SHARE CAPITAL STRUCTURE
The authorized capital of Hemlo Gold consists of an unlimited number of
Preferred Shares, an unlimited number of Common Shares and an unlimited number
of Subordinate Voting Participating Shares, of which 100,065,082 Common Shares
are outstanding as of March 31, 1996.
The following is a summary of the principal attributes of the Preferred
Shares, the Common Shares and the Subordinate Voting Participating Shares.
Preferred Shares
The Preferred Shares are issuable in series. The directors are empowered to
fix the number of shares in and the designation and attributes of each series.
The holders of Preferred Shares are entitled to the stated capital thereof upon
liquidation, dissolution or winding-up together with accrued and unpaid
dividends in priority to any distribution to holders of Common Shares and
Subordinate Voting Participating Shares.
Common Shares
The holders of Common Shares are entitled to receive dividends rateably,
if, as and when declared by the directors; to five votes per share at all
meetings of shareholders; and, subject to the rights of holders of Preferred
Shares, to participate rateably, together with any holders of Subordinate Voting
Participating Shares, in any distribution of the assets of Hemlo Gold upon
liquidation, dissolution or winding-up.
Subordinate Voting Participating Shares
The Subordinate Voting Participating Shares are issuable in series. The
directors are empowered to fix the number of shares in and the designation and
attributes of each series. The holders of Subordinate Voting Participating
Shares are entitled to receive dividends rateably, if, as and when declared by
the directors; to one vote per share at all meetings of shareholders; and,
subject to the rights of any holders of Preferred Shares, to participate
rateably, together with the holders of Common Shares, in any distribution of the
assets of Hemlo Gold upon liquidation, dissolution or winding-up. No dividend is
payable on the Subordinate Voting Participating Shares unless at least an equal
amount per share is payable on the Common Shares. The Subordinate Voting
Participating Shares cannot be subdivided unless the Common Shares are
subdivided on the same basis.
GENERAL
Litigation
In June 1988, O. Theriault and three other individuals staked 135 mining
claims over mostly Crown-leased land held by HGM Inc. The Mining Recorder
refused to record the claims. An appeal by the stakers was heard in September
1988 by the Mining and Lands Commissioner who upheld the Mining Recorder's
decision, declared the applications to record void and dismissed the appeal with
costs. A further appeal was heard by the Divisional Court of the Ontario Court
of Justice-General Division in September 1991. The appeal was dismissed. An
application for leave to appeal this decision was filed by O. Theriault. This
application has not been proceeded with and Hemlo Gold will seek to have the
application for leave dismissed. If such application for leave to appeal should
be granted, Hemlo Gold believes that the dismissal by the Mining and Lands
Commissioner of the applications to record by O. Theriault and the three other
individuals will be upheld on appeal. The Crown is treating this as an abandoned
appeal and may take a formal step to have the appeal dismissed.
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<PAGE> 181
For a discussion of certain legal proceedings involving Crown Butte, see
"-- Business and Property of Hemlo Gold -- Crown Butte Litigation and Related
Matters."
Previous Sales
Excluding Hemlo Gold Common Shares sold pursuant to the exercise of
employee stock options, during the 12 months preceding the date of this Joint
Proxy Statement, Hemlo Gold issued 3,000 Hemlo Gold Common Shares pursuant to
its dividend re-investment plan at market prices (an average of C$14 per share)
and 3,082,000 Hemlo Gold Common Shares to former holders of common shares of
Freewest Resources Inc. in connection with the amalgamation of Freewest
Resources Inc. and a wholly owned subsidiary of Hemlo Gold at an effective price
of C$12.375 per share.
Previous Distributions
In February 1992 Noranda sold 9 million Hemlo Gold Common Shares at a price
of C$11 per share in a secondary offering and received aggregate net proceeds of
C$95,040,000.
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<PAGE> 182
DIRECTORS AND OFFICERS
The names of the directors and officers of Hemlo Gold, their municipalities
of residence, their respective principal occupations within the five preceding
years, the number of Hemlo Gold Common Shares owned and, in the case of
directors, the year from which they have served as directors of Hemlo Gold, are
stated below.
A. DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION FOR
NAME AND MUNICIPALITY OF RESIDENCE OFFICE WITH HEMLO GOLD SINCE PREVIOUS FIVE YEARS SHARES
- ------------------------------------- ------------------------- -------- ---------------------------------- ------
<S> <C> <C> <C> <C>
ALEX G. BALOGH Chairman of the Board 1991 Deputy Chairman of the Board of None
Oakville, Ontario Noranda (resource company) since
November, 1994; President and
Chief Executive Officer of Noranda
Minerals from January 1991 to
November 1994.
IAN D. BAYER President and Chief 1991 President and Chief Executive 1,147
Toronto, Ontario Executive Officer Officer of Hemlo Gold and Chairman
of Crown Butte since July 1991;
President and Chief Executive
Officer of Kerr Addison Mines
Limited (mining company) and its
then subsidiary Minnova Inc.
(mining company) prior thereto.
THE HONOURABLE N/A 1987 Counsel, Tory Tory DesLauriers & None
WILLIAM G. DAVIS, P.C., C.C., Q.C. Binnington (law firm).
Brampton, Ontario
KEITH C. HENDRICK N/A 1986 Corporate Director; Chairman of 100
Toronto, Ontario the Board of Noranda Minerals from
January 1991 to June 1992, and
Chairman of the Board of Hemlo
Gold from January 1988 to June
1992.
DAVID W. KERR N/A 1986 Chairman and Chief Executive 1,000
Toronto, Ontario Officer of Noranda since April
1995; President and Chief
Executive Officer of Noranda prior
thereto.
MICHAEL J. KNUCKEY N/A 1995 President and Chief Executive None
Burlington, Ontario Officer of Norminex since February
1995; Executive Vice-President,
Exploration, Development &
Technology of Falconbridge from
January 1993 to February 1995;
Senior Vice-
President -- Exploration of
Falconbridge Limited (mining
company) prior thereto.
PATRICK C. MACCULLOCH N/A 1991 President of Peak Business 2,000
Toronto, Ontario Consultants.
JAMES W. MCCUTCHEON, Q.C. N/A 1992 Counsel, McCarthy Tetrault (law None
Toronto, Ontario firm).
MARY MOGFORD N/A 1992 Corporate Director; Partner, None
Newcastle, Ontario Mogford Campbell Associates, Inc.
(consultants).
</TABLE>
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<PAGE> 183
B. OFFICERS OTHER THAN THOSE REFERRED TO ABOVE
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION FOR
NAME AND MUNICIPALITY OF RESIDENCE OFFICE WITH HEMLO GOLD SINCE PREVIOUS FIVE YEARS
- ------------------------------------- ------------------------- -------- ----------------------------------
<S> <C> <C> <C> <C>
IAN ATKINSON Senior Vice President N/A Senior Vice President of Hemlo
Oakville, Ontario Gold since February 1996; Vice
President -- Exploration of Hemlo
Gold from September 1991 to
February 1996; Assistant Regional
Manager -- Ontario and N.W.
Quebec, of Norex prior thereto.
JOSEPH J. BAYLIS Vice President -- N/A Vice President -- Investor
Oakville, Ontario Investor Relations and Relations and General Counsel of
General Counsel Hemlo Gold since September 1991;
Vice President, Business and
Corporate Development of Hemlo
Gold from October 1990 to
September 1991, Secretary of Norex
from November 1986 to July 1991,
and Senior Counsel of Noranda
Minerals from March 1990 to July
1991.
JOHN A. KEYES Vice President -- N/A Vice President -- Operations of
Campbellville, Ontario Operations Hemlo Gold since September 1995.
Mine Manager -- Golden Giant Mine
of Hemlo Gold; from March 1992 to
September 1995; Mine Manager of
Geco Mine, Noranda prior thereto.
MICHAEL E. POWER Vice President -- N/A Vice President -- Corporate
Toronto, Ontario Corporate Development Development of Hemlo Gold since
February 1993;
Director -- Corporate Development
of Hemlo Gold from September 1991
to February 1993; Senior Analyst
of Noranda prior thereto.
MICHAEL C. PROCTOR Vice President -- N/A Vice President -- Finance of Hemlo
Toronto, Ontario Finance Gold since September 1991; Vice
President and Comptroller of
Noranda Minerals prior thereto.
INGRID J. HIBBARD Corporate Secretary N/A Barrister and Solicitor (private
Milton, Ontario practice) since June 1990 and
Corporate Secretary of Hemlo Gold
since July 1993; Counsel, The
Mining Group Inc. prior thereto.
</TABLE>
Each director elected holds office until the next annual meeting or until
his or her successor is duly elected or appointed.
As at March 1, 1996, the directors and senior officers of Hemlo Gold, as a
group, beneficially owned, directly or indirectly, or exercised control or
direction over, less than 1 percent of the outstanding Common Shares of Hemlo
Gold or its subsidiaries. The information as to shares beneficially owned or
over which control or direction is exercised, not being within the knowledge of
Hemlo Gold, has been furnished by the respective directors and officers
individually.
Hemlo Gold is required to have an Audit Committee of the Board of
Directors. Its current members are Ms. Mogford and Messrs. Davis and McCutcheon.
The Audit Committee, composed entirely of directors independent of Hemlo Gold's
management, reviews and monitors the financial reporting process on behalf of
the Board of Directors. It recommends the appointment and fee structure of the
external auditors, who are elected annually by Hemlo Gold's shareholders. The
Audit Committee meets with management and the external auditors to review
accounting policies and procedures, as well as internal controls over Hemlo
Gold's
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<PAGE> 184
assets. It meets privately with the external auditors to review the results of
their audit. The Audit Committee reviews the annual financial statements and
recommends their approval to the Board of Directors. Interim financial
statements are reviewed by the entire Board of Directors, prior to release to
shareholders.
Hemlo Gold does not have an Executive Committee of the Board of Directors.
On February 3, 1994 a Human Resources and Compensation Committee was formed to
administer the appointment and remuneration of Hemlo Gold's senior officers. Its
current members are Ms. Mogford and Messrs. Balogh and McCutcheon. The Board
governance and Board nominating functions are performed by the full Board, in
the absence of directors who are officers or employees of Hemlo Gold, or any of
its affiliates. Time is set aside during Board meetings as required, but in any
case no less than annually, to fulfil the governance and nominating functions.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
On February 23, 1995, The Toronto Stock Exchange and The Montreal Exchange
adopted a requirement that every listed company incorporated in Canada or a
province of Canada must disclose on an annual basis its approach to corporate
governance. This requirement arose out of recommendations contained in the final
report of The Toronto Stock Exchange Committee on Corporate Governance (the "TSE
Report") released in December 1994. The TSE Report proposed guidelines for
effective corporate governance. In its disclosure the company must describe its
system of corporate governance with reference to the proposed guidelines.
This disclosure statement has been approved by the Hemlo Gold Board of
Directors.
Mandate of the Board of Directors
Hemlo Gold's Board of Directors is required to supervise the management of
the business and affairs of the Corporation and to act with a view to the best
interests of Hemlo Gold.
Prior Approvals by the Board of Directors
The Board considers that certain decisions are sufficiently important that
management should seek prior approval of the Board of Directors. Strategic
plans, annual capital and operating budgets, the management information
circular, the Annual Information Form, major acquisition and disposition
transactions, major financing transactions involving the issuance of shares or
debt securities, major banking relationships, dividends, long term contracts
with significant cumulative financial commitments, benefit plans, stock option
plans, issuance of stock options, major capital expenditures, appointment of
officers and succession planning are all subject to Board approval.
The Board meets at least four times per year and more frequently if
required. In 1995, the Board met five times.
Composition of the Board of Directors
Eight of the nine directors recommended for election to the Board are
unrelated directors. An unrelated director is defined as "a director who is
independent of management and is free from any interest and any business or
other relationship which could, or reasonably be perceived to, materially
interfere with the director's ability to act with a view to the best interests
of Hemlo Gold, other than interests and relationships arising from
shareholding." Mr. Ian D. Bayer who is the President and Chief Executive Officer
("CEO") of Hemlo Gold is a related director. The Board has determined that both
Mr. Balogh who is the Chairman of Hemlo Gold and Mr. Hendrick who retired as
Chairman of Hemlo Gold four years ago are unrelated. The remainder of the
directors are unrelated in that they have not worked for Hemlo Gold nor do they
have material contracts with Hemlo Gold or receive remuneration from Hemlo Gold
in excess of directors' fees.
Independence and Size of the Board of Directors
Hemlo Gold's corporate governance structure separates the offices of chair
and chief executive officer. Mr. Bayer is Hemlo Gold's President and CEO. The
Board is chaired by Mr. Balogh, an unrelated director. A
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<PAGE> 185
period of time is set aside at each meeting for the Board to meet in the absence
of management or to meet with the CEO only. The Board has considered the
representation on the Board and has determined that the representation fairly
reflects the investment in Hemlo Gold by its shareholders.
Committees of the Board of Directors
There are two Board committees, the Audit Committee and the Human Resources
and Compensation Committee, comprised of three members each, all of whom are
unrelated. In addition, the Board determined that, given the size and
composition of the Board, it would be appropriate that the whole Board deal with
corporate governance matters and board nominating functions in the absence of
any directors who are officers or employees of Hemlo Gold.
Audit Committee
The Audit Committee reviews and monitors the financial reporting process on
behalf of the Board of Directors. It recommends the appointment and fee
structure of the external auditors, who are elected annually by Hemlo Gold's
shareholders. The Audit Committee meets with management and the external
auditors to review accounting policies and procedures, as well as internal
controls over Hemlo Gold's assets. It meets privately with the external auditors
to review the results of their audit. The Audit Committee reviews the annual
financial statements and recommends their approval to the Board of Directors.
Interim financial statements are reviewed by the entire Board of Directors,
prior to release to shareholders. This Committee met twice in 1995. Members:
William G. Davis (Chairman), James W. McCutcheon and Mary Mogford.
The Human Resources and Compensation Committee
The Human Resources and Compensation Committee reviews and monitors Hemlo
Gold's compensation program on behalf of the Board of Directors. The Committee
reviews with the President and CEO Hemlo Gold's general salary structure,
overall compensation strategy, and succession planning. The Committee considers
with the CEO proposed changes in personnel affecting the officers' group, and
submits to the Board for consideration and approval, the names of persons
proposed to be appointed as officers. The Committee establishes once each
financial year in consultation with the CEO, objectives against which to review
and assess the CEO's performance. The Committee also reviews the salaries and
other remuneration of Hemlo Gold's CEO, senior management and senior operating
personnel; and should the Committee consider that any adjustments thereto would
be appropriate, recommends such adjustments for Board consideration and
approval. The Committee reviews the status of Hemlo Gold's share plans and other
benefit plans and considers any material amendments to them to submit
recommendations to the Board of Directors. The Committee also reviews the amount
and form of Directors' compensation for Board and Committee service in relation
to current norms, and recommends any adjustments for Board consideration and
approval. This Committee met once in 1995. Members: Alex G. Balogh, James W.
McCutcheon (Chairman) and Mary Mogford.
Corporate Governance
The Board of Directors of Hemlo Gold has determined that, given the size
and composition of the Board, it is appropriate that the Board governance and
Board nominating functions be performed by the full Board in the absence of
management. However, the CEO generally is invited to participate in a portion of
the meeting in order to provide management information and insight to the
deliberations. Time is set aside during Board meetings as required, but in any
case no less than annually, to fulfil the governance and nominating functions.
During this time the Board assesses the effectiveness of the performance of the
Board as a whole and of its committees, identifies the principal risks of Hemlo
Gold's business, and ensures the development and implementation of appropriate
internal and external control and management systems to manage such risks.
Engagement of outside experts by directors is also to be considered for approval
when that is appropriate and necessary. The process of preparing Hemlo Gold's
public disclosure documents and complying with continuous disclosure
requirements is reviewed. The Board in performing this function also considers
from time to time the appropriate size, composition and profile of the Board of
Directors. It reviews and assesses the
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<PAGE> 186
qualifications of persons proposed for appointment, election or re-election to
the Board of Directors, taking into account the recommendations of the CEO and
the Chairman. New directors meet with the CEO for informal discussions regarding
Hemlo Gold and are provided with reports relating to Hemlo Gold's business and
affairs.
Shareholder Communication
Hemlo Gold communicates regularly with its shareholders. The Board has
delegated the communications policy to the senior management. Shareholder
communications are generally handled by the CEO and the Vice
President -- Investor Relations. Hemlo Gold routinely answers all questions
posed by shareholders.
Expectations of Senior Management
The Board looks to management to be responsible for the efficient
management of the business and affairs of Hemlo Gold within the strategic
framework set by the Board. It does not seek to be involved in the direct
day-to-day functioning of Hemlo Gold. The Board is involved in monitoring and
assessing senior management through its regular contact with the management
team, most of whom participate in presentations to the Board at regularly
scheduled meetings. In addition, the Human Resources and Compensation Committee
assesses the individual performance of the CEO as part of its compensation
review process. The Board, when performing its Corporate Governance functions,
monitors the nature of the information provided to and requested by the Board,
so that it is able to determine if the Board can be more effective in
identifying problems and opportunities for Hemlo Gold.
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<PAGE> 187
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table, presented in accordance with Regulation 1015 of the
Securities Act (Ontario) (the "Regulation"), sets forth all annual and long-term
compensation for services rendered in all capacities to Hemlo Gold and its
subsidiaries for the fiscal years ended December 31, 1995, 1994 and 1993 in
respect of each of the individuals who were at December 31, 1995, the Chief
Executive Officer and the other four most highly compensated individuals
performing a policy-making function in respect of Hemlo Gold (the "Named
Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION
----------------------------------- SECURITIES ALL
OTHER UNDER OTHER
ANNUAL OPTIONS COMPENSATION
NAME AND FISCAL SALARY BONUS COMPENSATION GRANTED (2)(3)(4)
PRINCIPAL POSITION YEAR (C$) (C$) (C$) (#) (C$)
- --------------------------- ------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
I.D. Bayer................. 1995 265,000 63,600 NIL 50,000 NIL
President & Chief 1994 220,000 63,112 1,923 30,000 NIL
Executive Officer 1993 215,000 48,375 13,978 20,000 2,091
---- ------- ------ ------ ------ ------
I. Atkinson................ 1995 130,000 23,400 7,066 17,500 NIL
Senior Vice President 1994 120,000 29,400 7,130 NIL 94,880
1993 114,100 20,538 9,600 15,000 NIL
---- ------- ------ ------ ------ ------
J.J. Baylis................ 1995 130,000 19,500 NIL 17,500 20,000
Vice President 1994 116,000 29,000 NIL NIL NIL
Investor Relations and 1993 106,300 21,260 NIL 15,000 NIL
General Counsel
---- ------- ------ ------ ------ ------
J.A. Keyes................. 1995 130,000 22,100 4,051 17,500 NIL
Vice President 1994 122,000 26,153 NIL NIL NIL
Operations 1993 111,900 18,799 NIL 15,000 NIL
---- ------- ------ ------ ------ ------
M.C. Proctor............... 1995 125,000 20,000 NIL 17,500 NIL
Vice President 1994 120,000 28,247 NIL NIL NIL
Finance 1993 116,700 21,006 NIL 15,000 NIL
</TABLE>
Notes:
(1) The value of perquisites and benefits for each Named Executive Officer is
less than the lesser of C$50,000 and 10 percent of each Named Executive
Officer's total annual salary and bonus. The amounts quoted in this column
represent the imputed interest on reduced rate loans. Mr. Bayer's imputed
interest arises with respect to a loan to purchase securities of Hemlo Gold
and the amounts shown for Mr. Atkinson and Mr. Keyes arise with respect to
a mortgage subsidy, including an amount for reimbursement of taxes.
(2) Hemlo Gold paid insurance premiums in the amount shown with respect to term
life for the benefit of Mr. Bayer. This benefit ceased in 1993.
(3) Mr. Atkinson was entitled to a discovery-based bonus award as a result of
his participation in the discovery of the ore reserves on the Holloway
property while employed by Noranda Exploration Company, Limited. In 1994,
he received a discovery-based bonus award of C$94,880 which was paid by
Hemlo Gold.
(4) Mr. Baylis received a special bonus award for 1995. See Report on Executive
Compensation -- Annual Incentive Plan.
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<PAGE> 188
Incentive Plans
The following table, presented in accordance with the Regulation, sets
forth stock options granted under Hemlo Gold's Stock Option Plan during the
financial year ended December 31, 1995 to each of the Named Executive Officers:
OPTION GRANTS DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET VALUE
OF
% OF TOTAL SECURITIES
SECURITIES OPTIONS UNDERLYING
UNDER GRANTED TO OPTIONS ON
OPTIONS EMPLOYEES IN EXERCISE OR THE DATE
GRANTED FINANCIAL BASE PRICE OF GRANT
NAME (#) YEAR (C$/SECURITY) (C$/SECURITY) EXPIRATION DATE
- ------------------------------- ---------- ------------ ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
I.D. Bayer..................... 50,000 17% 11.75 11.75 February 17, 2000
I. Atkinson.................... 17,500 6% 11.75 11.75 February 17, 2000
J.J. Baylis.................... 17,500 6% 11.75 11.75 February 17, 2000
J.A. Keyes..................... 17,500 6% 11.75 11.75 February 17, 2000
M.C. Proctor................... 17,500 6% 11.75 11.75 February 17, 2000
</TABLE>
Note:
Each of these stock options entitles the Named Executive Officer to purchase one
Common Share of Hemlo Gold. These options are fully vested and were granted on
February 17, 1995.
The following table, presented in accordance with the Regulation, sets
forth details of each exercise of stock options during the financial year ended
December 31, 1995 by the Named Executive Officers and the financial year-end
value of unexercised options on an aggregated basis:
AGGREGATED OPTION EXERCISES
DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 1995
AND FINANCIAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
UNEXERCISED VALUE OF
OPTIONS AT UNEXERCISED
SECURITIES AGGREGATE DEC. 31, 1995 IN-THE-MONEY
ACQUIRED ON VALUE --------------------------- OPTIONS AT
EXERCISE REALIZED (#) (C$) DEC. 31, 1995
NAME (#) (C$) ----------- ------------- ------------------------------
- ------------------------ ----------- --------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
I.D. Bayer.............. 15,000 129,450 80,000 NIL 62,500 NIL
I. Atkinson............. 6,000 51,290 21,500 NIL 43,875 NIL
J.J. Baylis............. 4,000 24,314 22,500 NIL 45,250 NIL
J.A. Keyes.............. 5,000 40,000 22,500 NIL 49,375 NIL
M.C. Proctor............ 6,000 47,280 31,500 NIL 79,625 NIL
</TABLE>
Note:
The closing price of Hemlo Gold's Common Shares on the TSE on December 31, 1995
was C$13.00.
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<PAGE> 189
Pension Arrangements
The Named Executive Officers participate in the defined benefit retirement
program for salaried employees. The following table, presented in accordance
with the Regulation, shows the total annual retirement benefits payable under
the retirement program to an eligible executive officer in the specified
compensation and years of service categories assuming retirement at age 65:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------
REMUNERATION (C$)(1) 15 20 25 30 35
- -------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
125,000................................ $30,950 $41,250 $51,575 $ 61,875 $ 72,200
150,000................................ $37,500 $50,000 $62,500 $ 75,000 $ 87,525
175,000................................ $44,075 $58,750 $73,450 $ 88,125 $102,825
200,000................................ $50,625 $67,500 $84,375 $101,250 $118,150
225,000 and above(2)................... $57,200 $76,250 $95,325 $114,375 $133,450
</TABLE>
- ---------------
Notes:
(1) Remuneration for the purposes of the above table is salary only. Bonuses and
other compensation generally are included in pensionable earnings for the
calculation of the pension amount under the registered pension plan.
However, where the pension amount exceeds the prescribed maximum payable
under the plan, the total retirement benefit is based on salary only.
(2) Notwithstanding the figures shown in the above table, which reflect pension
payable under Hemlo Gold's pension plan formula, in order to limit Hemlo
Gold's liability under the pension plan, a maximum of C$225,000 has been
placed on the average salary eligible for pension calculations. This maximum
is to be reviewed periodically in both general application and application
to individuals.
For the purposes of computing their total retirement benefit, as of January
1, 1996, Mr. Bayer had 29 years of credited service, Mr. Atkinson had 17 years
of credited service, Mr. Baylis had 12 years of credited service, Mr. Keyes had
24 years of credited service and Mr. Proctor had 24 years of credited service.
The amounts shown in the above table are payable for life and guaranteed
for five years. The Pension Plan formula is based on the best 5-year average
earnings and contains a partial offset for the Canada Pension Plan benefit. The
amounts shown above are after adjustment for the estimated offset. All provinces
require a pensioner to choose a joint and survivorship pension wherein the
member's surviving spouse will be entitled to a pension of not less than 60
percent of the member's pension unless the spouse waives this condition. For
Hemlo Gold, this default option is 66 2/3 percent. The conversion from the
amounts shown in the above table to this option is dependent on the age of the
spouse at retirement and on interest rates at that time. Assuming the spouse is
three years younger than the member, the amounts shown in the table would be
reduced approximately 13 percent.
Composition of the Compensation Committee
On February 3, 1995, a Human Resources and Compensation Committee (the
"Compensation Committee") composed of Messrs. Balogh and McCutcheon and Ms.
Mogford was formed to administer Hemlo Gold's executive compensation program.
The Compensation Committee, has, as part of its mandate, primary responsibility
for making recommendations for approval by the Board of Directors with respect
to the appointment and remuneration of executive officers and senior operating
personnel of Hemlo Gold. The Committee also evaluates the performance of Hemlo
Gold's CEO and reviews the design and competitiveness of Hemlo Gold's
compensation plans. The Committee met once during 1995.
Mr. Balogh is Chairman of Hemlo Gold and performs this function as part of
his duties with Noranda. He receives no compensation from the Corporation as
Chairman and his director's fees are paid to Noranda.
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<PAGE> 190
During 1995 Mr. Balogh did not sit on the compensation committee (or its
equivalent) of any company employing either of the above-named other Committee
members.
Report on Executive Compensation
The Chairman and the President have primary responsibility for making
recommendations for approval by the Board of Directors with respect to the
appointment of executive officers of Hemlo Gold, other than the President.
Recommendations with respect to the appointment of the President for approval by
the Board of Directors are made by the Chairman. The Chairman and the President
also have primary responsibility for determining remuneration and the review,
design and competitiveness of Hemlo Gold's compensation plans.
Executives of Hemlo Gold, including the Named Executive Officers, are
compensated by salary, an annual cash incentive plan, and long term equity-based
incentives. This compensation package is designed to encourage, compensate and
reward employees on the basis of individual and corporate performance both in
the short and the long term and to enable Hemlo Gold to attract, develop and
retain highly qualified individuals to manage Hemlo Gold's business. Third party
comparative data is used to assist in determining the appropriate level of
executive compensation. As well, Hemlo Gold is an associated company of Noranda
and its compensation policies generally are consistent with those of the Noranda
Group.
With respect to general philosophy, the Committee believes that senior
executive compensation should be driven primarily by performance relative to the
established plans and strategy of the business. Information on the compensation
of competitors is important, but should not drive the philosophy or design of
Hemlo Gold's program. The Committee focuses on rewarding performance, and not on
entitlement or excessive levels of employment security.
Base Salary
Base salary will be competitive with salaries for like positions in the
mining industry, generally at the median level, as determined through a variety
of surveys conducted by independent professional compensation consultants, and
supplemented by other sources of information. Annual salary adjustments are
based on the individual's performance and positioning relative to peers in Hemlo
Gold and the mining industry.
Annual Incentive Plan
The Annual Incentive Plan applies to executives, corporate and exploration
staff and senior positions at mine and development sites.
The Plan is designed to encourage employees to strive for continuous
improvement and innovation. An annual incentive is provided in addition to base
salary to give employees an opportunity to earn an annual cash award based on
the degree to which the employee meets his or her individual performance
objectives and overall corporate performance for the year.
The Annual Incentive Plan is designed to reward employees based on the
above factors over which they and their co-workers have effective control. The
size of the award depends primarily on individual performance in relation to an
employee's objectives for the year and team performance in attaining corporate
objectives. Target awards are established for each position at a competitive
level. All targets and objectives are set at the beginning of each year.
Additional bonuses or exploration bonuses may also be earned. In 1995 Mr. Baylis
earned an additional bonus in recognition of his efforts as President of Crown
Butte Resources Ltd.
Long-Term Equity-Based Incentives
Under the Stock Option Plan of Hemlo Gold, options to purchase Hemlo Gold
Common Shares are granted annually to key employees of Hemlo Gold by the Board
of Directors. The exercise price of any option granted under the Stock Option
Plan shall be equal to the weighted average price of the Hemlo Gold Common
Shares on the TSE on each of the five trading days immediately preceding the
date of such grant. Options can be outstanding for up to 10 years but are
normally granted for a term of five years. Outstanding options held by an
executive officer are considered in the granting of new options. During 1995,
options to
182
<PAGE> 191
purchase 301,000 Common Shares of Hemlo Gold were granted to employees. At March
31, 1996 there were total options outstanding to all employees of Hemlo Gold in
respect of 352,000 Hemlo Gold Common Shares. Absent completion of the
Transaction, it would be is expected that annual grants in the range of 50 to
150 percent of base salary (determined by multiplying the number of stock
options by the exercise price) would be awarded.
Hemlo Gold also has an Employee Share Savings Plan in place which allows
all employees to contribute, through payroll deduction, up to 5 percent of their
salary to purchase shares in Hemlo Gold. Hemlo Gold then matches 30 percent of
the employee's contribution. For an employee contributing at the 5 percent
level, the cost to Hemlo Gold is approximately 1.5 percent of the employee's
salary. Participation in Hemlo Gold's Stock Option Plan does not prevent
participation in the Employee Share Savings Plan.
In 1995 Hemlo Gold wound up its Executive Share Purchase Plan ("ESPP").
Under the ESPP the Board of Directors could from time to time authorize Hemlo
Gold to make loans to be applied in payment of the subscription price of Hemlo
Gold Common Shares to be purchased by a trustee for the account of key employees
designated by the board. No shares were issued under the ESSP during 1994 and
1995.
The other components of the total executive compensation program are
pension, other benefits and perquisites. These will be competitive, but not
industry leaders.
Each element of the executive compensation program fulfils a different
goal. The Committee places the greatest emphasis for the Named Executive
Officers on the short-term and long-term incentive programs which are designed
to link their interests with those of Hemlo Gold's shareholders, and the least
emphasis on pension, other benefits and perquisites.
Compensation of President and Chief Executive Officer
The base salary of Hemlo Gold's President and CEO, Mr. Bayer, is targeted
at the median of CEO's base salaries paid in the broad Canadian market.
Mr. Bayer participates in the Annual Incentive Plan for executives of Hemlo
Gold and in 1995 the Committee has established a target award of 30 percent of
annual base salary payable upon fulfilment of established performance criteria
including achievement of the corporate objectives. The bonus payment is impacted
upward or downward from the target award by the corporate performance factor and
the personal performance factor. In 1995 he earned a bonus of C$63,600 based on
his success at achieving his targets and objectives.
In 1995 Mr. Bayer was granted options to purchase 50,000 Common Shares at
an exercise price of C$11.75 per share. The awards to Mr. Bayer under the Stock
Option Plan are consistent with the compensation philosophy of Hemlo Gold which
is to tie a portion of the Chief Executive Officer's compensation to corporate
performance and the achievement of growth in shareholder value.
Presented By: Alex G. Balogh, Mary Mogford and James W. McCutcheon (Committee
Chairman).
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<PAGE> 192
Performance Graph
The following graph compares the yearly percentage change in the cumulative
total shareholder return over the last five fiscal years on Hemlo Gold's Common
Shares with the cumulative total return of the TSE Gold and Silver Index and the
TSE 300 Stock Index:
FIVE-YEAR CUMULATIVE TOTAL RETURN
ON $100 INVESTMENT
DECEMBER 31, 1990 - DECEMBER 31, 1995
<TABLE>
<CAPTION>
MEASUREMENT PERIOD TSE 300 GOLD & SILVER HEMLO GOLD
(FISCAL YEAR COVERED)
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 112.02 86.95 104.30
1992 110.41 93.55 73.11
1993 146.35 192.17 137.57
1994 146.09 173.40 139.98
1995 167.31 189.74 128.48
</TABLE>
Note: Assumes dividends are reinvested on the ex-dividend date.
Compensation of Directors
The compensation paid to each director who is not an officer or employee of
Hemlo Gold or any of its subsidiaries by Hemlo Gold is C$8,000 per annum plus
C$1,000 for each meeting of the Board of Directors attended (other than any
meeting held immediately following an annual meeting of shareholders). In
addition, each such director receives a fee of C$750 for each meeting of any
committee of the Board attended.
Directors' and Officers' Liability Insurance
Hemlo Gold is a named insured under a directors' and officers' liability
insurance policy maintained by Noranda for itself and certain related companies
and their respective directors and officers, which has an annual aggregate
policy limit of C$10 million, subject to a corporate deductible of C$5 million
per loss. Generally, under this insurance coverage, Hemlo Gold is reimbursed for
indemnity payments made to its directors or officers as required or permitted by
law or under by-law indemnity provisions for losses, including legal costs
incurred by officers and directors in their capacity as such. This policy also
provides coverage directly to individual directors and officers without any
deductible if they are not indemnified by Hemlo Gold. The insurance coverage for
directors and officers has certain exclusions including, but not limited to,
those acts determined to be deliberately fraudulent or dishonest or to have
resulted in personal profit or advantage. The policy was effective November 1,
1992 and renewed November 1, 1995. Hemlo Gold's share of the annual premium was
C$10,800 and was payable entirely by Hemlo Gold. Of this, an estimated C$6,480
was payable in respect of its directors as a group and C$4,320 was payable in
respect of its officers as a group. The policy is for a period of 12 months with
terms and premiums to be established on each renewal.
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<PAGE> 193
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
<TABLE>
<CAPTION>
LARGEST
AMOUNT AMOUNT OUTSTANDING
NAME AND PRINCIPAL INVOLVEMENT OF OUTSTANDING AS AT
POSITION CORPORATION DURING 1995 MARCH 1, 1996
- --------------------------------------- --------------------- ----------- ------------------
<S> <C> <C> <C>
J.A. Keyes............................. Relocation Loan from C$ 160,000 C$ 153,333
Vice-President Operations Hemlo Gold(1)
</TABLE>
- ---------------
(1) Interest free loan on principal residence repayable by equal monthly
payments of C$1,333, which commenced in November 1995. The largest amount
outstanding from January 1, 1995 through March 1, 1996 was C$160,000.
As at March 1, 1996, the aggregate indebtedness of all current and former
officers, directors and employees of Hemlo Gold and of its subsidiaries to
Hemlo Gold or its subsidiaries entered into in connection with a purchase
of securities of Hemlo Gold or any of its subsidiaries was nil.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
As noted above, Noranda holds 44.1 percent of the Hemlo Gold Common Shares
and Hemlo Gold is accordingly an associated company of Noranda. All material
transactions between Hemlo Gold and the Noranda Group are approved by the
directors of Hemlo Gold with directors who are also directors and/or officers of
Noranda abstaining from voting.
Notes 10 and 15 to the audited Hemlo Gold consolidated financial statements
give details regarding transactions between Noranda and Hemlo Gold during 1995.
COMPARISON OF STOCKHOLDER RIGHTS
In the event that the Transaction is consummated, holders of Hemlo Gold
Common Shares will, at the Effective Time, have their Hemlo Gold Common Shares
exchanged for Exchangeable Shares. They will have the right to retract these
shares for an equivalent number of shares of Battle Mountain Common Stock.
Battle Mountain is a corporation organized under the NGCL. Hemlo Gold is a
corporation organized under the OBCA. While the rights and privileges of
shareholders of an Ontario corporation are, in many instances, comparable to
those of stockholders of a Nevada corporation, there are certain differences.
These differences arise from differences between Ontario and Nevada law, between
the OBCA and NGCL and between the Hemlo Gold Articles and Hemlo Gold Bylaws and
the Battle Mountain Articles and Battle Mountain Bylaws. For a description of
the respective rights of the holders of Hemlo Gold Common Shares and Battle
Mountain Common Stock, see, respectively, "INFORMATION CONCERNING HEMLO
GOLD -- Share Capital Structure" and " THE COMPANIES AFTER THE
TRANSACTION -- Battle Mountain Capital Stock."
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under the OBCA, certain extraordinary corporate actions, such as certain
amalgamations, continuances, 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. A special resolution is a
resolution passed at a meeting by not less than two-thirds of the votes cast by
the shareholders entitled to vote 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.
Except with respect to certain mergers between parent and subsidiary
corporations, the NGCL generally requires the affirmative vote of a majority of
the voting power of outstanding shares of the constituent corporations in a
merger. Under the NGCL, holders of a stock which is not by its terms entitled to
vote on such a transaction are entitled to notice of the meeting at which the
proposed transaction is considered. The NGCL does not require a stockholder vote
of the surviving corporation in a merger, however, if (a) the
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<PAGE> 194
merger agreement does not amend the existing certificate or articles of
incorporation, (b) each outstanding share of the surviving corporation before
the merger is unchanged after the merger and (c) each of the number of voting
shares and the number of shares with unlimited right to participate in
distributions to be issued by the surviving corporation in a merger (or upon
conversion or exercise of other securities issued in the merger), does not
exceed 20 percent of such shares outstanding immediately prior to the merger.
Pursuant to the Battle Mountain Articles, the vote of holders of 80 percent
of the voting power of all stock of Battle Mountain entitled to vote in
elections of directors (excluding stock entitled so to be voted only upon the
happening of some contingency unless such contingency has occurred and is
continuing) is required for approval of, with certain exceptions, a merger or
consolidation of Battle Mountain with or into another corporation, a sale or
lease of all or substantially all the assets of Battle Mountain to another
corporation, person or entity and, under certain conditions, a sale or lease to
Battle Mountain of assets in exchange for voting securities (or securities
convertible into or exchangeable for voting securities) of Battle Mountain or
any of its subsidiaries, in each case where the other party to the transaction
is the beneficial owner, directly or indirectly, of 5 percent or more of the
outstanding shares of any class or series of voting stock of Battle Mountain. In
addition, for any transaction to be effected for which the foregoing 80 percent
vote is required, it is also required that such transaction be approved by a
majority of the outstanding voting power of the voting stock of Battle Mountain,
exclusive of the voting stock beneficially owned, directly or indirectly, by the
party whose interest in the transaction and stock ownership in Battle Mountain
gives rise to the requirement of the 80 percent vote. The foregoing requirements
described in this paragraph do not apply to a transaction if (i) the Board of
Directors of Battle Mountain has approved a memorandum of understanding with
respect to such transaction with the other party to the transaction prior to the
time the 5 percent beneficial ownership position is acquired or (ii) the
transaction is made with a corporation of which 50 percent or more of its
outstanding voting stock is beneficially owned, directly or indirectly, by
Battle Mountain.
AMENDMENT TO GOVERNING DOCUMENTS
Under the OBCA, any amendment to the articles 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. The OBCA provides that unless the articles or bylaws otherwise
provide, the directors may, by resolution, make, amend or repeal any bylaws that
regulate the business or affairs of a corporation. Where the directors make,
amend or repeal a bylaw, they are required under the OBCA to submit the bylaw,
amendment or repeal to the shareholders at the next meeting of shareholders, and
the shareholders may confirm, reject or amend the bylaw, amendment or repeal by
an ordinary resolution, which is a resolution passed by a majority of the votes
cast by shareholders entitled to vote on the resolution.
Under the NGCL, unless the certificate or articles of incorporation or the
bylaws otherwise provide, amendments of the certificate of incorporation
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, and if such amendments would increase or
decrease the number of authorized shares of any class or series or the par value
of such shares or would adversely affect the shares of such class or series, a
majority of the outstanding stock of such class or series would have to approve
the amendment. In addition to the vote required by the NGCL, the Battle Mountain
Articles require approval of at least 80 percent of the total voting power of
the voting stock of Battle Mountain and the holders of at least a majority of
the voting power of the voting stock of Battle Mountain exclusive of all voting
stock of Battle Mountain owned by beneficial owners of 5 percent or more of the
outstanding shares of any class or series of voting stock of Battle Mountain to
effect an amendment or repeal of, or the adoption of any provision inconsistent
with, certain provisions of such articles relating to (i) the alteration,
amendment or repeal of the Battle Mountain Bylaws by stockholders, (ii) the
organization and powers of the Board of Directors and the nomination, election
and removal of directors, (iii) stockholder action without meetings and the
calling of special stockholder meetings or (iv) the affirmative vote required
for approval of mergers, consolidation or sale or lease of substantially all of
the assets of Battle Mountain between Battle Mountain and beneficial owners of 5
percent or more of the outstanding shares of any class or series of voting stock
of Battle Mountain. The Battle Mountain Articles also require the same
affirmative vote for the amendment or repeal of the foregoing provision. The
Battle Mountain Articles and the Battle Mountain Bylaws provide that they may be
altered,
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<PAGE> 195
amended or repealed by the stockholders only by the affirmative vote of at least
80 percent of the voting power of all shares of Battle Mountain represented at
any regular meeting of stockholders (or at any special meeting thereof duly
called for that purpose) and entitled to vote generally in the election of
directors, voting together as a class.
DISSENTERS' RIGHTS
The OBCA provides that 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. The OBCA does not
distinguish for this purpose between listed and unlisted shares. Such matters
include (a) any amalgamation with another corporation (other than with certain
affiliated corporations); (b) an amendment to the corporation's articles to add,
change or remove any provisions restricting the issue, transfer or ownership of
shares; (c) an amendment to the corporation's articles to add, change or remove
any restriction upon the business or businesses that the corporation may carry
on or upon the powers that the corporation may exercise; (d) a continuance under
the laws of another jurisdiction; (e) a sale, lease or exchange of all or
substantially all the property of the corporation 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; and (g) certain amendments to the
articles of a corporation which require a separate class or series vote,
provided that 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 NGCL provides that stockholders have the right, in some circumstances,
to dissent from certain corporate mergers and share exchanges and instead to
demand payment of the fair value of their shares. The NGCL generally does not
provide for dissenters' rights if no vote of the stockholders of the surviving
corporation is required. Further, dissenters' rights are not available under the
NGCL for shares listed on a securities exchange, included in the NASDAQ national
market system or held by at least 2,000 stockholders of record, unless the
articles of incorporation otherwise provide or unless the holders are required
to accept anything in exchange for their shares other than cash, stock or stock
and cash in lieu of fractional shares of the surviving or acquiring entity or of
any other entity which are listed on a national securities exchange, included in
the NASDAQ national market system or held by at least 2,000 stockholders of
record, or a combination of the foregoing.
OPPRESSION REMEDY
The OBCA provides an oppression remedy that enables the court to make any
order, both interim and final, to rectify the matters complained of where it is
satisfied upon application by a complainant (as defined below) that: (i) any act
or omission of the corporation or an affiliate effects or threatens to effect a
result; (ii) 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 (iii)
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 that unfairly disregards the interest of any security holder,
creditor, director or officer of the corporation. A complainant includes: (a) a
present or former registered holder or beneficial owner of securities of a
corporation or any of its affiliates; (b) a present or former officer or
director of the corporation or any of its affiliates; and (c) any other person
who in the discretion of the court is a proper person to make such application.
Because of the breadth of the 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
NGCL does not provide for a similar remedy.
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DERIVATIVE ACTION
Derivative actions may be brought in Nevada by a stockholder on behalf of,
and for the benefit of, the corporation. Under the Nevada Rules of Civil
Procedure, a stockholder must aver in the complaint that he or she was a
stockholder of the corporation at the time of the transaction of which he or she
complains, or that his or her share thereafter devolved on him or her by
operation of law. The complaint must also allege the efforts, if any, made by
the stockholder to obtain the action he or she desires from the directors or
comparable authority and, if necessary, from the stockholders, and the reasons
for his or her failure to obtain the action or for not making the effort.
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 any 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 has given 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.
Under the OBCA, the court in a derivative action may make any order it
thinks fit. Additionally, under the OBCA, a court may order a corporation or its
subsidiary to pay the complainant's interim costs, including reasonable legal
fees and disbursements. Although the complainant may be held accountable for the
interim costs on final disposition of the complaint, it is not required to give
security for costs in a derivative action.
SHAREHOLDER CONSENT IN LIEU OF MEETING
As permitted by the NGCL, the Battle Mountain Articles provide that no
action may be taken by stockholders without a meeting except by the unanimous
written consent of all stockholders entitled to vote on such action. Special
meetings of stockholders may be called only by a majority of the Board of
Directors, the Chairman of the Board or the President of Battle Mountain.
Under the OBCA, shareholder action without a meeting may only be taken by
written resolution signed by all shareholders who would be entitled to vote
thereon at a meeting. Special meetings of shareholders may be called by the
Board of Directors or, in certain circumstances, requisitioned by a holder of at
least 5 percent of the outstanding shares or a court.
DIRECTOR QUALIFICATIONS
Under the OBCA, an offering corporation, such as Hemlo Gold, must have not
fewer than three directors and a majority of the directors generally must be
resident Canadians. The OBCA also requires that at least one-third of the
directors of such a corporation must not be officers or employees of the
corporation or any of its affiliates. The NGCL does not have comparable
requirements.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under the NGCL have
fiduciary obligations to the corporation and its stockholders. Pursuant to these
fiduciary obligations, the directors must act in accordance with the so-called
duties of "due care" and "loyalty." The duty of care generally requires that the
directors act in an informed and deliberative manner and to inform themselves,
prior to making a business decision, of all material information reasonably
available to them. The duty of loyalty can be summarized as the duty to act in
good faith in a manner which the directors reasonably believe to be in the best
interests of the stockholders. It generally requires that there be no conflict
between duty and self-interest.
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Directors of corporations governed by the OBCA have fiduciary obligations
to the corporation. Under the OBCA, the duty of loyalty requires directors of an
Ontario corporation to act honestly and in good faith with a view to the best
interests 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.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
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 or her heirs and legal representatives (an
"Indemnifiable Person"), against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him or her in respect 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 such corporation or such body corporate, if: (a) he or
she acted honestly and in good faith with a view to the best interests of such
corporation; and (b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful. An Indemnifiable
Person is entitled to such indemnity from the corporation if he or she was
substantially successful on the merits in his or her defense of the action or
proceeding and fulfilled the conditions set out in (a) and (b), above. A
corporation may, with the approval of a court, also 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 such person is made a
party by reason of being or having been a director or an officer of the
corporation or body corporate, if he or she fulfills the conditions set out in
(a) and (b), above. The Hemlo Gold Bylaws provide for indemnification of
directors and officers to the fullest extent authorized by the OBCA.
The Battle Mountain Bylaws require indemnification of directors and
officers to the fullest extent permitted by the NGCL. Pursuant to the NGCL,
Battle Mountain generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses, judgments and
amounts paid in settlements incurred by them in connection with any suit to
which they are, or are threatened to be made, a party by reason of their serving
in such positions so long as they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interest of Battle
Mountain, and with respect to any criminal action, they had no reasonable cause
to believe their conduct was unlawful. With respect to suits by or in the right
of a corporation, however, indemnification is not available if such person is
finally adjudged to be liable to Battle Mountain or for amounts paid in
settlement, unless and only to the extent the court determines that
indemnification is appropriate.
DIRECTOR LIABILITY
The Battle Mountain Articles eliminate the personal liability of each
director of Battle Mountain to Battle Mountain or any of its stockholders for
damages resulting from breaches of fiduciary duty as a director involving any
act or omission of any such director occurring on or after April 28, 1987. The
Battle Mountain Articles do not limit or eliminate the liability of a director
for actions or omissions involving intentional misconduct, fraud, a knowing
violation of law or payment of an unlawful dividend.
The OBCA does not permit the limitation of a director's liability for
breach of fiduciary liability through the charter of a corporation.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
The NGCL generally disallows the exercise of voting rights with respect to
"control shares" of an "issuing corporation" held by an "acquiring person,"
unless such voting rights are conferred by a majority vote of the disinterested
stockholders. "Control shares" are the voting shares of an issuing corporation
acquired in connection with the acquisition of a "controlling interest."
"Controlling interest" is defined in terms of threshold levels of voting share
ownership, which thresholds, whenever each may be crossed, trigger application
of the voting bar with respect to the shares newly acquired. The issue of voting
rights is presented
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at the next annual or special meeting of stockholders after the acquisition in
question, unless a special meeting of stockholders is requested sooner by the
acquiring person. At such meeting, the votes of an "interested stockholder" are
not counted towards the majority approval requirement under the NGCL. In the
event that the control shares are accorded full voting rights (but only if the
acquiring person has acquired a majority voting interest in the issuing
corporation), any stockholder, other than the acquiring person, who has not
voted in favor of authorizing voting rights for the control shares is entitled
to demand payment for the fair value of his shares. Such right of payment may,
however, be expressly withdrawn by the corporate charter or bylaws. Any charter
or bylaw amendment withdrawing such right must be adopted prior to the tenth day
following the acquisition of a controlling interest. In the event that the
control shares are not accorded full voting rights, the issuing corporation may
call for redemption of all, but not less than all, of the control shares at the
average price paid for such shares, but only if the corporate charter or bylaws
expressly permit such redemption. Any charter or bylaw amendment providing for
such right of redemption must be adopted prior to the tenth day following the
acquisition of a controlling interest. For information regarding the required
vote of stockholders of Battle Mountain with respect to mergers, see "-- Vote
Required for Extraordinary Transactions."
The NGCL generally prohibits a publicly held Nevada corporation from
engaging in any "combination" with an "interested stockholder" for three years
after the date the interested stockholder became an interested stockholder
unless, prior to that date, either the combination or the purchase of shares
that resulted in the interested stockholder's becoming such is approved by the
board of directors of the corporation. An "interested stockholder" is a person
who, together with affiliates and associates, is the beneficial owner (or within
the previous three years was the beneficial owner) of 10 percent or more of the
voting power of the corporation's outstanding voting shares. A "business
combination" generally includes mergers, asset sales and share issuances above
threshold sizes, and certain other transactions resulting in financial benefit
to the interested stockholder. Even after the expiration of the three-year
period in which such business combinations with an interested stockholder are
prohibited, a corporation may not engage in a business combination with an
interested stockholder unless, in addition to meeting applicable requirements of
the corporation's articles of incorporation, either (1) the combination is
approved by the affirmative vote of a majority of the outstanding voting power
of the corporation not beneficially owned by the interested stockholder (or
affiliates or associates) called not earlier than the end of such three-year
period or (2) certain requirements for the minimum consideration payable to
holders other than the disinterested holder are met (based on the higher of (a)
the highest price per share paid by the interested stockholder within prescribed
periods and (b) the market value per share on the date of announcement of the
transaction or the date the interested stockholder became such (in each case
plus an amount based on an interest factor net of certain dividends) and (c) in
the case of a class other than common stock, the highest preferential amount
payable upon liquidation).
The ability of the Board of Directors of Battle Mountain to determine the
preferences, relative rights, qualifications and restrictions of the Preferred
Stock and to issue Preferred Stock without stockholder approval could have an
anti-takeover effect. The Board of Directors of Battle Mountain has adopted a
preferred stock purchase rights plan which has an anti-takeover effect. See "THE
COMPANIES AFTER THE TRANSACTION -- Battle Mountain Capital Stock -- Preferred
Stock -- Series A Preferred." Battle Mountain's committed revolving credit
facility provides that it is an event of default thereunder if (a) any person or
group acquires beneficial ownership of 20 percent or more of the voting stock of
Battle Mountain or (b) during any period of up to 24 consecutive months,
individuals who at the beginning of such 24-month period were directors of
Battle Mountain cease for any reason to constitute a majority of the Board of
Directors of Battle Mountain. Battle Mountain has obtained the consent and
waiver of the lenders under its committed revolving credit facility to the event
of default which would otherwise occur as a result of the Transaction.
The OBCA does not contain a comparable provision with respect to business
combinations. However, policies of certain Canadian securities regulatory
authorities, including Policy 9.1 of the Ontario Securities Commission ("Policy
9.1"), contain requirements in connection with related party transactions. A
related party transaction means, generally, any transaction by which an 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 or any combination of
transactions. "Related party" is
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defined in Policy 9.1 and includes directors, senior officers and holders of at
least 10 percent of the voting securities of the issuer.
Policy 9.1 requires more detailed disclosure in the proxy material sent to
security holders in connection with a related party transaction, and, subject to
certain exceptions, the preparation 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 also requires, subject to certain exceptions, that the minority shareholders
of the issuer separately approve the transaction, by either a simple majority or
two-thirds of the votes cast, depending on the circumstances.
DISSENTING SHAREHOLDERS' RIGHTS
HEMLO GOLD
Section 185 of the OBCA provides shareholders with the right to dissent
from certain resolutions of a corporation which effect extraordinary corporate
transactions or fundamental corporate changes. The Interim Order and the Final
Order provide Hemlo Gold shareholders with the right to dissent from the
Arrangement Resolution pursuant to section 185 of the OBCA and the Plan of
Arrangement.
Any Hemlo Gold shareholder who dissents from the Arrangement Resolution in
compliance with section 185 of the OBCA and the Plan of Arrangement will be
entitled, in the event the Arrangement becomes effective, to be paid by Hemlo
Gold the fair value of the Hemlo Gold Common Shares held by such dissenting
Hemlo Gold shareholder determined as of the close of business on the day before
the Arrangement Resolution is adopted.
A Hemlo Gold shareholder who wishes to dissent must send to Hemlo Gold, no
later than the termination of the Hemlo Gold Shareholders Meeting (or any
adjournment thereof), written objection to the Arrangement Resolution (a
"Dissent Notice"). The filing of a Dissent Notice does not deprive a Hemlo Gold
shareholder of the right to vote; however, the OBCA provides, in effect, that a
Hemlo Gold shareholder who has submitted a Dissent Notice and who votes in favor
of the Arrangement Resolution will no longer be considered a dissenting Hemlo
Gold shareholder with respect to that class of shares voted in favor of the
Arrangement Resolution. The OBCA does not provide, and Hemlo Gold will not
assume, that a vote against the Arrangement Resolution or an abstention
constitutes a Dissent Notice but a Hemlo Gold shareholder need not vote his or
her Hemlo Gold Common Shares against the Arrangement Resolution in order to
dissent. Similarly, the revocation of a proxy conferring authority on the proxy
holder to vote in favor of the Arrangement Resolution does not constitute a
Dissent Notice; however, any proxy granted by a Hemlo Gold shareholder who
intends to dissent, other than a proxy that instructs the proxy holder to vote
against the Arrangement Resolution, should be validly revoked (see "THE
MEETINGS -- GENERAL PROXY INFORMATION -- Hemlo Gold") in order to prevent the
proxy holder from voting such Hemlo Gold Common Shares in favor of the
Arrangement Resolution and thereby causing the Hemlo Gold shareholder to forfeit
his or her right to dissent. Under the OBCA, there is no right of partial
dissent and, accordingly, a dissenting Hemlo Gold shareholder may only dissent
with respect to all Hemlo Gold Common Shares held by him or her on behalf of any
one beneficial owner and which are registered in the name of the dissenting
Hemlo Gold shareholder.
Hemlo Gold is required, within 10 days after the Hemlo Gold shareholders
adopt the Arrangement Resolution, to notify each Hemlo Gold shareholder who has
filed a Dissent Notice that the Arrangement Resolution has been adopted, but
such notice is not required to be sent to any Hemlo Gold shareholder who voted
for the Arrangement Resolution or who has withdrawn his or her Dissent Notice.
A dissenting Hemlo Gold shareholder who has not withdrawn his or her
Dissent Notice must then, within 20 days after receipt of notice that the
Arrangement Resolution has been adopted or, if the dissenting Hemlo Gold
shareholder does not receive such notice, within 20 days after he or she learns
that the Arrangement Resolution has been adopted, send to Hemlo Gold a written
notice (a "Payment Demand") containing his or her name and address, the number
of Hemlo Gold Common Shares in respect of which he or she dissents, and
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a demand for payment of the fair value of such Hemlo Gold Common Shares. Within
30 days after sending a Payment Demand, the dissenting Hemlo Gold shareholder
must send to the Hemlo Gold transfer agent the certificates representing the
Hemlo Gold Common Shares in respect of which he or she dissents. A dissenting
Hemlo Gold shareholder who fails to send certificates representing the Hemlo
Gold Common Shares in respect of which he or she dissents forfeits his or her
right to make a claim under section 185 of the OBCA. The Hemlo Gold transfer
agent will endorse on share certificates received from a dissenting Hemlo Gold
shareholder a notice that the holder is a dissenting Hemlo Gold shareholder and
will forthwith return the share certificates to the dissenting Hemlo Gold
shareholder.
At the Effective Time, a dissenting Hemlo Gold shareholder ceases to have
any rights as a Hemlo Gold shareholder notwithstanding the provisions of section
185 of the OBCA, and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their Hemlo Gold
Common Shares shall (i) be deemed to have transferred their Hemlo Gold
Common Shares to Hemlo Gold for cancellation at the Effective Time and (ii)
not be entitled to any other payment or consideration including any payment
that would be payable under the Arrangement had such holders not exercised
their right of dissent; or
(b) are ultimately not entitled, for any reason, to be paid fair value
for their Hemlo Gold Common Shares shall be deemed to have participated in
the Arrangement on the same basis as any non-dissenting holder of Hemlo
Gold Common Shares, including receiving Exchangeable Shares pursuant to
section 2.4.
Hemlo Gold is required, not later than seven days after the later of the
effective date of the Arrangement or the date on which Hemlo Gold received the
Payment Demand of a dissenting Hemlo Gold shareholder, to send to each
dissenting Hemlo Gold shareholder who has sent a Payment Demand a written offer
to pay ("Offer to Pay") for his or her Hemlo Gold Common Shares in an amount
considered by the Hemlo Gold Board of Directors to be the fair value thereof,
accompanied by a statement showing the manner in which the fair value was
determined. Every Offer to Pay must be on the same terms. Hemlo Gold must pay
for the Hemlo Gold Common Shares of a dissenting Hemlo Gold shareholder within
10 days after an offer made as aforesaid has been accepted by a dissenting Hemlo
Gold shareholder, but any such offer lapses if Hemlo Gold does not receive an
acceptance thereof within 30 days after the Offer to Pay has been made.
If Hemlo Gold fails to make an Offer to Pay for a dissenting Hemlo Gold
shareholder's Hemlo Gold Common Shares, or if a dissenting Hemlo Gold
shareholder fails to accept an offer which has been made, Hemlo Gold may, within
50 days after the effective date of the Arrangement or within such further
period as a court may allow, apply to a court to fix a fair value for the Hemlo
Gold Common Shares of dissenting Hemlo Gold shareholders. If Hemlo Gold fails to
apply to a court, a dissenting Hemlo Gold shareholder may apply to a court for
the same purpose within a further period of 20 days or within such further
period as a court may allow. A dissenting Hemlo Gold shareholder is not required
to give security for costs in such an application.
Upon an application to a court, all dissenting Hemlo Gold shareholders
whose Hemlo Gold Common Shares have not been purchased by Hemlo Gold will be
joined as parties and bound by the decision of the court, and Hemlo Gold will be
required to notify each affected dissenting Hemlo Gold shareholder of the date,
place and consequences of the application and of his or her right to appear and
be heard in person or by counsel. Upon any such application to a court, the
court may determine whether any person is a dissenting Hemlo Gold shareholder
who should be joined as a party, and the court will then fix a fair value for
the Hemlo Gold Common Shares of all dissenting Hemlo Gold shareholders. The
final order of a court will be rendered against Hemlo Gold in favor of each
dissenting Hemlo Gold shareholder and for the amount of the fair value of his or
her Hemlo Gold Common Shares as fixed by the court. The court may, in its
discretion, allow a reasonable rate of interest on the amount payable to each
dissenting Hemlo Gold shareholder from the effective date of the Arrangement
until the date of payment.
The above is only a summary of the dissenting shareholder provisions of the
OBCA, which are technical and complex. It is suggested that any Hemlo Gold
shareholder wishing to avail himself or herself of his or her rights under those
provisions seek his or her own legal advice as failure to comply strictly with
the provisions of the OBCA may prejudice his or her right of dissent. For a
general summary of certain income tax implications
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to a dissenting Hemlo Gold shareholder, see "TAX CONSIDERATIONS TO HEMLO GOLD
SHAREHOLDERS -- Canadian Federal Tax Considerations to Hemlo Gold
Shareholders -- Dissenting Shareholders" and "TAX CONSIDERATIONS TO HEMLO GOLD
SHAREHOLDERS -- United States Federal Tax Considerations to Hemlo Gold
Shareholders -- Dissenting Shareholders."
BATTLE MOUNTAIN
Under the NGCL, holders of Battle Mountain Common Stock who object to the
Transaction will not be entitled to demand appraisal of, or to receive payment
for, their Battle Mountain Common Stock.
ADDITIONAL MATTERS FOR CONSIDERATION OF
BATTLE MOUNTAIN STOCKHOLDERS
ELECTION OF THREE DIRECTORS AND DIRECTOR COMPENSATION
Unless contrary instructions are set forth in the proxy for the Battle
Mountain Stockholders Meeting, it is intended that the persons named in the
proxy will vote all shares of Battle Mountain Common Stock represented by the
proxy for the election of Messrs. Childers, Elers and Werneburg as directors.
Messrs. Childers, Elers and Werneburg are presently members of the Battle
Mountain Board of Directors.
The three directors elected at the meeting will each serve for a term of
three years, ending in 1999. Should any nominee become unavailable for election,
the Battle Mountain Board of Directors may designate another nominee, in which
case the persons acting under duly executed proxies will vote for the election
of the replacement nominee. Management is not aware of any circumstances likely
to render any nominee unavailable (except that, as set forth below under
"-- Actions in Connection with the Transaction," Mr. Werneburg is expected to
resign from the Board upon consummation of the Transaction). Election of
directors will be by a plurality of the votes cast. Broker non-votes and
abstentions will have no effect on the outcome of the election.
The Battle Mountain Articles provide for the classification of the Board of
Directors into three classes having staggered terms of three years each. The
present terms of office of the six directors named below whose terms will
continue after this meeting expire in either 1997 or 1998, as indicated.
Nominees
The following sets forth information concerning the three nominees for
election as directors at the meeting, including information as to each nominee's
age as of March 15, 1996, position with Battle Mountain and business experience
during the past five years.
NAME, AGE AND BUSINESS EXPERIENCE
CHARLES E. CHILDERS has served as Chairman of the Board, President and Chief
Executive Officer of Potash Corporation of Saskatchewan, Inc. (mining and
processing of potash) since 1990. From 1987 through 1990, Mr. Childers served as
President and Chief Executive Officer of that corporation. Mr. Childers is also
a director of QUNO Corporation. He became a director of Battle Mountain in 1993.
Mr. Childers serves on the Compensation and Stock Option Committee. He is 63
years old.
KARL E. ELERS is Chairman of the Board and Chief Executive Officer of Battle
Mountain. Mr. Elers is a member of Battle Mountain's Executive Committee. From
April 1988 until April 1990, he was President and Chief Operating Officer of
Battle Mountain. From May 1987 until April 1988, Mr. Elers was Executive Vice
President of Battle Mountain. Mr. Elers became a director in 1987. He is 57
years old.
KENNETH R. WERNEBURG has been President and Chief Operating Officer of Battle
Mountain since April 1990, having previously served as Executive Vice President
of Battle Mountain since November 1989. Mr. Werneburg became a director of
Battle Mountain in 1990. He is a member of Battle Mountain's
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Executive Committee and is Chairman of Battle Mountain's Environmental Affairs
and Ethics Committee. He is 54 years old.
Directors with Terms Expiring in 1997 and 1998
The following sets forth information concerning the six directors of Battle
Mountain whose present terms expire in 1997 or 1998, including information as to
each director's age as of March 15, 1996, position with Battle Mountain and
business experience during the past five years.
NAME, AGE AND BUSINESS EXPERIENCE
DOUGLAS J. BOURNE was Chairman of the Board and Chief Executive Officer of
Battle Mountain until his retirement in April 1990. Mr. Bourne serves as
Chairman of Battle Mountain's Executive Committee and is a member of Battle
Mountain's Environmental Affairs and Ethics Committee. Mr. Bourne has been a
director of Battle Mountain since its formation, and his present term expires in
1997. He is 73 years of age and is also a director of Potash Corporation of
Saskatchewan, Inc.
DELO H. CASPARY has been engaged for more than five years in managing his
personal investments. He became a director of Battle Mountain in 1985, and his
present term expires in 1997. Mr. Caspary is also a director of Caspen, plc., a
British company, and Victoria Bank and Trust. Mr. Caspary serves on Battle
Mountain's Finance and Audit Committee. He is 70 years old.
JACK R. CROSBY has been Chairman of the Board and Chief Executive Officer of the
Rust Group (investments, property development and telecommunications) for more
than five years. Mr. Crosby is Chairman of the Board and Chief Executive Officer
of Tescorp, Inc. and a director of National Dentex Corporation. He became a
director of Battle Mountain in 1985, and his present term expires in 1998. Mr.
Crosby is a member of Battle Mountain's Compensation and Stock Option Committee.
He is 69 years of age.
RODNEY L. GRAY has served as Managing Director of Enron Development Corp. since
August 1995. He served as President and CEO of Enron Global Power & Pipelines
LLC from October 1994 through November 1995, and now serves as Chairman,
President and CEO of that corporation. Mr. Gray served as Managing Director of
Enron Capital & Trade Resources, Inc. from October 1994 through August 1995.
From July 1993 through October 1994, he served as Chairman and Chief Executive
Officer for Enron International, Inc. From October 1992 through July 1993, Mr.
Gray served as Senior Vice President, Finance and Treasurer for Enron, and was
responsible for Enron's worldwide financing activities. From April 1988 through
October 1992, Mr. Gray served as Vice President and Treasurer for Enron. Mr.
Gray is also a director of Harmon Industries, Inc. and Enron Global Power &
Pipelines LLC. He became a director of Battle Mountain in 1993, and his present
term expires in 1997. Mr. Gray serves on the Finance and Audit Committee. He is
43 years old.
TED H. PATE was President and Chief Operating Officer of Battle Mountain until
April 1988. Mr. Pate became a director of Battle Mountain in 1985, and his
present term expires in 1998. Mr. Pate serves as Chairman of Battle Mountain's
Finance and Audit Committee and is a member of the Environmental Affairs and
Ethics Committee. He is 69 years of age.
WILLIAM A. WISE has served as Chairman of the Board, President and Chief
Executive Officer of El Paso Natural Gas Company, an integrated natural gas
company, since January 1994. From April 1989 through January 1990, Mr. Wise was
President and Chief Operating Officer of that corporation. He became Chief
Executive Officer in January 1990. Mr. Wise has been a director of Battle
Mountain since 1994, and his present term expires in 1998. Mr. Wise serves as
Chairman of Battle Mountain's Compensation and Stock Option Committee. He is 50
years old.
Board Organization and Committees
Battle Mountain's Executive Committee is composed of Messrs. Bourne
(Chairman), Elers and Werneburg. The Executive Committee may exercise the powers
of the Board of Directors at times when the Board is not in session.
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The members of the Finance and Audit Committee and the Compensation and
Stock Option Committee of the Board of Directors are not employees of Battle
Mountain. The Finance and Audit Committee of the Board is composed of Messrs.
Pate (Chairman), Caspary and Gray. The Finance and Audit Committee provides
oversight of Battle Mountain's performance in fulfilling its responsibility to
maintain an organization which is capable of conducting the financial business
of Battle Mountain and to maintain an internal control environment necessary to
conduct and properly report Battle Mountain's business. The Finance and Audit
Committee also recommends the appointment of independent public accountants to
conduct audits of Battle Mountain's financial statements, reviews with the
independent accountants the plan and results of the auditing engagement and
evaluates the independence of the accountants.
The Compensation and Stock Option Committee is composed of Messrs. Wise
(Chairman), Childers and Crosby. The Compensation and Stock Option Committee
approves, or in some cases recommends to the Board, remuneration arrangements
and compensation plans involving Battle Mountain's directors, executive officers
and other key employees.
The Environmental Affairs and Ethics Committee of the Board of Directors of
Battle Mountain is composed of Messrs. Werneburg (Chairman), Bourne and Pate.
The Environmental Affairs and Ethics Committee was formed in February 1993 to
oversee Battle Mountain's Code of Ethical Business Conduct and environmental and
legal compliance programs.
The Board of Directors does not have a standing nominating committee or
other committee performing a similar function. Nominations are determined by the
entire Board of Directors.
During 1995, the Board of Directors held five meetings. During 1995, the
Executive Committee met on one occasion, the Finance and Audit Committee and the
Compensation and Stock Option Committee each met on three occasions, and the
Environmental Affairs and Ethics Committee met on two occasions. All directors,
with the exception of Mr. Gray, attended at least 75 percent of the aggregate
number of meetings of the Board of Directors and the committees on which they
served.
Actions in Connection with the Transaction
Pursuant to the Combination Agreement, effective upon completion of the
Transaction, the Battle Mountain Board of Directors will be increased to 12
members, six of whom are current directors of Battle Mountain and six of whom
will be designated by the Hemlo Gold Board of Directors. Of the current
directors of Battle Mountain, two of the directors to be elected at the annual
meeting (for which the nominees are Messrs. Childers and Elers), together with
continuing directors Messrs. Bourne, Caspary, Pate and Wise are expected to
serve as directors of Battle Mountain following the Effective Time, and
effective at the Effective Time Messrs. Crosby, Gray and Werneburg are expected
to resign from the Board. See "THE COMPANIES AFTER THE
TRANSACTION -- Management -- Directors."
APPROVAL OF AMENDMENT TO 1994 LONG-TERM INCENTIVE PLAN
In connection with the approval of the Combination Agreement, Battle
Mountain proposes to amend and restate its 1994 Long-Term Incentive Plan (the
"Incentive Plan") to increase the number of shares of Battle Mountain Common
Stock authorized for issuance under the Incentive Plan from 4,000,000 to
10,000,000 and to provide that stock options and other stock awards thereunder
may include awards relating to Exchangeable Shares as well as Battle Mountain
Common Stock. A copy of the 1994 Long-Term Incentive Plan of Battle Mountain as
proposed to be amended and restated is attached hereto as Annex I and the
following description of the Incentive Plan is qualified by reference to the
full text contained therein.
The purpose of the Incentive Plan is to retain key executives and other
selected employees, reward them for making major contributions to the success of
Battle Mountain and provide them with a proprietary interest in the growth and
performance of Battle Mountain.
Employees who participate in the Incentive Plan are selected by a committee
designated by the Board of Directors to administer the Incentive Plan (the
"Committee") from among those who hold positions of
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responsibility and whose performance, in the judgment of the Committee, can have
significant effect on the success of Battle Mountain.
The aggregate number of shares of Battle Mountain Common Stock or
Exchangeable Shares that may be awarded pursuant to the Incentive Plan will not
exceed 10,000,000, of which not more than 2,500,000 shares of Battle Mountain
Common Stock or Exchangeable Shares are available for awards other than stock
options and stock appreciation rights granted at an exercise or strike price not
less than fair market value on the date of grant. Shares of Common Stock and
Exchangeable Shares will count against the foregoing 10,000,000 and 2,500,000
share limits on an equal basis. The number of shares of Battle Mountain Common
Stock or Exchangeable Shares that may be awarded pursuant to the Incentive Plan
is subject to adjustment upon the occurrence of certain events.
The Incentive Plan is administered by the Committee, which is constituted
to permit the Incentive Plan to comply with Rule 16b-3 promulgated under the
Securities Exchange Act. Subject to the terms of the Incentive Plan, the
Committee has authority (i) to select employees to receive awards, (ii) to
determine the timing, form, amount or value and term of awards, and the
conditions and limitations, if any, subject to which awards will be made and
become payable and (iii) to interpret the Incentive Plan and adopt rules,
regulations and guidelines for carrying out the Incentive Plan. The Committee
may delegate certain of its duties under the Incentive Plan to senior officers
of Battle Mountain.
The Incentive Plan provides for the grant of any or all of the following
types of awards: stock options, stock appreciation rights, stock awards and cash
awards. Stock options have exercise prices not less than the fair market value
of the Battle Mountain Common Stock or Exchangeable Shares, as the case may be,
on the date of grant and may be incentive stock options that comply with Section
422 of the Internal Revenue Code. The exercise price of any stock option may, at
the discretion of the Committee, be paid in cash or by surrendering shares of
Battle Mountain Common Stock or Exchangeable Shares or another award under the
Incentive Plan, valued at fair market value on the date of exercise, or any
combination thereof. Vesting conditions for a stock option, stock appreciation
right, stock award or cash award are specified by the Committee and set forth in
the applicable award agreement. Vesting conditions may include, without
limitation, provision for acceleration or change in the form of payment or
settlement of the award.
Stock appreciation rights are rights to receive, without payment of any
exercise price, cash or shares of Battle Mountain Common Stock or Exchangeable
Shares with a value determined by reference to the difference between the
exercise or "strike" price of the stock appreciation right and the fair market
value or other specified valuation of the Battle Mountain Common Stock or
Exchangeable Shares at the time of exercise. Stock appreciation rights may be
granted in tandem with stock options or separately.
Stock awards may consist of Battle Mountain Common Stock or Exchangeable
Shares, or be denominated in units of Battle Mountain Common Stock or
Exchangeable Shares. Stock awards may be subject to conditions established by
the Committee, including service vesting conditions and performance conditions
(including without limitation performance conditions based on achievement of
specific business objectives, increases in specified indices and attaining
specified growth measures or rates). A stock award may provide for voting rights
and dividend or dividend equivalent rights.
Cash awards may be denominated in cash with the amount of payment subject
to conditions specified by the Committee, including service conditions and
performance conditions.
No participant may be granted, during any three-year period awards
consisting of stock options or stock appreciation rights exercisable for more
than 12.5 percent of the aggregate shares of Battle Mountain Common Stock and
Exchangeable Shares reserved for issuance under the Plan.
Payment of awards may be made in cash, Battle Mountain Common Stock,
Exchangeable Shares or combinations thereof, as determined by the Committee. An
award may provide for the granting or issuance of additional, replacement or
alternative awards upon the occurrence of specified events, including the
exercise of the original award.
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An award may provide for a tax gross-up payment to a participant if a
change in control of Battle Mountain results in the participant owing an excise
tax or other tax above the rate ordinarily applicable, pursuant to the parachute
tax provisions of Section 280G of the Internal Revenue Code or otherwise. The
gross-up payment would be in an amount such that the net amount received by the
participant, after paying the increased tax and any additional taxes on the
additional amount, would be equal to that receivable by the participant if the
increased tax were not applicable.
The Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of meeting or addressing any changes in legal
requirements or for any other purpose permitted by law except that (i) no
amendment or alteration that would impair the rights under any award previously
granted will be made without the award holder's consent and (ii) no amendment or
alteration will be effective prior to approval by Battle Mountain's stockholders
to the extent such approval is then required pursuant to Rule 16b-3 promulgated
under the Securities Exchange Act in order to preserve the applicability of any
exemption provided by such rule to any award then outstanding (unless the holder
of such award consents) or to the extent stockholder approval is otherwise
required by applicable legal requirements.
The holder of a nonqualified stock option will recognize no taxable income
as a result of the grant of the stock option. Upon the exercise of the stock
option, however, the holder of a nonqualified stock option will recognize
taxable ordinary income in an amount equal to the difference between the fair
market value of the shares of Battle Mountain Common Stock or Exchangeable
Shares on the date of exercise and the exercise or purchase price (or in the
case of relinquishment in an amount equal to the sum of the cash received and
the fair market value of the shares of Battle Mountain Common Stock or
Exchangeable Shares or award received determined on the date of exercise) and,
correspondingly, Battle Mountain will be entitled to an income tax deduction for
such amount.
Upon the exercise of an incentive stock option, the stock option holder
generally will not recognize taxable income by reason of the exercise, and
Battle Mountain normally will not be entitled to any income tax deduction. If
the stock option holder disposes of the shares acquired upon the exercise of an
incentive stock option after satisfaction of certain minimum holding periods any
gain realized will be capital gain. Gain attributable to post-exercise
appreciation of stock acquired upon the exercise of nonqualified or incentive
stock option will be capital gain if the stock option holder has held the shares
as a capital asset and for more than one year. If a stock option holder disposes
of the shares acquired upon the exercise of an incentive stock option within the
minimum holding periods, the stock option holder would recognize ordinary
income, and Battle Mountain would be entitled to a commensurate income tax
deduction (except with respect to post-exercise appreciation).
The grant of a stock appreciation right will produce no U.S. federal tax
consequences for the participant or Battle Mountain. The exercise of a stock
appreciation right results in taxable income to the participant, equal to the
difference between the exercise price of the shares of Battle Mountain Common
Stock or Exchangeable Shares and the market value of such shares on the date of
exercise and a corresponding tax deduction to Battle Mountain.
A participant under the Incentive Plan who has been granted an award of
restricted shares of Battle Mountain Common Stock or Exchangeable Shares will
not realize taxable income at the time of the grant, and Battle Mountain will
not be entitled to a tax deduction at the time of the grant, unless the
participant makes an election to be taxed at the time of the award. When the
restrictions lapse, the participant will recognize taxable income in an amount
equal to the excess of the fair market value of the shares of Battle Mountain
Common Stock or Exchangeable Shares at such time over the amount, if any, paid
for such shares. Battle Mountain will be entitled to a corresponding tax
deduction. Dividends paid to the participant during the restriction period will
also be compensation income to the participant and deductible as such by Battle
Mountain. The holder of a restricted stock award may elect to be taxed at the
time for grant of the restricted stock award on the market value of the shares
of Battle Mountain Common Stock or Exchangeable Shares, in which case (1) Battle
Mountain will be entitled to a deduction at the same time and in the same
amount, (2) dividends paid to the participant during the restriction period will
be taxable as dividends to him and not
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deductible by Battle Mountain, and (3) there will be no further federal income
tax consequences when the restrictions lapse.
The allocation of future awards under the Incentive Plan is not currently
determinable as such allocation is dependent upon future decisions to be made by
the Committee in its sole discretion, subject to the applicable provisions of
the Incentive Plan.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Finance and Audit Committee of the Battle Mountain Board of Directors
has approved and recommends the appointment of Price Waterhouse LLP as
independent accountants to conduct an audit of Battle Mountain's consolidated
financial statements for the fiscal year ending December 31, 1996. Ratification
of the appointment of the accountants is being sought in order to give
stockholders the opportunity to express their opinion on the matter.
Ratification will require the affirmative vote of the holders of a majority of
the votes cast. Accordingly, abstentions and broker non-votes will have no
effect on the determination of the outcome of the vote. Should ratification not
be obtained, the Battle Mountain Board of Directors would expect to reconsider
the appointment.
Price Waterhouse LLP replaced the firm of Arthur Andersen LLP as Battle
Mountain's independent accountants effective upon the completion of the audit
for the year ended December 31, 1994 and the filing of the Battle Mountain
Annual Report on Form 10-K for that year. The decision to change accountants was
approved by the Finance and Audit Committee of the Board of Directors on January
6, 1995. The reports of Arthur Andersen LLP on Battle Mountain's consolidated
financial statements for the years ended December 31, 1993 and 1994 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
years ended December 31, 1993 and 1994, and the subsequent interim period
through the termination of the engagement of Arthur Andersen LLP, there were no
disagreements between Battle Mountain and Arthur Andersen LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which disagreements, if not resolved to the satisfaction of
Arthur Andersen LLP, would have caused Arthur Andersen LLP to make reference to
the subject matter of the disagreement in their report.
Members of Price Waterhouse LLP are expected to attend the meeting and, if
present, be available to answer appropriate questions which may be asked by
stockholders. Such members will also have an opportunity to make statements at
the meeting if they desire to do so.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5 submitted to Battle Mountain
during and with respect to 1995 and written representations from certain
reporting persons that no Forms 5 were required from such persons, no failures
to file on a timely basis reports required by Section 16(a) of the Exchange Act
during 1995 or prior years by any person who was an officer or director of
Battle Mountain during 1995 were identified.
OTHER BUSINESS
Management does not intend to bring any business before the meeting other
than the matters referred to in the accompanying notice. If, however, any other
matters properly come before the meeting, it is intended that the persons named
in the accompanying proxy will vote pursuant to the proxy in accordance with
their best judgment on such matters to the extent permitted by applicable law
and regulations. The discretionary authority includes matters which the Battle
Mountain Board of Directors does not know are to be presented at the meeting by
others and any proposals of stockholders omitted from the proxy material
pursuant to Rule 14a-8 of the SEC.
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STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at Battle Mountain's
1997 annual meeting, and otherwise eligible, must be received by Battle Mountain
(at the address indicated in the accompanying notice) no later than February 8,
1997 to be included in Battle Mountain's proxy material and form of proxy
relating to that meeting.
ADDITIONAL MATTERS FOR CONSIDERATION OF
HEMLO GOLD SHAREHOLDERS
In addition to consideration of and voting on the Arrangement Resolution,
at the Hemlo Gold shareholders Meeting the Hemlo Gold shareholders will be asked
to vote on the following additional matters.
ELECTION OF DIRECTORS
Under the articles of incorporation of Hemlo Gold, the Hemlo Gold Board of
Directors consists of a minimum of five members and a maximum of 15 members; the
number of directors within such range is to be determined by Hemlo Gold Board of
Directors from time to time. The number of directors is currently fixed at nine.
The persons named in the enclosed form of proxy intend to vote for the
election of the nine current directors of Hemlo Gold. Certain information
regarding these individuals is set out above under "INFORMATION CONCERNING HEMLO
GOLD -- Directors and Officers" and " -- Executive Compensation."
It is not anticipated that any of the nominees will be unable to serve as
directors but if that should occur for any reason prior to the Hemlo Gold
Shareholders Meeting, the persons named in the enclosed form of proxy shall be
entitled to vote for any other nominees in their discretion.
Each director elected will hold office until the next annual meeting of
shareholders or until a successor is duly elected or appointed. It is
anticipated that those directors who are currently members of the Compensation
Committee and/or Audit Committee of Hemlo Gold Board of Directors will continue
in those positions.
If the Transaction is completed, each member of the Hemlo Gold Board of
Directors immediately prior to the Effective Time will resign effective as of
the Effective Time, and the members of the Battle Mountain Canada Board of
Directors will be elected by Battle Mountain.
APPOINTMENT OF AUDITORS
The persons designated in the enclosed form of proxy intend to vote for the
appointment of Ernst & Young, Chartered Accountants, as independent auditors of
Hemlo Gold and to authorize the directors to fix their remuneration.
In the event that the proposal requesting ratification of Price Waterhouse
LLP as Battle Mountain's independent accountants is approved, Price Waterhouse
LLP will be the independent accountants of all of Battle Mountain and its
subsidiaries, including Battle Mountain Canada if the Transaction is completed,
but excluding Niugini Mining and its subsidiaries.
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AVAILABLE INFORMATION
Battle Mountain and Hemlo Gold are subject to the informational
requirements of the Exchange Act, and in accordance therewith file reports and
other information with the SEC. The reports and other information filed by
Battle Mountain and Hemlo Gold with the SEC can be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at Seven
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such material
also can be obtained from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, such material filed by Battle Mountain can be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005, and such material filed
by Hemlo Gold can be inspected at the offices of the AMEX, 86 Trinity Place, New
York, New York and the TSE, Exchange Tower, 2 First Canadian Place, Toronto
Ontario M5X IJ2.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
BATTLE MOUNTAIN
The following documents, which have been filed by Battle Mountain with the
SEC pursuant to the Exchange Act (File No. 1-9666), are incorporated in this
Joint Proxy Statement by reference and shall be deemed to be a part hereof for
purposes of the Exchange Act:
(a) Battle Mountain's Annual Report on Form 10-K for the year ended
December 31, 1995, as amended by Form 10-K/A dated April 29, 1996;
(b) Battle Mountain's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996;
(c) Battle Mountain's Current Report on Form 8-K dated March 11, 1996;
(d) The description of the Battle Mountain Common Stock contained in
Battle Mountain's Registration Statement on Form 8-A dated August 12, 1987
(as amended by a Form 8 dated April 25, 1991); and
(e) The description of the preferred stock purchase rights associated
with the Battle Mountain Common Stock contained in Battle Mountain's
Registration Statement on Form 8-A dated November 15, 1988 (as amended by a
Form 8 dated November 29, 1988).
All documents filed by Battle Mountain pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement and prior to the Battle Mountain Stockholders Meeting and any
adjournment or postponement thereof, shall be deemed to be incorporated by
reference in this Joint Proxy Statement and to be a part hereof for purposes of
the Exchange Act from the date of the filing of such documents. Any statement
contained in this Joint Proxy Statement, in a supplement to this Joint Proxy
Statement or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement to the extent that a statement contained herein or in
any subsequently filed supplement to this Joint Proxy Statement or in any
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Joint Proxy Statement.
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Battle Mountain hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Joint Proxy Statement has
been delivered, on the written or oral request of any such person, a copy of any
or all of the documents referred to above which have been or may be incorporated
in this Joint Proxy Statement by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Written or telephone requests for such copies should be
directed to Battle Mountain at its principal executive offices located at 333
Clay Street, 42nd Floor, Houston, Texas 77002, Attention: Secretary (telephone
number (713) 650-6400).
HEMLO GOLD
The following documents, filed by Hemlo Gold with the various securities
commissions or similar authorities in each of the provinces of Canada, and with
the SEC under cover of Form 40-F or Form 6-K, are specifically incorporated by
reference in and form an integral part of this Joint Proxy Statement:
(a) Annual Information Form dated February 29, 1996, including the
Management's Discussion and Analysis and the comparative Consolidated
Financial Statements for the fiscal years ended December 31, 1995 and
1994 and the Auditor's Report thereon (included in Hemlo Gold's Form
40-F dated April 10, 1996);
(b) Interim Report to Shareholders -- Three Months Ending March 31, 1996 of
Hemlo Gold containing unaudited Consolidated Financial Statements of
Hemlo Gold for the fiscal quarter ended March 31, 1996 and for the
comparative period in 1995 (included in Hemlo Gold's Form 6-K dated May
24, 1996); and
(c) Material Change Report dated March 21, 1996 relating to the Transaction
(included in Hemlo Gold's Form 6-K dated April 9, 1996).
Any documents of the type referred to in the preceding paragraph and any
material change reports (excluding confidential reports) filed by Hemlo Gold
with a securities commission or any similar authority in Canada after the date
of this Joint Proxy Statement and prior to the Effective Time shall be deemed to
be incorporated by reference in this Joint Proxy Statement.
HEMLO GOLD WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS JOINT PROXY STATEMENT HAS BEEN
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL
OF THE DOCUMENTS REFERRED TO ABOVE WHICH HAVE BEEN OR MAY BE INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT, OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO THE CORPORATE
SECRETARY, HEMLO GOLD MINES INC., SUITE 2902, 1 ADELAIDE STREET EAST, TORONTO,
ONTARIO, CANADA M5C 2Z9 (TELEPHONE NUMBER (416) 982-7116).
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modified or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Joint Proxy
Statement. The making of a modifying or superseding statement shall not be
deemed an admission for any purposes that the modified or superseded statement,
when made, constituted a misrepresentation, an untrue statement of a material
fact or an omission to state a material fact that is required to be stated or
that is necessary to make a statement not misleading in light of the
circumstances in which it was made.
By Order of the Battle Mountain Board of
Directors
/s/ Karl E. Elers
Karl E. Elers
Chairman of the Board
June 7, 1996
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APPROVAL OF PROXY STATEMENT BY
HEMLO GOLD BOARD OF DIRECTORS
The contents of this joint management information circular and proxy
statement and the sending thereof to the shareholders of Hemlo Gold have been
approved by the Hemlo Gold Board of Directors.
By Order of the Hemlo Gold Board of
Directors
/s/ IAN D. BAYER
Ian D. Bayer
President and Chief Executive Officer
June 7, 1996
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INDEX TO BATTLE MOUNTAIN FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
AUDITED FINANCIAL STATEMENTS.......................................................... FS-1
Reports of Independent Public Accountants............................................. FS-1
Consolidated Statement of Income for the years ended December 31, 1995, 1994 and
1993................................................................................ FS-4
Consolidated Balance Sheet at December 31, 1995 and 1994.............................. FS-5
Consolidated Statement of Shareholders' Equity for the years ended December 31, 1995,
1994 and 1993....................................................................... FS-6
Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1994 and
1993................................................................................ FS-7
Notes to Consolidated Financial Statements............................................ FS-8
Supplemental Financial Information (Unaudited)........................................ FS-25
UNAUDITED INTERIM FINANCIAL STATEMENTS................................................ FS-26
Condensed Consolidated Balance Sheet at March 31, 1996, and December 31, 1995......... FS-26
Condensed Consolidated Statement of Income for the three months ended March 31, 1996
and 1995............................................................................ FS-27
Condensed Consolidated Statement of Cash Flows for the three months ended March 31,
1996
and 1995............................................................................ FS-28
Notes to Condensed Consolidated Financial Statements.................................. FS-29
INDEX TO HEMLO GOLD FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS.......................................................... FS-30
Auditors' Report...................................................................... FS-30
Consolidated Balance Sheets as at December 31, 1995 and 1994.......................... FS-31
Consolidated Statements of Earnings and Retained Earnings for the years ended December
31, 1995, 1994 and 1993............................................................. FS-32
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993................................................................................ FS-33
Notes to the Consolidated Financial Statements........................................ FS-34
UNAUDITED INTERIM FINANCIAL STATEMENTS................................................ FS-45
Condensed Consolidated Balance Sheets as at March 31, 1996 and December 31, 1995...... FS-45
Condensed Consolidated Statements of Earnings for the three months ended March 31,
1996
and 1995............................................................................ FS-46
Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
1996 and 1995....................................................................... FS-47
Notes to Condensed Consolidated Financial Statements.................................. FS-48
</TABLE>
FS-(i)
<PAGE> 212
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Battle Mountain Gold Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Battle
Mountain Gold Company and its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for the year in conformity with
generally accepted accounting principles. 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 audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. The
consolidated financial statements of Battle Mountain Gold Company and its
subsidiaries for the years ended December 31, 1994 and 1993 were audited by
other independent accountants whose report dated February 17, 1995 expressed an
unqualified opinion on these statements based on their audit and the report of
other auditors.
PRICE WATERHOUSE LLP
Houston, Texas
February 23, 1996
FS-1
<PAGE> 213
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Battle Mountain Gold Company:
We have audited the accompanying consolidated balance sheet of Battle
Mountain Gold Company (a Nevada corporation) and subsidiaries as of December 31,
1994, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the two years in the period ended December 31, 1994.
These consolidated 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 did not audit the financial statements of
Niugini Mining Limited and subsidiaries, which statements reflect assets and net
sales of 18 percent and 23 percent in 1994 and 17 percent and 29 percent in
1993, respectively, of the consolidated totals. Those statements were audited by
other auditors whose report has been furnished to us and our opinion, insofar as
it relates to the amounts included for those entities, is based solely on the
report of the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Battle Mountain Gold Company and
subsidiaries as of December 31, 1994, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 17, 1995
FS-2
<PAGE> 214
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Boards of Directors of Battle Mountain Gold Company and Niugini Mining
Limited:
We have audited the consolidated balance sheet of Niugini Mining Limited (a
company incorporated in Papua New Guinea) and subsidiaries as of December 31,
1994, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the two years in the period ended December 31, 1994
not presented separately herein. Battle Mountain Gold Company is the Company's
majority shareholder. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on those
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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Niugini Mining
Limited and subsidiaries as of December 31, 1994, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
Sydney, Australia
January 31, 1995
FS-3
<PAGE> 215
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(EXPRESSED IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS, OF US$)
<S> <C> <C> <C>
GROSS REVENUE.............................................. $299,295 $242,984 $207,251
Less: freight, allowances and royalties.................. 15,035 13,314 13,836
-------- -------- --------
NET REVENUE................................................ 284,260 229,670 193,415
COSTS AND EXPENSES
Mining costs............................................. 43,963 30,404 35,906
Milling and other plant costs............................ 117,409 98,566 97,163
Depreciation, depletion and amortization................. 70,752 51,247 41,389
Exploration, evaluation and other lease costs............ 18,032 14,542 9,474
Asset write-downs........................................ 2,222 -- --
General and administrative expenses...................... 13,161 12,376 12,901
Taxes, other than income................................. 2,737 2,593 2,316
-------- -------- --------
Total costs and expenses................................. 268,276 209,728 199,149
-------- -------- --------
OPERATING INCOME(LOSS)..................................... 15,984 19,942 (5,734)
Interest income.......................................... 3,125 4,149 2,689
Interest (expense)....................................... (14,099) (13,722) (13,103)
Interest capitalized..................................... 6,675 6,353 6,655
Other income (expense), net.............................. 6,912 (244) 5,708
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST.... 18,597 16,478 (3,785)
Income tax (benefit) expense............................. (2,804) 2,519 (4,089)
Minority interest in net (income) loss................... (6,156) (4,387) (4,709)
-------- -------- --------
NET INCOME (LOSS).......................................... 15,245 9,572 (4,405)
Preferred dividends...................................... 7,475 7,475 3,738
-------- -------- --------
NET INCOME (LOSS) TO COMMON SHARES......................... $ 7,770 $ 2,097 $ (8,143)
======== ======== ========
NET INCOME (LOSS) PER SHARE:............................... $ .09 $ .02 $ (.10)
DIVIDENDS PER COMMON SHARE................................. $ .05 $ .05 $ .05
AVERAGE COMMON SHARES OUTSTANDING FOR INCOME PER SHARE
PURPOSES................................................. 86,327 86,071 80,132
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-4
<PAGE> 216
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(EXPRESSED
IN THOUSANDS OF US$)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 46,071 $ 76,464
Accounts receivable.................................................. 26,320 22,810
Inventories.......................................................... 4,158 5,048
Materials and supplies, at average cost.............................. 26,563 27,730
Other current assets................................................. 12,846 7,014
-------- --------
Total Current assets......................................... 115,958 139,066
Investments............................................................ 230,652 4,092
Property, plant and equipment, net..................................... 360,270 524,148
Other assets........................................................... 30,259 12,463
-------- --------
Total assets................................................. $737,139 $679,769
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings................................................ $ 2,571 $ --
Current maturities of long-term debt................................. 13,427 13,427
Accounts payable..................................................... 13,251 14,527
Payroll and related benefits accrued................................. 5,039 4,226
Accrued interest..................................................... 7,198 6,714
Other current liabilities............................................ 5,448 3,425
-------- --------
Total current liabilities.................................... 46,934 42,319
-------- --------
Long-term debt......................................................... 169,175 165,602
Other liabilities...................................................... 38,199 32,043
-------- --------
Total liabilities............................................ 254,308 239,964
-------- --------
Minority interest...................................................... 111,773 64,171
-------- --------
Commitments and Contingencies (Note 14)................................ -- --
Shareholders' equity:
Preferred stock, $1.00 par value:
Authorized -- 20,000,000 shares; issued and outstanding,
1995 and 1994 -- 2,299,980 shares............................... 110,578 110,578
Common stock, $.10 par value:
Authorized -- 200,000,000 shares; issued and outstanding,
1995 -- 81,133,540 shares and 1994 -- 80,934,793 shares......... 8,113 8,094
Additional paid-in capital........................................... 199,533 206,735
Retained earnings.................................................... 53,971 50,327
Cumulative foreign currency translation adjustment................... (1,137) (100)
-------- --------
Total shareholders' equity................................... 371,058 375,634
-------- --------
Total liabilities and shareholders' equity................... $737,139 $679,769
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-5
<PAGE> 217
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ----------------------------- -----------------------------
PREFERRED COMMON PREFERRED COMMON PREFERRED COMMON
SHARES SHARES AMOUNT SHARES SHARES AMOUNT SHARES SHARES AMOUNT
--------- ------ -------- --------- ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF US$, AND SHARE AMOUNTS IN THOUSANDS)
PREFERRED STOCK,
$1.00 par value; Authorized
20,000,000 shares; $50.00
liquidation preference per
share:
Balance January 1.............. 2,300 -- $110,578 2,300 -- $110,579 -- -- $ --
Shares issued.................. -- -- -- -- -- -- 2,300 -- 110,579
Shares converted to Common..... -- -- -- -- -- (1) -- -- --
----- ------ -------- ----- ------ -------- ----- ------ --------
Balance December 31............ 2,300 -- 110,578 2,300 -- 110,578 2,300 -- 110,579
----- ------ -------- ----- ------ -------- ----- ------ --------
COMMON STOCK,
$.10 par value; Authorized
200,000,000 shares:
Balance January 1.............. -- 80,935 8,094 -- 80,266 8,027 -- 80,016 8,002
Shares issued.................. -- 199 19 -- 669 67 -- 250 25
----- ------ -------- ----- ------ -------- ----- ------ --------
Balance December 31............ -- 81,134 8,113 -- 80,935 8,094 -- 80,266 8,027
----- ------ -------- ----- ------ -------- ----- ------ --------
ADDITIONAL PAID-IN CAPITAL:
Balance January 1.............. -- -- 206,735 -- -- 202,011 -- -- 202,417
Shares issued.................. -- -- 1,705 -- -- 5,933 -- -- 1,732
Exercise of Niugini Mining
options..................... -- -- (2,208) -- -- (1,209) -- -- --
Niugini Mining equity
offering.................... -- -- -- -- -- -- -- -- (2,138)
LGL equity offering............ -- -- (6,699) -- -- -- -- -- --
----- ------ -------- ----- ------ -------- ----- ------ --------
Balance December 31............ -- -- 199,533 -- -- 206,735 -- -- 202,011
----- ------ -------- ----- ------ -------- ----- ------ --------
RETAINED EARNINGS:
Balance January 1.............. -- -- 50,327 -- -- 52,260 -- -- 62,410
Net income (loss).............. -- -- 15,245 -- -- 9,572 -- -- (4,405)
Common stock dividends......... -- -- (4,126) -- -- (4,030) -- -- (2,007)
Preferred stock dividends...... -- -- (7,475) -- -- (7,475) -- -- (3,738)
----- ------ -------- ----- ------ -------- ----- ------ --------
Balance December 31............ -- -- 53,971 -- -- 50,327 -- -- 52,260
----- ------ -------- ----- ------ -------- ----- ------ --------
CUMULATIVE FOREIGN CURRENCY
TRANSLATION ADJUSTMENT......... -- -- (1,137) -- -- (100) -- -- (3,317)
----- ------ -------- ----- ------ -------- ----- ------ --------
TOTAL SHAREHOLDERS' EQUITY....... 2,300 81,134 $371,058 2,300 80,935 $375,634 2,300 80,266 $369,560
===== ====== ======== ===== ====== ======== ===== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-6
<PAGE> 218
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- --------- --------
(EXPRESSED IN THOUSANDS OF US$)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 15,245 $ 9,572 $ (4,405)
--------- --------- --------
Adjustments to reconcile net income (loss) to cash flows
from operating activities:
Depreciation, depletion and amortization.............. 70,752 51,247 41,389
Exploration and evaluation costs...................... 11,740 10,312 6,621
Unproven leases abandoned............................. 279 59 146
Gain (loss) from sales of assets...................... (5,153) 243 (6,429)
Asset write-downs..................................... 2,222 -- --
Increase in accrued reclamation costs................. 143 1,341 1,517
Loss (gain) on foreign currency transactions.......... 439 2,075 (228)
(Increase) decrease in accounts and notes
receivable.......................................... (3,212) 14,542 (13,337)
Decrease (increase) in inventories.................... 841 (4,469) 6,857
Decrease (increase) in materials and supplies......... 1,167 (4,555) (1,762)
(Increase) in other current assets.................... (5,832) (3,065) (2,091)
(Increase) in non-current portion of deferred mining
costs............................................... (2,312) (6,566) --
Increase (decrease) in accounts payable and other
current liabilities................................. 3,356 3,212 (5,058)
Deferred income tax (benefit) expense................. (4,968) 3,581 --
Minority interest..................................... 6,156 4,387 4,709
Other net changes..................................... (278) 1,203 2,136
--------- --------- --------
TOTAL ADJUSTMENTS.......................................... 75,340 73,547 34,470
--------- --------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES................... 90,585 83,119 30,065
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets............................ 5,636 257 10,729
Acquisition of minority interest......................... -- (5,200) --
Capital expenditures..................................... (120,010) (85,335) (64,665)
Exploration and evaluation expenditures.................. (12,229) (10,301) (6,621)
(Increase) decrease in restricted cash................... (4,964) -- (53)
Other, net............................................... (1,112) (193) 329
--------- --------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES................ (132,679) (100,772) (60,281)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from stock issuances....................... 19,350 6,397 130,934
Cash proceeds from borrowings............................ 64,964 -- 36,891
Cash dividend payments................................... (11,524) (11,505) (7,743)
Debt repayments.......................................... (59,322) (13,558) (59,869)
Other, net............................................... (88) (104) --
--------- --------- --------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES......... 13,380 (18,770) 100,213
--------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... (1,679) (2,451) (36)
--------- --------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (30,393) (38,874) 69,961
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 76,464 115,338 45,377
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 46,071 $ 76,464 $115,338
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-7
<PAGE> 219
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN US$)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of the Battle Mountain Gold Company ("BMG") and
its wholly-owned and majority-owned subsidiaries (the "Company"). The accounts
of Niugini Mining Limited, a Papua New Guinea precious metals exploration,
development and production company ("Niugini Mining"), have been consolidated
with the Company's from January 1, 1989 (See Note 10). The accounts of Empresa
Minera Inti Raymi S.A., a Bolivian gold mining company ("Inti Raymi"), have been
consolidated with the Company's from April 1, 1990 (See Note 10). All
significant intercompany transactions have been eliminated in consolidation.
Certain prior-period items have been reclassified in the consolidated financial
statements in order to conform with current year presentation.
Inventories -- Inventories, consisting of gold, silver and copper, are
reported at the lower of cost or market, using the first-in, first-out method.
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Expenditures for development of new mines and major development
expenditures at existing mines, which are expected to benefit future periods,
are capitalized and amortized, generally, on the units of production method.
Exploration and development costs expended to maintain production at operating
mines are charged to expense as incurred. In certain cases, mining costs
associated with waste rock removal are deferred as development costs and charged
to operations on the basis of the average stripping ratio over the life of the
mine.
Other property, plant and equipment includes capitalized lease costs and
mine development costs for projects in progress. Capitalized exploration costs
are evaluated on an annual basis and costs attributable to unproductive projects
are charged directly to abandonment expense.
Generally, depreciation, depletion and amortization of mining properties
and related assets are determined using the units of production method based
upon estimated recoverable ore reserve tonnages or reserve ounces at the
beginning of each quarter. However, assets having an estimated life of less than
the estimated life of the mineral deposits are depreciated on the straight-line
method based on the expected life of the asset. Write-downs and write-offs of
depreciable properties are included in accumulated depreciation, depletion and
amortization. Effective December 31, 1995, the Company adopted SFAS 121,
"Impairment of Long-lived Assets". There was no effect on the carrying value of
the Company's assets as a result of this adoption.
Exploration and Evaluation Expenditures -- With the exception of lease
acquisition costs incurred to acquire mineral rights, the Company charges all
exploration and predevelopment evaluation expenditures to expense as incurred
prior to delineation of economic mineralization. Exploration costs incurred
subsequent to delineation of economic mineralization are capitalized.
Capitalization of Operating Results During Mine Development -- During the
start-up period for each developing mine, operating costs may exceed revenues
earned from the sale of precious metals produced. In these instances, all costs
incurred during this pre-commercial production period, net of revenues earned,
are capitalized as property costs.
Capitalization of Interest -- Interest expense incurred attributable to
pre-commercial production stage projects is capitalized until those projects
commence commercial production.
Reclamation and Closure Costs -- Reserves for estimated future reclamation
and closure costs of the Company's operating sites are accrued on a units of
production basis over the estimated lives of the respective mines. These costs
are charged to milling and other plant costs as accrued (See Note 14).
Revenue Recognition -- Revenue is recognized when the dore (a combination
of gold and silver) or concentrates are delivered against sales agreements or
contracts and risk of loss passes to the buyer.
FS-8
<PAGE> 220
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Currency Translation -- Foreign currency financial statements are
translated into U.S. dollars using current exchange rates and translation gains
and losses are accumulated in the balance sheet caption "Cumulative foreign
currency translation adjustment," a separate component of shareholders' equity.
Effective January 1, 1994, Niugini Mining changed its functional currency
from the Papua New Guinea kina to U.S. dollars for financial reporting purposes.
Income (Loss) Per Share -- Income (loss) per share is computed by dividing
net income (loss) attributable to common shareholders by the weighted average
number of common shares outstanding for the year, adjusted for common stock
equivalents, if dilutive. The effects of common stock equivalents are not
included in the computation of income per share for 1993 because of their
antidilutive effect. Fully diluted earnings per share are not presented for any
year because the effect of other dilutive securities would be antidilutive.
Statement of Cash Flows -- At December 31, 1995, cash and cash equivalents
included $29.4 million and $10.6 million attributable to Niugini Mining and Inti
Raymi, respectively. Cash and cash equivalents at December 31, 1994, included
$39.9 million and $15.4 million held by Niugini Mining and Inti Raymi,
respectively. At December 31, 1995 and December 31, 1994, other assets included
$5.8 million and $.9 million, respectively, of restricted cash held by Niugini
Mining.
For purposes of the Consolidated Statement of Cash Flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents.
During the year ended December 31, 1995, the Company paid foreign
withholding taxes of $2.2 million. During the year ended December 31, 1994, the
Company received a U.S. income tax refund of $4.3 million and paid foreign
withholding taxes of .9 million. During the year ended December 31, 1993, the
Company paid $.7 million in U.S. income taxes. The Company paid $10.1 million,
$6.4 million and $6.8 million in interest, net of amounts capitalized, during
1995, 1994 and 1993, respectively.
During 1995, the Company's investing activities included the exchange of
Niugini Mining's interest in the Lihir Joint Venture for the common stock of
Lihir Gold Limited ("LGL"). During 1994, the Company's investing activities
included the issuance of 435,897 shares of BMG's common stock (market value of
$4.25 million) and payment of $4.25 million cash for the purchase of an
additional 3 percent interest in the Crown Jewel Project. During 1993, the
Company's investing activities did not include any significant non-cash
transactions.
Issuance of Stock by Subsidiaries -- The issuance of stock by subsidiaries
is accounted for as a capital transaction in the Consolidated Financial
Statements.
Forward Sales Contracts, Options and Interest Rate Caps -- The Company may
enter into fixed forward and spot deferred sales contracts for the sale of its
metals as a hedge against changes in prices. Gains, losses or expenses related
to these transactions are netted against revenue when the hedged production is
sold. The Company may also purchase put options for the sale of its produced
metals. The premiums paid for the acquisition of put options are netted against
revenue in the period of expiry.
Spot deferred sales contracts allow the Company to defer the delivery of
gold under the contract to a later date at the original contract price plus the
prevailing premium at the time of the deferral, as long as certain conditions
are satisfied. Although spot deferred sales contracts could limit amounts
realizable during a period of rising prices, the Company may "roll forward" its
spot deferred contracts to future periods in order to realize current market
price increases, while maintaining future downside protection.
Premiums paid for purchased interest rate caps are amortized as interest
expense over the terms of the interest rate cap agreement. Unamortized premiums
are included in other assets in the Consolidated Balance Sheet. Amounts earned
under cap agreements are accrued as a reduction of interest expense.
FS-9
<PAGE> 221
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimates, risks and uncertainties -- 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
certain assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the related reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Management believes that the estimates are
reasonable.
Realization of the Company's assets is subject to various risks including
permitting of the Company's new mines, reserves estimation, gold prices and
environmental factors.
NOTE 2. INVESTMENTS
The Company's long-term investments as of December 31 include the
following:
<TABLE>
<CAPTION>
1995 1994
-------- ------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Lihir Gold Limited............................................. $225,150 $ --
Other joint ventures........................................... 325 91
Cash surrender value of life insurance, net.................... 4,549 3,600
Other.......................................................... 628 401
-------- ------
$230,652 $4,092
======== ======
</TABLE>
Lihir Gold Limited ("LGL"), which is a company created specifically for the
development, financing, operating and ownership of the Lihir project in Papua
New Guinea, completed an initial public offering of common stock on October 6,
1995. LGL was formed and initially owned by the prior participants in the Lihir
Joint Venture which included a 30 percent ownership by Niugini Mining, a 40
percent ownership by a subsidiary of RTZ Corporation, plc and a 30 percent
ownership by an entity of the PNG government. As a result of the initial public
offering, Niugini Mining now owns a 17.15 percent interest in LGL and BMG's
attributable interest is 8.7 percent. Niugini Mining's interest in LGL is
accounted for using the equity method of accounting, effective from October
1995, while the Company's investment in the Lihir Joint Venture was previously
recorded in property, plant and equipment.
The initial public offering by LGL was the final transaction in a series of
planned transactions which restructured and reduced BMG's participation in the
Lihir project. The Company recorded the effects of this series of transactions
in the fourth quarter of 1995. An increase in Niugini Mining's shareholders'
equity of approximately $57 million related to the issuance of the common stock
by LGL at a value in excess of Niugini Mining's carrying value per share in LGL
was recorded. This increase was recorded as a credit to additional paid-in
capital consistent with the Company's accounting policy with regard to
transactions of this nature. An offsetting increase in the carrying value of
Niugini Mining's investment in LGL was recorded. The Company attributed $28
million of this increase to minority interest in its consolidated financial
statements; the remainder was credited to additional paid-in capital. As a
result of these transactions, the Company also amortized approximately $35
million of its investment in Niugini Mining attributable to the investment in
LGL. This amortization was recorded as a charge to additional paid-in capital.
The net result of these transactions in the Company's consolidated financial
statements was an increase in the carrying value of the LGL investment of
approximately $22 million, an increase in minority interest of approximately $28
million and a net decrease in additional paid-in capital of approximately $6
million.
Interest costs amounting to $7.8 million in 1995 and $6 million per year in
1994 and 1993 each were capitalized in connection with the Company's investment
in the Lihir project.
FS-10
<PAGE> 222
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Leasehold and mine development............................... $ 96,624 $ 132,803
Mining, milling and other equipment.......................... 336,839 314,231
Other........................................................ 184,470 322,508
--------- ---------
617,933 769,542
Accumulated depreciation, depletion and amortization......... (257,663) (245,394)
--------- ---------
$ 360,270 $ 524,148
========= =========
</TABLE>
NOTE 4. ASSET WRITE-DOWNS
In June 1995, the Company decommissioned and dismantled the milling
facility formerly used at the depleted Fortitude mine in Nevada. Accordingly the
remaining net carrying value of this mill and related facilities of
approximately $2.2 million was charged to operations. In addition, $.9 million
was charged to milling and other plant costs, representing the carrying value of
spare parts rendered obsolete by the decommissioning of the milling facility.
The Company did not recognize any charges for asset write-downs during 1994 or
1993.
NOTE 5. DEBT
The Company had the following long-term debt outstanding as of December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Convertible subordinated debentures, due 2005, 6%.............. $ 99,980 $100,000
Revolving credit facility, due 2000, variable rate............. 17,000 --
Inti Raymi Kori Kollo project financing:
IFC loan, variable rate...................................... 22,500 27,500
IFC convertible loan, variable rate with 11% minimum......... 5,000 5,000
OPIC loan, variable rate..................................... 25,800 31,500
Restructured OPIC loans, 10.5%............................... 2,644 3,231
CAF loan, variable rate...................................... 9,643 11,786
Other.......................................................... 35 12
-------- --------
Total................................................ 182,602 179,029
Less current portion of long-term debt......................... 13,427 13,427
-------- --------
Total long-term debt........................................... $169,175 $165,602
======== ========
</TABLE>
The convertible subordinated debentures are convertible into shares of the
Company's common stock at a conversion price of $20 5/8 per share, subject to
anti-dilution adjustment in certain circumstances. There are 4.8 million shares
of the Company's common stock reserved for issuance upon conversion of the
debentures. The debentures are now redeemable at the Company's option at any
time at par value plus accrued interest. There are no sinking fund requirements.
Interest is payable annually. Proceeds from the issuance were added to working
capital and used for general corporate purposes, including mineral acquisitions
and development of properties.
On November 6, 1995, the Company entered into a new committed non-reducing
revolving credit agreement with a syndicate of six banks, led by Citibank N.A.
as agent. In connection with the new revolving
FS-11
<PAGE> 223
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit agreement the Company terminated its previous existing committed
revolving credit agreement. The new facility, which has a termination date of
November 6, 2000, provides for unsecured borrowings of up to $75 million.
Interest rates under the facility are based on the facility agent's base rate,
LIBOR, applicable certificate of deposit rates or gold funding rates plus an
applicable margin which is subject to adjustment in case of certain changes in
BMG's credit rating and certain financial ratios. Additionally, interest charges
increase when outstanding borrowings under this facility exceed $25 million and,
again, when such borrowings exceed $50 million. Other costs associated with the
new facility include commitment fees of one-eighth percent per annum on the
unused portion of the facility and facility fees of one-eighth percent per annum
on the average daily commitment, in each case subject to adjustment in case of
certain changes in credit rating or ratios. The revolving credit agreement
imposes certain financial covenants upon the Company which include covenants
relating to leverage, net worth, contained production, mineral reserves and
working capital, as well as certain restrictions on liens, investments,
additional debt, lease obligations, and the acquisition or disposition of
assets. In addition, the agreement sets forth restrictions limiting the amount
of dividends that BMG may pay based on $20 million plus 50% of consolidated net
income since December 31, 1994, plus 50% of proceeds received from the sale of
BMG's capital stock on a cumulative basis from the date of the agreement. The
weighted average interest rate for borrowings under this facility for the year
ended December 31, 1995, was 6.7 percent. No borrowings were outstanding under
the previous facility in 1994. Interest charges applicable to the previous
facility for the year ended December 31, 1993, were based on a weighted average
interest rate ranging from 3.9 percent to 6.0 percent.
During 1992, Inti Raymi, established separate but coordinated term credit
facilities with the Overseas Private Investment Corporation ("OPIC"),
International Finance Corporation ("IFC") and Corporacion Andina de Fomento
("CAF") for the development of its Kori Kollo expansion project in Bolivia. Each
loan is secured by a lien on the project and is to be repaid in semi-annual
installments which commenced in December 1993 and will continue through June
2000, with certain provisions for accelerated repayment in the event of
substantial Kori Kollo reserve losses or significantly improved gold market
conditions. Through certain ratio tests, each loan may restrict payments of
intercompany debt and dividends by Inti Raymi to the owners of shares of its
capital stock. Additional covenants exist which limit fixed asset purchases,
additional debt and liens, and require compliance with applicable environmental
laws. During 1993, the project met the prerequisite physical and financial
completion tests as set forth in the facility agreements and in April 1994
achieved project completion status.
The OPIC and IFC loan agreements require that the current mining plan
indicate that production from the Kori Kollo mine extends at least three years
beyond the final scheduled principal payment ("Reserve Life Provision"). Failure
to meet this Reserve Life Provision results in the suspension of all debt
repayments from Inti Raymi to its shareholders and all Inti Raymi dividend
payments until such time as compliance with the Reserve Life Provision is
achieved by either a prepayment of a sufficient portion of the debt or an
increase in the Kori Kollo mine ore reserves. The IFC and CAF loan agreements
contain provisions which entitle their respective agencies to receive principal
prepayments proportionate to those received by OPIC. In the third quarter of
1994, the Company completed a rescheduling of the life of mine production and
observed that the new schedule was not in compliance with the Reserve Life
Provision due to more rapid mining and production than originally planned. The
then-current plan indicated that production would extend approximately 2.8 years
beyond the date of the final scheduled principal payment. To allow continuing
payments of dividends and the repayment of intercompany debts, Inti Raymi
obtained a temporary waiver, permitting noncompliance with the Reserve Life
Provision until June 30, 1996. Inti Raymi has recently announced reserve
additions which the lenders have approved as sufficient to satisfy the Reserve
Life Provision well in advance of the scheduled expiration of the temporary
waiver.
The OPIC facility provided for borrowings of $40 million. Interest rates
under the variable rate facility are based on LIBOR plus 2 percent.
Additionally, $4.1 million of previously existing OPIC loans to Inti Raymi were
restructured as loan obligations under the terms of the agreement, with the
exception that they
FS-12
<PAGE> 224
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are subject to their originally agreed interest rates. Weighted average interest
rates for borrowings under this facility for the years ended December 31, 1995,
1994 and 1993, were 8.5 percent, 6.7 percent and 5.6 percent, respectively.
Under the IFC commitment, borrowings of $40 million were made. The interest
rate for the non-convertible portion of the loan is based on LIBOR plus 2.375
percent, but Inti Raymi has the right to request an interest rate cap or collar,
or may elect at any time to pay a fixed rate of interest. Of the total IFC
borrowings, $5 million represents a convertible loan due on March 1, 2002,
carrying a fixed annual interest rate of 11 percent with an additional interest
rate provision which varies with the price of gold. Weighted average interest
rates for borrowings under this facility for the years ended December 31, 1995,
1994 and 1993 were 8.6 percent, 6.9 percent and 6.0 percent, respectively, for
the non-convertible portion of the loan and 12.8 percent, 13.7 percent and 12
percent, respectively, for the convertible portion of the loan. The loan may be
converted, at IFC's option, into an equity interest of up to a 3.98 percent in
Inti Raymi. Upon the conversion of the convertible loan into equity, the Company
and Inti Raymi's minority owner would have their interests in the capital stock
of Inti Raymi diluted proportionately. Each share of Inti Raymi common stock
issued by Inti Raymi as a result of such conversion will have an associated put
option which, if exercised by IFC, would require BMG and Inti Raymi's minority
shareholder to purchase such share at its fair market value as determined at the
time the put is exercised.
The CAF facility provided for borrowings of $15 million. Interest rates
under the facility are based on LIBOR. These funds were obtained from several
sources. CAF charged a supervision and oversight fee and a commitment fee in
addition to fees charged by the participants in the funding. Weighted average
interest rates for borrowings under this facility for the years ended December
31, 1995, 1994 and 1993, were 7.3 percent, 5.5 percent and 4.7 percent,
respectively.
The Company has a $15 million uncommitted revolving credit facility with
the Union Bank of Switzerland. Interest rates under the facility are variable,
based on either the bank's base rate or a negotiated rate. There are no
additional costs or financial restrictions under this facility. No loans were
outstanding under this revolving credit facility as of December 31, 1995 and
1994; however, letters of credit amounting to $2.2 million and $4.8 million had
been issued against this facility as of December 31, 1995 and 1994,
respectively. The weighted average interest rate for borrowings under this
facility for the year ended December 31, 1995, was 6.7 percent. There were no
interest charges for the year ended December 31, 1994, since the Company did not
borrow against this facility in 1994. Interest charges for the year ended
December 31, 1993, were based on weighted average interest rates of 3.5 to 4.3
percent.
Scheduled maturities of the Company's long-term debt for each of the next
five years are $13.4 million for 1996 through 1999 and $6.9 million in 2000. In
addition, all borrowings then outstanding under the new revolving credit
facility are due and payable on November 6, 2000.
BMG has effective a registration statement under the Securities Act of
1933, as amended, for what is commonly referred to as a "universal shelf" filing
covering up to $200 million of its debt securities, preferred stock, depositary
shares, common shares and warrants which may be offered from time to time.
NOTE 6. SHAREHOLDERS' EQUITY
Reference is made to Note 5 for information regarding the number of shares
of common stock reserved for issuance for the conversion of the Company's
outstanding convertible subordinated debentures.
The Company's Board of Directors is authorized to divide the preferred
stock into series. With respect to each series the Board may determine the
dividend rights, dividend rates, conversion rights and voting rights (which may
be greater or less than the voting rights of the common stock). The Board may
also determine the redemption rights and terms, liquidation preferences, sinking
fund rights and terms, the number of shares constituting the series and the
designation of each series.
FS-13
<PAGE> 225
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to their authority to divide the preferred stock into series, the
Board of Directors in 1988 designated 2,000,000 shares of preferred stock as
"Series A Junior Participating Preferred Stock" for possible issuance upon the
exercise of stock rights as described below.
Stock Rights -- Since November 21, 1988, when the Company's Board of
Directors declared a dividend of one right for each outstanding share of the
Company's common stock, each share of the Company's outstanding common stock
carries with it such right. Each right entitles the holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $1.00 per share, for an exercise price of $60, subject to
adjustment. The rights expire on November 10, 1998. They will not be exercisable
nor transferable apart from the common stock until such time as a person or
group acquires 20 percent of the Company's common stock or initiates a tender
offer that will result in ownership of 30 percent of the Company's common stock.
In the event that the Company is merged, and its common stock is exchanged or
converted, the rights will entitle the holders to buy shares of the acquirer's
common stock at a 50 percent discount. Under certain other circumstances, the
rights can become rights to purchase the Company's common stock at a 50 percent
discount. The rights may be redeemed by the Company for one cent per right at
any time until 10 days following the first public announcement of a 20 percent
acquisition of beneficial ownership of the Company's common stock.
Convertible Preferred Stock -- On May 20, 1993, the Company received $111
million in net proceeds from the issuance of 2.3 million shares of its
convertible preferred stock with a liquidation preference of $50 per share plus
any accrued and unpaid dividends. Each share of preferred stock will pay an
annual cumulative dividend of $3.25 and is convertible at any time at the option
of the holder into 4.762 shares of the Company's common stock. The preferred
stock is redeemable at the option of the Company solely for shares of the
Company's common stock beginning May 15, 1996. There are approximately 11
million shares of the Company's common stock reserved for issuance upon
conversion of the preferred stock.
NOTE 7. FEDERAL AND FOREIGN INCOME TAX
Federal and foreign income tax (benefit) expense consisted of the following
at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Current
United States........................................ $ -- $(2,288) $(5,117)
Foreign.............................................. 2,164 1,226 1,028
-------- ------- -------
Total current................................ 2,164 (1,062) (4,089)
-------- ------- -------
Deferred
United States........................................ (10,171) -- --
Foreign.............................................. 5,203 3,581 --
-------- ------- -------
Total deferred............................... (4,968) 3,581 --
-------- ------- -------
$ (2,804) $ 2,519 $(4,089)
======== ======= =======
</TABLE>
Consolidated income before income taxes includes income from foreign
operations of $36.1 million, $32.7 million and $13.8 million in 1995, 1994 and
1993, respectively.
FS-14
<PAGE> 226
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's net deferred tax position at December 31, is comprised of the
following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets............................................ $ 74,415 $ 55,275
Deferred tax liabilities....................................... (72,035) (57,822)
Valuation allowance............................................ (993) (1,034)
-------- --------
Net deferred tax asset (liability)............................. $ 1,387 $ (3,581)
======== ========
</TABLE>
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
------- --------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards................................ $25,131 $ 24,975
Alternative minimum tax credit carryforward..................... 4,552 4,552
Employee compensation and benefits accrued...................... 5,480 5,052
Foreign tax credit carryforwards................................ 11,859 --
Property, plant and equipment................................... (21,319) (22,126)
Undistributed earnings of foreign subsidiaries.................. (23,493) (17,556)
Other, net...................................................... 170 2,556
Valuation allowance............................................. (993) (1,034)
------- --------
Net deferred tax asset (liability).............................. $ 1,387 $ (3,581)
======= ========
</TABLE>
A reconciliation of income tax at the U.S. statutory rate to income tax
(benefit) expense as of December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Income tax based on statutory rate of 35%............... $ 4,354 $ 4,232 $(2,973)
Increases (reductions) resulting from:
Foreign withholding tax, net.......................... -- 4,377 --
Change in filing position regarding foreign tax
credits............................................ (7,125) -- --
Undistributed (income) losses of foreign subsidiaries
not subject to income tax.......................... (630) 302 (1,030)
Change in valuation allowance......................... (41) (7,327) 722
Other, net............................................ 638 935 (808)
------- ------- -------
Income tax (benefit) expense............................ $(2,804) $ 2,519 $(4,089)
======= ======= =======
</TABLE>
The Omnibus Budget Reconciliation Act of 1993, enacted on August 10, 1993,
retroactively increased the federal statutory income tax from 34 percent to 35
percent for periods beginning on or after January 1, 1994. The effect of the
rate change was not significant to the Company's net deferred income tax
position.
U.S. taxes have been provided on the undistributed earnings of subsidiaries
and joint ventures with the exception of Niugini Mining which is in a cumulative
loss position.
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been closed through the year 1991.
At December 31, 1995, the Company had approximately $71.8 million of
regular net operating losses and $9.3 million of alternative minimum tax net
operating loss carryforwards expiring beginning in 2007, available
FS-15
<PAGE> 227
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to offset future U.S. federal income tax and approximately $4.6 million of
alternative minimum tax credits available on an indefinite carryforward basis.
Changes in the ownership of a company can result in an annual limitation under
IRC section 382 on the amount of the tax net operating loss carryforwards which
can be utilized in any one year. The annual limitation is based on the value of
the company as of the ownership change date multiplied by the federal long-term
tax exempt rate. It is not anticipated that the section 382 limitation will
significantly restrict the future utilization of BMG's net operating loss
carryforwards.
NOTE 8. MAJOR CUSTOMERS AND EXPORT GROSS REVENUES
All sales of the Company's products are made to precious metals smelters,
refiners or traders. Accordingly, the precious metals industry has substantial
influence over the market for the Company's products.
During 1995, gross revenues from five separate buyers accounted for $83.2
million, $72.9 million, $35.6 million, $25.2 million and $22.5 million of total
gross revenues, respectively, representing 80.0 percent of total gross revenues.
International gross revenues for 1995 were $299.3 million, of which $58.1
million were from export of U.S. product. In 1994, gross revenues from four
separate buyers of $69.0 million, $64.8 million, $36.8 million and $17.1
million, respectively, accounted for 77.3 percent of total gross revenues. Of
the Company's $243.0 million international gross revenues in 1994, $46.6 million
were from export of U.S. product. For 1993, 80.1 percent of the Company's total
gross revenues were distributed among six separate buyers who accounted for
$55.3 million, $36.2 million, $25.3 million, $17.4 million, $17.0 million and
$14.8 million in gross revenues, respectively. International gross revenues of
$207.2 million in 1993 included $47.9 million from export of U.S. product.
Alternate buyers are available to replace the loss of any of the Company's
principal customers.
NOTE 9. OTHER INCOME (EXPENSE), NET
Included in other income (expense), net, are certain non-operating
revenues, net of related expenses, consisting of:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Foreign currency exchange gains (losses).................. $ (431) $(2,075) $ 228
Gain on sale of investments............................... -- 725 2,697
Gain on sale of property, plant and equipment............. 5,542 -- 3,730
Royalty income............................................ 1,331 820 --
Other..................................................... 470 286 (947)
------ ------- ------
$6,912 $ (244) $5,708
====== ======= ======
</TABLE>
NOTE 10. ACQUISITIONS
Niugini Mining -- In the aggregate, since January 1, 1989, the Company has
paid $204.1 million for 59.3 million shares of the common stock of Niugini
Mining representing a 50.5 percent ownership interest as of December 31, 1995.
In December 1993, Niugini Mining issued 5.8 million of its common shares at
A$5.00 per share in a public offering which provided net proceeds of
approximately $19.1 million U.S. equivalent. As a result of this stock offering,
BMG's ownership interest in Niugini Mining decreased from 56.5 percent to 52.6
percent. In December 1993, the Company recorded a $2.1 million adjustment to
reduce the carrying value of its investment in Niugini Mining to reflect the
reduction in ownership interest. In 1995 and 1994, BMG's ownership interest was
diluted to 50.6 percent and 51.4 percent, respectively, due to employee stock
options that were exercised during the year. In May 1995 and June 1994 the
Company recorded adjustments of $2.2 million and $1.2 million, respectively, to
reduce the carrying value of its investment in Niugini Mining to reflect these
reductions in ownership interest. In December 1995, the Company paid
approximately
FS-16
<PAGE> 228
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$17 million to purchase 11.9 million additional shares of Niugini Mining through
exercise of its share of options issued to Niugini Mining's shareholders in May
1995.
At December 31, 1995, the carrying value attributed to the Company's
proportionate share of Niugini Mining's investment in LGL exceeded its
proportionate share of Niugini Mining's historical cost basis in LGL by $102
million. Such excess will be amortized against the Company's share of the
earnings of LGL based on the estimated recoverable reserves attributable to the
Lihir project upon commencement of production (See Note 2).
Inti Raymi -- On March 8, 1994, the Company purchased an additional 3
percent of Inti Raymi's outstanding stock for $5.2 million from Zeland Mines,
S.A. to increase the Company's ownership interest to 88 percent. As of December
31, 1995, the Company had invested an aggregate of $41.1 million in cash and 9
million of its common shares (valued at approximately $76.3 million) to acquire
its 88 percent equity interest in Inti Raymi.
At December 31, 1995, the carrying value, net of accumulated amortization,
attributed to the Company's share of the Kori Kollo and Llallagua gold deposits
exceeded its proportionate share of Inti Raymi's historical cost basis in the
deposits by $82.8 million. This excess has been capitalized to property and is
being amortized by the units of production method based on the deposits'
estimated recoverable reserves. Amortization of the excess cost amounted to
$10.8 million, $11.1 million and $8.6 million in 1995, 1994 and 1993,
respectively.
Interest costs amounting to $.7 in 1995, $.4 million in 1994 and $.6
million in 1993 were capitalized in connection with the Kori Kollo project.
NOTE 11. COMMON STOCK AND STOCK OPTIONS
Stock Options -- Under the Company's 1994 Long-term Incentive Plan and a
predecessor stock option plan, 5,980,000 shares of the Company's Common Stock
were reserved for issuance as of December 31, 1995. Of this number 3,240,582
shares and 3,641,173 shares, respectively, were available for future grants of
stock options, restricted stock, performance shares or other stock awards at
December 31, 1995 and 1994, respectively.
Non-employee directors of the Company are granted non-qualified stock
options under a separate stock option plan for outside directors. Under this
plan, a total of 250,000 shares of the Company's common stock are reserved for
issuance, of which 150,000 shares and 160,500 shares are available for future
grants at December 31, 1995 and 1994, respectively.
Options granted under the above plans are exercisable under the terms of
the respective option agreements at the market price of the common stock at the
date of grant, subject to anti-dilution adjustments in certain circumstances.
Payment of the exercise price may be made in cash or in shares of common stock
previously owned by the optionee, valued at current market value.
Under a deferred income stock option plan for officers and directors, each
participant may elect to receive a non-qualified stock option in lieu of a
portion of his compensation. A maximum of 2,000,000 shares of common stock is
issuable under the plan, of which 1,729,328 shares and 1,751,391 shares are
available for future grants at December 31, 1995 and 1994, respectively. Options
granted pursuant to the plan become exercisable at the beginning of the calendar
year immediately following the year in which the option was granted. They expire
no later than 10 years after the date of grant. The amount of deferred
compensation is accrued as compensation expense during the period earned.
FS-17
<PAGE> 229
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional information for 1995 related to the Company's stock option plans
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICE
UNDER OPTION RANGE PER SHARE
---------------- ---------------
<S> <C> <C>
Outstanding at December 31, 1994..................... 2,175,648 $4.83 to $20.75
Granted............................................ 496,950 $9.25 to $11.38
Exercised.......................................... (94,363) $6.00 to $11.19
Expired............................................ (63,796) $6.88 to $11.38
--------
Outstanding at December 31, 1995..................... 2,514,439 $4.83 to $20.75
========
Exercisable at December 31, 1995..................... 1,760,174 $4.83 to $20.75
========
</TABLE>
At December 31, 1995, expiration dates for the outstanding options ranged
from July 1, 1996, to August 24, 2005. The weighted average exercise price per
share was $9.51.
NOTE 12. BENEFITS PLANS
Pension Plans -- Substantially all U.S. employees of the Company are
covered by non-contributory pension plans. The U.S. plans provide benefits based
on participants' years of service and compensation or defined amounts for each
year of service. The Company makes annual contributions to the U.S. plans that
comply with the minimum funding provisions of the Employee Retirement Income
Security Act ("ERISA").
During 1993, the plans for BMG's Australian employees were changed from
non-contributory defined benefit plans to defined contribution plans.
Pension costs are generally accrued and charged to expense currently. Net
periodic pension cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year......... $ 518 $ 599 $ 648
Interest cost on projected benefit obligations.......... 1,618 1,499 1,611
Expected return on plan assets.......................... (1,888) (2,060) (1,773)
Net amortization and deferral........................... 246 258 (88)
------- ------- -------
Net periodic pension cost..................... $ 494 $ 296 $ 398
======= ======= =======
</TABLE>
At December 31, 1995, 1994 and 1993, the projected long-term rate of return
on plan assets was 9 percent.
Actual return on the plans' assets was $6.4 million for the year ended
December 31, 1995, $1.4 million for the year ended December 31, 1994, and $.3
million for the year ended December 31, 1993.
FS-18
<PAGE> 230
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the plans' funded status and related amounts as of
December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................... $20,282 $17,148
======= =======
Accumulated benefit obligation............................... $21,712 $18,163
======= =======
Projected benefit obligation................................. $23,386 $19,299
Plan assets at fair value...................................... 26,724 21,498
------- -------
Plan assets in excess of projected benefit obligation.......... 3,338 2,199
Unrecognized net gain and effects of changes in actuarial
assumptions.................................................. (3,953) (2,585)
Unrecognized net asset at transition........................... (796) (914)
Prior service cost not yet recognized in net periodic pension
cost......................................................... 2,879 3,262
------- -------
Prepaid pension cost........................................... $ 1,468 $ 1,962
======= =======
</TABLE>
Plan assets include equity securities, common trust funds and various debt
securities. Weighted average rate assumptions used in determining estimated
benefit obligations were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount Rate......................................................... 7.5% 8.5%
Rate of increase in compensation levels............................... 8.8% 6.0%
</TABLE>
Contribution Plans -- The Company has defined contribution plans available
for all full-time U.S. salaried employees and all full-time U.S. hourly
employees. The plans provide for savings contributions by employees from 1 to 16
percent of their compensation, subject to ERISA limitations. The Company matches
50 to 100 percent of employee contributions with BMG's common stock, subject to
a limit of 6 percent of an employee's compensation during each plan year.
The Company has defined contribution plans available for all BMG's
Australian salaried and hourly employees. The Company's contributions to the
salaried plan are determined in accordance with the trust deed. The Company's
contributions to the hourly plan are determined in accordance with the union
award.
All Company contributions to the plans are expensed and funded currently.
The cost of such Company contributions to the U.S. plans was $.4 million, $.3
million and $.5 million in 1995, 1994 and 1993, respectively. The cost
attributable to the Australian plans was $.8 million, $.7 million and $.6
million in 1995, 1994 and 1993, respectively.
Postretirement Health Care and Life Insurance Benefits -- Substantially all
of the Company's U.S. employees may become eligible for certain unfunded health
care and life insurance benefits when they reach retirement age while working
for the Company.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $ 275 $ 460 $ 367
Interest cost on accumulated benefit obligation........... 502 554 644
Amortization of (gain) loss............................... (108) -- --
----- ------ ------
Net periodic postretirement benefit cost.................. $ 669 $1,014 $1,011
===== ====== ======
</TABLE>
FS-19
<PAGE> 231
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the plans' status at December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
(EXPRESSED IN
THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $4,863 $3,940
Fully eligible active plan participants........................ 591 720
Other active plan participants................................. 2,133 2,299
------ ------
7,587 6,959
Unrecognized net gain (loss)..................................... 1,215 1,510
------ ------
Accrued postretirement benefit cost.............................. $8,802 $8,469
====== ======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5 percent for 1995 and 8.5 percent for 1994. For 1995
and 1994, the assumed annual rate of increase in the per capita cost of covered
health care benefits was 9 and 12 percent, respectively. For 1995 calculations,
a gradual decrease in the rate is assumed through the year 2000 when the rate is
estimated to reach 6 percent and remain at that level thereafter. For 1994
calculations, a gradual decrease in the rate is assumed through the year 1999
when the rate is estimated to reach 6 percent and remain at that level
thereafter. A one percent increase in the assumed health care cost trend rates
would increase the accumulated postretirement benefit obligation as of December
31, 1995, by approximately $1.1 million, and would increase the total of the
service and interest cost components of net periodic postretirement health care
cost for 1995 by approximately $.1 million.
Postemployment Benefits -- Effective January 1, 1994, the Company adopted
SFAS No. 112, "Employers' Accounting for Postemployment Benefits". This standard
requires that the expected cost of these benefits must be charged to expense
during the periods that employees vest in these benefits. The Company had
previously recognized these costs as an expense when paid. Adoption of the
standard did not have a material effect on the Company's financial position or
on its results of operations. Postemployment benefit costs recognized under this
standard do not differ significantly from those that would have been reported
under the previous method.
FS-20
<PAGE> 232
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. GEOGRAPHIC SEGMENT INFORMATION
The following table sets forth certain financial information relating to
international and domestic operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Gross revenues:
United States.................................... $ 58,058 $ 46,562 $ 47,915
Austral Pacific.................................. 73,326 40,314 57,060
South America.................................... 167,911 156,108 102,276
-------- -------- --------
$299,295 $242,984 $207,251
======== ======== ========
Operating Income (Loss):
United States.................................... $(13,098) $(10,673) $(19,239)
Austral Pacific.................................. 1,051 (2,976) 7,046
South America.................................... 29,065 34,861 7,434
Other International.............................. (1,034) (1,270) (975)
-------- -------- --------
15,984 19,942 (5,734)
Interest and Other income (expense), net........... 2,613 (3,464) 1,949
-------- -------- --------
Income (Loss) Before Income Taxes and Minority
Interest......................................... $ 18,597 $ 16,478 $ (3,785)
======== ======== ========
Identifiable Assets:
United States.................................... $109,618 $114,789 $132,669
Austral Pacific.................................. 295,423 228,989 216,200
South America.................................... 331,035 335,683 318,959
Other International.............................. 1,063 308 324
-------- -------- --------
$737,139 $679,769 $668,152
======== ======== ========
</TABLE>
NOTE 14. COMMITMENTS AND CONTINGENCIES
Total operating lease rental expenses (exclusive of mineral leases) were
$3.4 million, $2.2 million and $1.4 million for 1995, 1994 and 1993,
respectively.
Aggregate minimum rentals (exclusive of mineral leases) subsequent to
December 31, 1995, under non-cancelable leases for the years ending December 31,
1996 to 2000, are estimated to be $3.1 million, $2.4 million, $1.8 million, $1.0
million and $.6 million, respectively. Lease commitments beyond the year 2000
total $1.8 million.
Pursuant to pricing provisions as set out in dore customer contracts, as of
December 31, 1995, the Company had committed to sell 14,300 ounces of gold
contained in dore valued at approximately $5.6 million at prices determined
during various pricing periods in 1995, none of which exceeds 45 days. The
average price of gold sold under this commitment is approximately $389 per
ounce.
All of the Company's mining and processing operations are subject to
reclamation and closure requirements. The Company monitors such requirements and
periodically revises its cost estimates to meet the legal and regulatory
requirements of the various jurisdictions in which it conducts its business.
Where possible, plans for ongoing operations and future mine development are
implemented in a manner that contributes to the fulfillment of reclamation and
closure obligations in a cost effective manner through the conduct of ongoing
operating activities. Costs estimated to be incurred in future periods which
cannot be
FS-21
<PAGE> 233
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addressed in this manner are charged to operations through provisions based on
the units of production method such that the estimated cost of ultimate
reclamation is fully provided for by the time mineral reserves are depleted. The
timing of actual cash expenditures for reclamation may be accelerated or
deferred depending on cost and other determinations which may make such
decisions prudent in the circumstances. The Company believes that these policies
and practices adequately address its reclamation obligations and provide a
systematic and rational method of charging such costs to operations consistent
with industry practice. Accruals amounting to an aggregate of $8.0 million at
December 31, 1995, are included as long-term liabilities in the Company's
Consolidated Balance Sheet. At the Battle Mountain Complex, aggregate
reclamation expenditures estimated to be spent in future periods are expected to
amount to approximately $7.8 million. Actual expenditures made to date have
equaled the total amount accrued to date, therefore there is no net accrued
liability at December 31, 1995 for this location. Estimated ultimate reclamation
obligations and related accrued liability balances at December 31, 1995,
respectively, for each of the Company's other operating mines is as follows: San
Luis $3.3 million and $1.7 million, Pajingo $2.6 million and $1.5 million, Kori
Kollo $10.0 million and $1.9 million and Red Dome $3.7 million and $2.9 million.
Reclamation expenditures for the San Cristobal mine are not expected to be
material.
NOTE 15. FORWARD SALES AND HEDGING
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Derivative instruments
are used to manage well-defined interest rate, foreign currency exchange rate
and commodity price risks.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. At December 31,
1995, Inti Raymi was party to three interest rate cap agreements which were
effective June 1, 1994, each with a term of three years. The agreements entitle
Inti Raymi to receive from counterparties on a quarterly basis the amounts, if
any, by which Inti Raymi's interest payments on a portion of its LIBOR based
floating-rate Kori Kollo project financing exceed various fixed rates over the
term of the caps. The fixed rates in the cap agreements gradually escalate from
5.4 percent in 1995 to 7.2 percent in 1997. Inti Raymi has hedged 50 percent of
its net interest rate exposure currently related to the Kori Kollo LIBOR based
project financing. The hedge increases to 100 percent of its exposure by June
1996. Inti Raymi has not hedged any of its exposure subsequent to December 1997.
The net unamortized cost of the premiums paid for these caps amounting to $.5
million at December 31, 1995, has been included in other assets. Since the
interest rate caps were put in place, the Company has amortized approximately
$.2 million of such premiums and has received approximately $.2 million in
settlement of expiring caps.
FS-22
<PAGE> 234
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company uses fixed forward sales contracts, spot deferred sales
contracts and put options to hedge anticipated sales of gold, silver and copper.
The following table summarizes the Company's forward sales contracts at December
31, 1995:
<TABLE>
<CAPTION>
AVERAGE PRICE
AMOUNT PER UNIT PERIOD
------- ------------- ----------------
<S> <C> <C> <C>
BMG
Forward sales contracts
Gold............................... 129,977oz US$397 Jan 96 - Oct 96
Niugini Mining
Forward sales contracts
Gold............................... 91,529oz A$536 Jan 96 - Dec 96
28,679oz US$386 Jan 96
Silver............................. 12,568oz US$5.87 Jan 96
Copper............................. 2,000tonnes US$2,654 Jan 95 - Feb 96
Inti Raymi
Forward sales contracts
Gold............................... 83,500oz US$396 Jan 96 - Jun 96
Purchased put options
Gold............................... 42,000oz US$385 Jan 96 - Apr 96
</TABLE>
Deferred costs associated with Inti Raymi's forward sales contracts
amounted to $1.3 million and $1.5 million at December 31, 1995 and 1994,
respectively. Deferred costs associated with put options amounted to $.2 million
at December 31, 1995. The Company did not own any put options at December 31,
1994.
At December 31, 1995, the aggregate amount by which the net market value of
the Company's open forward sales contracts is greater than the spot price of
$387 per ounce of gold, $5.19 per ounce of silver, and $2,815 per tonne of
copper, before consideration of the deferred costs referred to above, is $2.6
million, of which $.4 million is attributable to minority interests. Australian
dollar contracts were converted to U.S. dollars at the December 1995 month end
exchange rate of US$.74 to A$1.
The Company is exposed to credit-related losses in the event of
nonperformance by the counterparties to its interest rate caps and forward sales
contracts, but does not expect any counterparties to fail to meet their
obligations. The Company does not obtain collateral or other security to support
financial instruments subject to credit risk but monitors the credit standing of
counterparties.
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets Interest rate caps........ $ 490 $ 23 $ 685 $ 1,677
Financial Liabilities Debt................. $182,603 $157,108 $179,029 $158,662
</TABLE>
FS-23
<PAGE> 235
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts of the interest rate caps and debt shown in the table
are included in the Consolidated Balance Sheet under Other Assets and Long-Term
Debt, respectively.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, cash equivalents, trade receivables, and trade payables -- The
carrying amounts approximate fair value because of the short maturity of those
instruments.
Other assets -- The amounts reported relate to the interest rate cap
agreements described in Note 15. The carrying amount comprises the unamortized
premiums paid for the contracts. The fair value is estimated using option
pricing models.
Debt -- The fair value of the Company's convertible subordinated debentures
is based on the quoted market price of the debentures at the reporting date. Due
to the generally variable interest rate features of the OPIC, IFC and CAF loans,
the Company believes the carrying amounts approximate the fair value of this
debt at the reporting date.
The Company has issued corporate guarantees totaling $4.5 million to ensure
that the reclamation of the Battle Mountain Complex mines will be performed as
specified in the operating permits issued by the State of Nevada. In addition,
the Company has a letter of credit outstanding for $2.2 million as collateral
for surety bonds provided as security for various reclamation obligations. The
Company believes the carrying value of these financial instruments approximates
their fair market value.
FS-24
<PAGE> 236
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
EARNINGS DIVIDENDS PER DIVIDENDS
NET OPERATING NET (LOSS) PER COMMON PER
SALES INCOME INCOME COMMON SHARE SHARE PREFERRED SHARE
-------- --------- ------- ------------ ------------- ---------------
(EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OF US$)
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter........ $ 54,082 $ 3,420 $ 2,482 $ .01 $.025 $ .8125
Second Quarter....... 81,263 6,607 7,630 .06 -- .8125
Third Quarter........ 65,485 2,713 2,753 .01 .025 .8125
Fourth Quarter....... 83,430 3,244 2,380 .01 -- .8125
-------- ------- ------- ------ ----- -------
$284,260 $15,984 $15,245 $ .09 $.050 $3.2500
======== ======= ======= ====== ===== =======
1994
First Quarter........ $ 50,917 $ 7,182 $ 2,848 $ .01 $.025 $ .8125
Second Quarter....... 57,036 6,028 3,084 .01 -- .8125
Third Quarter........ 55,827 1,856 1,451 (.01) .025 .8125
Fourth Quarter....... 65,890 4,876 2,189 .01 -- .8125
-------- ------- ------- ------ ----- -------
$229,670 $19,942 $ 9,572 $ .02 $.050 $3.2500
======== ======= ======= ====== ===== =======
</TABLE>
FS-25
<PAGE> 237
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS OF US$)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents.......................................... $ 42,658 $ 46,071
Accounts receivable................................................ 27,591 26,320
Inventories........................................................ 14,113 4,158
Materials and supplies............................................. 29,102 26,563
Other current assets............................................... 14,739 12,846
--------- --------
TOTAL CURRENT ASSETS....................................... 128,203 115,958
Investments........................................................ 231,422 230,652
Net property, plant and equipment.................................. 352,152 360,270
Other assets....................................................... 31,319 30,259
--------- --------
TOTAL ASSETS......................................................... $ 743,096 $737,139
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term borrowings.............................................. $ 449 $ 2,571
Current maturities of long-term debt............................... 13,428 13,427
Accounts payable................................................... 16,720 13,251
Payroll and related benefits accrued............................... 4,804 5,039
Accrued interest................................................... 3,446 7,198
Other current liabilities.......................................... 5,047 5,448
--------- --------
TOTAL CURRENT LIABILITIES.................................. 43,894 46,934
Long-term debt....................................................... 182,166 169,175
Other liabilities.................................................... 39,901 38,199
--------- --------
TOTAL LIABILITIES.......................................... 265,961 254,308
Minority interest.................................................... 110,967 111,773
Shareholders' equity................................................. 366,168 371,058
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $ 743,096 $737,139
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-26
<PAGE> 238
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA , OF US$)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
--------- ------------
<S> <C> <C>
GROSS REVENUE........................................................ $ 60,239 $ 56,120
Less: Freight, allowances and royalties............................ 2,554 2,038
--------- --------
NET SALES............................................................ 57,685 54,082
--------- --------
COSTS AND EXPENSES
Production costs................................................... 39,827 31,811
Depreciation, depletion and amortization........................... 14,483 12,358
Exploration, evaluation and other lease costs...................... 4,839 3,222
General and administrative expenses................................ 3,311 2,709
Taxes, other than income........................................... 746 562
--------- --------
Total...................................................... 63,206 50,662
--------- --------
OPERATING (LOSS) INCOME.............................................. (5,521) 3,420
Interest income...................................................... 808 947
Interest expense, net................................................ (1,687) (1,711)
Other (expense) income, net.......................................... (1,511) 650
--------- --------
(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST.............. (7,911) 3,306
Income tax benefit (expense)......................................... 2,545 (261)
Minority interest in net loss (income)............................... 1,363 (563)
--------- --------
NET (LOSS) INCOME.................................................... (4,003) 2,482
Preferred dividends.................................................. 1,869 1,869
--------- --------
NET (LOSS) INCOME TO COMMON SHARES................................... $ (5,872) $ 613
========= ========
(LOSS) INCOME PER COMMON SHARE....................................... $ (.07) $ .01
========= ========
DIVIDENDS PER COMMON SHARE........................................... $ .025 $ .025
========= ========
AVERAGE COMMON SHARES OUTSTANDING FOR (LOSS) INCOME PER SHARE
PURPOSES........................................................... 81,251 86,294
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-27
<PAGE> 239
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF US$)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME.................................................... $ (4,003) $ 2,482
Adjustments to reconcile net (loss) income to cash flows from
operating activities:
Depreciation, depletion and amortization........................... 14,483 12,358
Exploration and evaluation costs................................... 3,372 3,058
Deferred taxes..................................................... (2,545) (316)
Change in current assets and liabilities........................... (7,057) (10,740)
Other net change................................................... 1,167 125
-------- --------
Total Adjustments.................................................... 9,420 4,485
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES............................. 5,417 6,967
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................... (13,506) (21,268)
Exploration and evaluation expenditures............................ (3,689) (2,949)
Other, net......................................................... (273) (192)
-------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES.......................... (17,468) (25,781)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from stock issuances................................. 1,246 --
Cash proceeds from borrowings...................................... 13,052 --
Cash dividend payments............................................. (3,899) (3,892)
Repayment of debt.................................................. (2,288) --
Other, net......................................................... (18) (103)
-------- --------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES................... 8,093 (3,995)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES...................................... 545 (417)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................ (3,413) (23,226)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 46,071 76,464
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 42,658 $ 53,238
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-28
<PAGE> 240
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLAR AMOUNTS IN US$)
NOTE 1. GENERAL INFORMATION
The unaudited condensed consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and include all adjustments, consisting only of normal
recurring accruals, which are, in the opinion of the management of Battle
Mountain, necessary for a fair presentation. These financial statements include
the accounts of Battle Mountain and its wholly owned and majority-owned
subsidiaries (the "Company"). Certain information and footnote disclosures
required by generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements and the notes
thereto for the year ended December 31, 1995 included elsewhere herein.
NOTE 2. INCOME PER COMMON SHARE
The effect of common stock equivalents is not included in the calculation
of income per share for the three months ended March 31, 1996 because the effect
is antidilutive. Fully diluted income per share is not presented because the
effect of other dilutive securities is antidilutive for the periods presented.
FS-29
<PAGE> 241
AUDITORS' REPORT
To The Shareholders of
Hemlo Gold Mines Inc.:
We have audited the consolidated balance sheets of Hemlo Gold Mines Inc. as
at December 31, 1995 and 1994 and the consolidated statements of earnings and
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 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 generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1995 and 1994 and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1995
in accordance with accounting principles generally accepted in Canada.
Toronto, Canada, ERNST & YOUNG
February 8, 1996 Chartered Accountants
(except for Note 17, which
is as of April 12, 1996).
FS-30
<PAGE> 242
HEMLO GOLD MINES INC.
(INCORPORATED UNDER THE LAWS OF ONTARIO)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................. $105,963 $131,965
Bullion and bullion settlements receivable........................... 25,256 67,041
Accounts receivable.................................................. 5,830 5,489
Product inventories.................................................. 2,905 3,643
Materials and supplies............................................... 7,258 7,164
-------- --------
147,212 215,302
Investments (note 2)................................................... 18,700 23,700
Capital assets (note 3)................................................ 314,362 303,142
Other assets (note 4).................................................. 55,434 51,684
-------- --------
$535,708 $593,828
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................................ $ 16,741 $ --
Accounts payable and accrued charges (note 5)........................ 12,805 17,956
Income and mining taxes.............................................. 13,594 65,823
Gold loan payable (note 6)........................................... -- 24,304
-------- --------
43,140 108,083
Mine closure costs (note 7)............................................ 7,067 6,089
Deferred income and mining taxes....................................... 116,746 111,709
Minority interest...................................................... 16,102 16,102
-------- --------
183,055 241,983
-------- --------
Commitments and contingency (note 14)
Shareholders' equity:
Capital stock (note 8)
Issued --
99,982,839 common shares (1994 -- 96,822,716)................... 184,680 145,768
To be issued --................................................... -- 38,302
Retained earnings.................................................... 167,973 167,775
-------- --------
352,653 351,845
-------- --------
$535,708 $593,828
======== ========
</TABLE>
On behalf of the Board:
Director, Ian D. Bayer
Director, The Hon. William G. Davis, P.C., C.C., Q.C.
(See accompanying notes)
FS-31
<PAGE> 243
HEMLO GOLD MINES INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
EARNINGS
Revenue.................................................... $139,890 $254,555 $217,114
-------- -------- --------
Expense:
Operating costs......................................... 62,343 72,605 73,231
Depreciation, amortization and mine closure............. 22,765 35,830 32,816
Quarter Claim royalties (note 9)........................ 4,162 6,746 6,905
Administrative and general.............................. 3,925 3,982 3,662
-------- -------- --------
93,195 119,163 116,614
-------- -------- --------
Mining income.............................................. 46,695 135,392 100,500
Exploration (note 10)...................................... (16,568) (13,778) (12,462)
Gain on sale of investments and assets..................... -- 1,546 --
Investment income.......................................... 11,193 10,416 7,295
Interest expense........................................... (214) (442) (1,205)
-------- -------- --------
Earnings before taxes...................................... 41,106 133,134 94,128
-------- -------- --------
Mining taxes (note 11)..................................... 6,561 26,494 19,010
Income taxes (note 11)..................................... 14,352 42,154 29,469
-------- -------- --------
20,913 68,648 48,479
-------- -------- --------
Earnings................................................... $ 20,193 $ 64,486 $ 45,649
======== ======== ========
Earnings per share......................................... $ 0.20 $ 0.67 $ 0.47
======== ======== ========
Dividends per share........................................ $ 0.20 $ 0.35 $ 0.30
======== ======== ========
Weighted average number of common shares outstanding
(thousands)............................................. 99,941 96,934 96,769
======== ======== ========
RETAINED EARNINGS
Balance, beginning of year................................. $167,775 $137,171 $120,554
Earnings................................................... 20,193 64,486 45,649
Common share dividends
-- cash................................................. (19,953) (33,796) (28,923)
-- stock................................................ (42) (86) (109)
-------- -------- --------
Balance, end of year....................................... $167,973 $167,775 $137,171
======== ======== ========
</TABLE>
(See accompanying notes)
FS-32
<PAGE> 244
HEMLO GOLD MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents realized from (used for):
Operating activities:
Earnings...................................... $ 20,193 $ 64,486 $ 45,649
Adjustments for items not affecting cash:
Depreciation, amortization and mine
closure.................................. 22,765 35,830 32,816
Deferred income and mining taxes............ 5,037 (2,407) 1,868
Gain on sale of other assets................ -- (1,546) --
-------- -------- --------
47,995 96,363 80,333
Net change in non-cash working capital
balances (note 12).......................... (57,077) 44,385 (30)
Other......................................... 1,155 359 (332)
-------- -------- --------
(7,927) 141,107 79,971
-------- -------- --------
Investing activities:
Proceeds from sale of investments................ 5,000 15,625 16,575
Fixed asset additions (net)...................... (5,157) (5,759) (6,758)
Preproduction and deferred development........... (4,963) (12,236) (14,471)
Property under development....................... (22,887) (9,509) --
Deferred exploration............................. (5,070) (4,041) (7,464)
Investments and advances......................... -- (161) (5,297)
Proceeds from sale of other assets............... -- 10,000 257
Acquisition of Freewest Resources Inc. (note
13)........................................... -- (38,835) --
-------- -------- --------
(33,077) (44,916) (17,158)
-------- -------- --------
Financing activities:
Repayment of long-term debt...................... (24,304) (24,304) (36,454)
Issue of common shares for cash.................. 733 300 90
Dividends on common shares....................... (19,953) (33,796) (28,923)
Common shares to be issued for acquisition of
Freewest Resources Inc. (note 13)............. -- 38,302 --
Share issue by subsidiary........................ -- -- 4,163
-------- -------- --------
(43,524) (19,498) (61,124)
-------- -------- --------
Increase (decrease) in cash and cash equivalents... (84,528) 76,693 1,689
Cash and cash equivalents, beginning of year....... 199,006 122,313 120,624
-------- -------- --------
Cash and cash equivalents, end of year............. $114,478 $199,006 $122,313
======== ======== ========
</TABLE>
(See accompanying notes)
FS-33
<PAGE> 245
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)
DECEMBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP")
consistently applied. These accounting principles conform in all material
respects with accounting principles generally accepted in the United States
("U.S. GAAP") and with the applicable accounting requirements of the Securities
and Exchange Commission in the United States, except as described in note 16.
(a) Basis of presentation --
The financial statements are prepared on a consolidated basis and include
the financial position and results of operations of Hemlo Gold Mines Inc. ("the
Company"), its wholly-owned subsidiaries, and its 60% owned subsidiary, Crown
Butte Resources Ltd. ("Crown Butte") which owns the New World property near
Cooke City, Montana. The Company's 55% joint venture interest in the Silidor
Mine and 84.7% direct interest in the Holloway Joint Venture are accounted for
by the proportionate consolidation method.
(b) Foreign currency transactions --
Foreign currency transactions of domestic operations are translated into
Canadian dollars at the rates prevailing on the date of the transactions.
Monetary assets and liabilities of foreign operations are translated at the
year-end rate of exchange, and non-monetary assets and liabilities are
translated at historical rates of exchange. Revenue and expenses of foreign
operations are translated at the average rate of exchange for the year. Gains
and losses on foreign currency transactions are included in the determination of
earnings.
(c) Cash and cash equivalents --
Cash represents cash and short-term deposits with an original maturity date
of less than three months less short-term borrowings. Bullion and bullion
settlements receivable are included as cash equivalents because they are readily
convertible to known amounts of cash through forward sales transactions.
(d) Revenue recognition and product inventories --
Gold bullion produced by the Golden Giant Mine is valued at estimated net
realizable value when it reaches a saleable form. Gold contained in the ore
produced by the Silidor Mine is valued at estimated net realizable value when
the ore is shipped from the mine to be processed at offsite treatment
facilities. In both cases the estimated net realizable value is included in
revenue and either in bullion if the price has been fixed, or in product
inventories if the price has not been fixed.
The Company used a gold loan to finance the capital cost of the Golden
Giant Mine and also uses, from time to time, forward sale, spot deferred and
option contracts to fix the price of gold on a portion of its future production.
All these delivery commitments are designated as hedges of future production.
When gold production designated as a hedge is sold, revenue is recognized in
amounts implicit in the loan or delivery commitment. If the loan or commitment
is terminated prior to the sale of designated production, any gain or loss is
deferred until the sale occurs.
(e) Materials and supplies --
Materials and supplies are valued at the lower of cost and replacement
cost.
FS-34
<PAGE> 246
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Depreciation and amortization
Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method based on the estimated useful lives of the
assets. At the Golden Giant Mine, the estimated useful lives of buildings, fixed
equipment and the tailings impoundments are 11 years from January 1, 1995. At
the Silidor Mine, the estimated useful lives of buildings and fixed equipment
are three years from January 1, 1995. Estimated useful lives of mobile equipment
range from three to ten years. Preproduction and deferred development
expenditures are amortized over the estimated lives of the mines on a
unit-of-production basis.
(g) Mine closure costs
The Company is providing for estimated mine closure costs over the
estimated mine lives on a straight-line basis. Mine closure costs include future
removal, site restoration, reclamation and environmental costs as well as
shutdown costs such as employee severances.
(h) Investments and advances
The Company from time to time invests in junior resource companies that
explore for or develop gold properties that complement the Company's activities.
These investments are initially recorded at cost. If the Company exercises
significant influence over an investee, the equity method of accounting is used.
Where a decline in the value of an investment or an advance is other than
temporary, the investment or advance is written down by a charge against
earnings. Any gains or losses on disposal of these investments are credited to
or charged against earnings.
(i) Exploration
Each exploration property is accounted for as a separate project. All grass
roots exploration costs, including property acquisition costs and overheads,
relating to each project are expensed when incurred. Proceeds from the sale of
exploration properties are credited to exploration expense.
When management determines that a property has geological reserves which
have the potential of being economically recoverable, the property is moved to
the feasibility study stage and further exploration costs, including definition
drilling, bulk sampling, metallurgical test work and engineering studies, are
deferred. If the property proceeds to development, the deferred exploration
costs become part of the preproduction and development costs of the mine, and,
once commercial production commences, are amortized over its estimated life on a
unit-of-production basis. If a property is considered uneconomic in the
foreseeable future or is abandoned, the related deferred expenditures are
written down to estimated net realizable value.
NOTE 2. INVESTMENTS
Investments carried at cost consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
600,000 (1994 -- 800,000) common shares of
Mico Investments Limited ("Mico").............................. $15,000 $20,000
Other............................................................ 3,700 3,700
------- -------
$18,700 $23,700
======= =======
</TABLE>
Mico is a private company which invests in dividend-paying equity
securities of Canadian corporations and participates in the secondary market for
selected equity securities.
FS-35
<PAGE> 247
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------------- ---------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
-------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Property, plant and equipment:
Buildings..................... $ 86,076 $ 42,616 $ 43,460 $ 85,222 40,033 $ 45,189
Fixed equipment............... 108,801 48,092 60,709 107,862 45,788 62,074
Mobile equipment.............. 20,785 14,818 5,967 21,156 12,217 8,939
Tailings impoundments......... 43,030 19,849 23,181 42,498 17,039 25,459
Construction in progress...... 7,161 -- 7,161 5,115 -- 5,115
-------- ----------- -------- -------- ----------- --------
$265,853 $ 125,375 140,478 $261,853 $ 115,077 146,776
======== ========= ======== =========
Preproduction and deferred
development, at cost less
amortization of $112,361
(1994 -- $102,029)............ 76,225 81,594
Property under development, at
cost.......................... 97,659 74,772
-------- --------
$314,362 $303,142
======== ========
Net book value by property:
Golden Giant Mine............. $213,571 $222,670
Silidor Mine.................. 3,132 5,700
Holloway Joint Venture........ 97,659 74,772
-------- --------
$314,362 $303,142
======== ========
</TABLE>
Depreciation was not taken at the Golden Giant Mine in 1995 when the mine
was not operating. Operations were shut down during a three month strike and
also during a seven week period for rehabilitation of the shaft.
NOTE 4. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Deferred exploration -- New World property (note 14)............. $47,512 $42,442
Investments and advances......................................... 3,755 3,773
Miscellaneous, primarily employee housing loans.................. 4,167 5,469
------- -------
$55,434 $51,684
======= =======
</TABLE>
Investments and advances at December 31, 1995 included common shares which
were carried at a book value of $512 (1994 -- $512) and which had a quoted
market value of $1,000 (1994 -- $1,327).
Investments and advances at December 31, 1995 also included, at their cost
of $3,243 (1994 -- $3,261), an investment in securities of Century Property and
Casualty Insurance Company ("Century"), a private offshore insurance company
that manages the property and casualty insurance programs for the Company and
several other associated and non-associated companies.
FS-36
<PAGE> 248
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED CHARGES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Accrued charges.................................................. $ 5,793 $ 3,411
Due to related parties........................................... 2,153 2,167
Trade accounts payable........................................... 2,253 7,265
Holdbacks payable................................................ 763 1,453
Wages payable.................................................... 1,220 441
Royalties payable................................................ 447 3,036
Other............................................................ 176 183
------- -------
$12,805 $17,956
======= =======
</TABLE>
NOTE 6. GOLD LOAN PAYABLE
In 1987, the Company borrowed 380,000 ounces of gold from a consortium of
Canadian banks, and sold the gold at Cdn$543.63 per ounce to realize proceeds of
$206,580. The loan bore interest at a floating rate and normally required
semi-annual deliveries of 22,353 ounces. At December 31, 1994, 44,706 ounces of
gold were outstanding. These ounces were delivered during 1995.
NOTE 7. MINE CLOSURE COSTS
The Company estimates that mine closure costs will amount to $19,000 at the
Golden Giant Mine, and that the Company's 55% share of such costs at the Silidor
Mine will amount to $1,100. The 1995 provision amounted to $978 (1994 -- $1,429;
1993 -- $1,423).
Estimates of site restoration costs are based on compliance with existing
reclamation standards and practices. The laws and regulations are constantly
changing and the estimates are accordingly reviewed annually.
NOTE 8. CAPITAL STOCK
(a) Authorized
The Company's authorized capital stock consists of an unlimited number of
Preferred shares, Subordinate Voting Participating shares, and Common shares. No
Preferred shares or Subordinate Voting Participating shares have been issued.
FS-37
<PAGE> 249
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Summary of common share transactions
<TABLE>
<CAPTION>
SHARES AMOUNT
-------------- --------
(IN THOUSANDS)
<S> <C> <C>
Common shares, January 1, 1993.............................. 96,761 $145,183
------ --------
Issued in 1993:
As stock dividends........................................ 8 109
Upon exercise of options.................................. 12 90
------ --------
20 199
------ --------
Common shares, December 31, 1993............................ 96,781 145,382
------ --------
Issued in 1994:
As stock dividends........................................ 7 86
Upon exercise of options.................................. 35 300
------ --------
42 386
------ --------
Common shares, December 31, 1994............................ 96,823 145,768
------ --------
Issued in 1995:
In exchange for shares of Freewest Resources Inc.
("Freewest")........................................... 3,082 38,137
As stock dividends........................................ 3 42
Upon exercise of options.................................. 75 733
------ --------
3,160 38,912
------ --------
Common shares, December 31, 1995............................ 99,983 $184,680
====== ========
</TABLE>
(c) Common shares to be issued
As is more fully described in note 13, on December 16, 1994 the Company
became obligated to issue up to 3,095,036 common shares from treasury to the
shareholders of Freewest other than the Company. These shares were valued at
$12.38 per share.
The shares were largely issued in early 1995 in exchange for the
outstanding share certificates of Freewest. Freewest shareholders who would
otherwise have been entitled to receive a fraction of a common share received a
cheque valued at $13.13 per share in lieu of such fraction.
(d) Dividend reinvestment plan
Under the Company's dividend reinvestment plan, Canadian resident
shareholders may elect to take their dividends in capital stock rather than in
cash.
(e) Share purchase plan
Under the Company's share purchase plan, common shares were sold to a
trustee for resale to certain officers financed by loans from the Company
bearing interest equal to the cash dividends paid on the shares. At December 31,
1994, the amount of the loans included in accounts receivable was $693. During
1995, all such loans were repaid.
(f) Stock options
During the year ended December 31, 1995, the Company granted options in
respect of 301,000 common shares, exercisable at $11.75 per share until February
6, 2000. Options on 75,500 common shares were exercised in 1995, and no options
were cancelled. At December 31, 1995 options in respect of 337,000
FS-38
<PAGE> 250
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common shares were outstanding and exercisable at prices of $7.50, $10.25,
$11.75 and $13.63 for periods up to 2000. During the year ended December 31,
1994, options in respect of 43,000 common shares were granted, options on 35,000
shares were exercised and no options were cancelled.
(g) Legal capital
The Company's legal share capital at December 31, 1995 was $210,491, which
exceeded the amount shown in the consolidated financial statements by $25,811.
NOTE 9. QUARTER CLAIM ROYALTIES
The Golden Giant Mine property includes the Quarter Claim acquired from
Teck Corporation ("Teck") and Homestake Canada Inc. ("Homestake"). Until
December 31, 1994, the Company was obligated to mine the Quarter Claim at a rate
of 500 tons per day, to pay a profit royalty of 50% of the defined net profits
therefrom to Teck and Homestake, and to pay a 3% net smelter return royalty to
the original Quarter Claim prospectors.
Effective January 1, 1995 the Quarter Claim agreement was amended so that
the net profits royalty became payable on a deemed production rate of 500 tons
per day without regard to the Company's actual production from the Quarter
Claim. The calculations of the 50% net profits royalty and the 3% net smelter
return royalty were not affected in any other respect.
The reported royalty expense for 1994 included a provision for payments of
$2,784 payable to Teck and Homestake in early 1995 to adjust for quantities of
ore mined by the Company in 1994 pursuant to boundary mining agreements. The
1993 expense included $2,194 of such payments made in that year.
NOTE 10. EXPLORATION EXPENSE AND EXPLORATION AGREEMENTS
Exploration expense consists of:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Exploration expenditures................................ $16,501 $14,443 $14,462
Business development expenditures....................... 67 984 --
Proceeds from sale of exploration properties............ -- (1,649) (2,000)
------- ------- -------
Exploration expense..................................... $16,568 $13,778 $12,462
======= ======= =======
</TABLE>
Under an agreement dated January 1, 1987, the Company has the exclusive
right, as between Noranda Inc. ("Noranda") and the Company, to explore for and
develop precious metal mining properties within a defined area of Northwestern
Ontario surrounding the Golden Giant Mine, referred to as the "Area of
Exclusivity".
Effective May 1, 1991, the Company and Noranda entered into a
non-competition agreement whereby Noranda will not acquire or explore for gold
properties for the five-year period ending July 17, 1996. The Company has agreed
not to acquire or explore for base metal properties for the same period.
Until December 31, 1994, Noranda Exploration Company, Limited (No Personal
Liability) ("Norex"), a wholly-owned subsidiary of Noranda, acted as agent in
carrying out most of the Company's exploration programs. In performing
exploration services as agent, Norex charged its direct out-of-pocket costs plus
a percentage to cover overheads. These overhead charges amounted to $2,049 in
1994 (1993 -- $1,935).
Effective January 1, 1995, the Company commenced carrying out all
exploration programs with its own employees.
FS-39
<PAGE> 251
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Business development expenditures prior to 1994 were not significant and
were included in general and administrative expense.
NOTE 11. INCOME AND MINING TAXES
(a) Geographic components
The geographic components of earnings before taxes, and of income and
mining taxes, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Earnings (loss) before taxes:
Canada............................................... $44,167 $138,047 $96,077
United States........................................ 121 (3,459) 497
Other................................................ (3,182) (1,454) (2,446)
------- -------- -------
$41,106 $133,134 $94,128
======= ======== =======
Current income and mining taxes Canada................. $15,876 $ 71,055 $46,611
Deferred income and mining taxes Canada................ 5,037 (2,407) 1,868
------- -------- -------
$20,913 $ 68,648 $48,479
======= ======== =======
</TABLE>
(b) Deferred income and mining taxes
Deferred income and mining taxes arise from timing differences in the
recognition of revenue and expense for financial reporting and tax purposes. The
sources of timing differences and the related deferred income and mining tax
amounts are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Depreciation............................................ $(1,269) $(4,850) $(3,438)
Exploration and development............................. 3,400 2,003 2,472
Other................................................... 2,906 440 2,834
------- ------- -------
$ 5,037 $(2,407) $ 1,868
======= ======= =======
</TABLE>
(c) Effective income tax rate
The following table explains the variation between the Company's provision
for income taxes and the statutory income tax rate:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income tax provision based on the combined statutory
rate for 1995 of 44% (1994 and 1993 -- 43%) applied
against earnings before taxes....................... $18,087 $57,247 $40,475
Increase (decrease) in income taxes resulting from:
Provincial rate reduction on mining income.......... (570) (1,945) (637)
Resource allowance.................................. (4,994) (14,801) (10,411)
Non-deductible foreign exploration expense.......... 1,400 2,655 1,052
Other non-deductible expenses....................... 439 980 768
Permanent differences............................... (285) (587) (1,696)
Other............................................... 275 (1,395) (82)
------- ------- -------
Income tax provision.................................. $14,352 $42,154 $29,469
======= ======= =======
</TABLE>
FS-40
<PAGE> 252
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Deferred income and mining tax liabilities
The deferred income and mining tax liabilities (assets) are composed of the
following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
Income taxes:
Fixed assets................................................. $ 46,464 $ 46,500
Exploration and development.................................. 39,384 37,200
Other........................................................ (2,294) (5,200)
-------- --------
83,554 78,500
-------- --------
Mining taxes:
Fixed assets................................................. 17,776 19,009
Exploration and development.................................. 15,416 14,200
-------- --------
33,192 33,209
-------- --------
$116,746 $111,709
======== ========
</TABLE>
NOTE 12. NON-CASH WORKING CAPITAL
The net change in non-cash working capital balances is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- ------
<S> <C> <C> <C>
Accounts receivable................................... $ (341) $(2,066) $1,342
Product inventories................................... 738 903 5,880
Materials and supplies................................ (94) (227) (450)
Accounts payable and accrued charges.................. (5,151) 5,364 246
Income and mining taxes............................... (52,229) 40,411 (7,048)
-------- ------- ------
$(57,077) $44,385 $ (30)
======== ======= ======
</TABLE>
Cash payments made during the year on account of the following were: income
taxes $44,579 (1994 -- $19,678; 1993 -- $30,253); mining taxes $23,514
(1994 -- $10,536; 1993 -- $21,746) and interest $214 (1994 -- $374;
1993 -- $1,043).
NOTE 13. ACQUISITION OF FREEWEST RESOURCES INC.
Pursuant to agreements made as of November 8, 1994, the Company acquired
all of the outstanding common shares of Freewest effective December 16, 1994.
Prior to the effective date, the Company owned 19.0% of Freewest's common
shares. Freewest owned: (i) a 33.9% direct interest in the Holloway Joint
Venture; (ii) other properties in Harker and Holloway townships near the
Holloway Joint Venture, and; (iii) 50,000 common shares of Teddy Bear Valley
Mines, Limited. These assets are collectively referred to as the "Harker
Holloway assets." Freewest also held certain other assets ("the other assets")
which included interests in, or options on, various mining properties and
approximately $3 million of cash.
On December 15, 1994, Freewest transferred the other assets to a newly
incorporated subsidiary and distributed the common shares of this subsidiary by
way of a dividend in kind to the shareholders of Freewest other than the
Company. On December 16, 1994, Freewest, which then owned only the Harker
Holloway assets, amalgamated with a newly incorporated subsidiary of the
Company, and Freewest shareholders other than the Company became entitled to
receive one common share of the Company for each 4.1 Freewest
FS-41
<PAGE> 253
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common shares held. The amalgamated company also assumed from Freewest the
liabilities related to the Harker Holloway assets.
The acquisition was accounted for by the purchase method and was included
in the Company's Consolidated Balance Sheet at December 31, 1994 as follows:
<TABLE>
<S> <C>
Net assets acquired:
Property under development............................................... $44,377
Accounts receivable...................................................... 196
Reduction in investments and advances.................................... (3,796)
-------
Total assets acquired.................................................... 40,777
Less: accounts and taxes payable......................................... (1,942)
-------
$38,835
=======
Consideration given:
3,095,036 common shares to be issued..................................... $38,302
Cash..................................................................... 533
-------
$38,835
=======
</TABLE>
This acquisition increased the Company's direct interest in the Holloway
Joint Venture from 50.8% to 84.7%. Expenditures included on the Consolidated
Statements of Cash Flows reflect this larger interest as from December 16, 1994.
Common shares actually issued to the former shareholders of Freewest
totalled 3,081,760 at December 31, 1995.
NOTE 14. COMMITMENTS AND CONTINGENCY
(a) Commitments are as follows at December 31, 1995:
(i) Approved capital projects amounted to $12,100. Of this amount,
$7,800 represents the Company's 84.7% share of future capital
costs net of preproduction revenue, to bring the Holloway project
to production in 1996.
(ii) The Company has spot deferred contracts amounting to 20,000
ounces of gold at US$411 per ounce in 1996. The Company may
elect to extend these commitments into subsequent years.
(iii) The Company is committed to arrange financing for the commercial
development of Crown Butte's New World property. The capital costs
for a mine and surface facilities were projected at US$80,000 in a
feasibility report dated April 1991. The financing is to be
reasonably acceptable to Crown Butte and at competitive rates and
terms with financing which would be available from arm's length
third parties.
(iv) Pursuant to an Agreement effective May 1, 1991 under which the
Company acquired certain gold assets from Noranda, the Company
must pay additional cash consideration to Noranda of a maximum
of $5,000 if the gold price averages US$475 per ounce or more
throughout any 90 day period ending July 17, 1996.
(b) Contingency:
The recoverability of the deferred exploration costs at the New World
property is dependent upon Crown Butte's ability either to attain profitable
production therefrom or to realize proceeds from the disposal of the property.
Profitable production can only be achieved following the obtaining of all the
necessary permits.
FS-42
<PAGE> 254
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Crown Butte applied in November 1990 for the permits necessary to construct and
operate a mine and has been involved since then in the complex and
time-consuming permitting process involving numerous U.S. federal and state
agencies. Based on information received from the two lead permitting agencies,
Crown Butte believes that it is likely to receive a draft of the Environmental
Impact Statement, an important milestone in the permitting process, in early
1996. There can be no assurance that further delays will not occur either
through possible administrative and judicial appeals or inter-governmental
coordination problems.
NOTE 15. RELATED PARTY TRANSACTIONS
At December 31, 1995 Noranda owned 44.1% of the Company's issued common
shares.
Reference is made to note 10 which describes exploration agreements and
transactions with Noranda and to note 14 which describes a commitment to
Noranda. In addition to the above, transactions with Noranda and with certain of
Noranda's subsidiary and associated companies were as follows:
The Company participates in a short-term investment pool with Noranda and
associated companies. The pool is operated to provide participating companies
with the opportunity to invest or borrow funds on a short-term demand basis.
Interest revenues and charges are at market rates, based on the rates for
Bankers' Acceptances and Commercial Paper published by the Bank of Canada. At
December 31, 1995, the Company had borrowings of $16,741 from this investment
pool (1994 -- $29,979 on deposit). Net interest received from the investment
pool amounted to $3,406 in 1995 (1994 -- $7,873; 1993 -- $3,551).
At December 31, 1995, investments in associated companies (notes 2 and 4),
were carried at their cost of $21,943 (1994 -- $26,961). Dividends on these
shares amounted to $1,669 in 1995 (1994 -- $1,716; 1993 -- $2,112).
Pursuant to a Marketing Services Agreement, Noranda acted as sales agent in
selling refined gold bullion, arranging hedging transactions and generally
assisting in other marketing services. The Company paid Noranda fees of $227 in
1995 (1994 -- $211; 1993 -- $194) for these services. This Agreement has been
terminated with effect from April 1, 1996.
Noranda processes some of the ore from the Silidor Mine and, until March
31, 1993 refined part of the above-noted bullion at its treatment facilities and
charges or charged rates set out in contractual agreements similar to those
commonly used in the industry. Charges paid by the Company were $879 in 1995
(1994 -- $930; 1993 -- $1,170).
Noranda provides the Company with certain technical, data processing and
research services. These services are charged at rates which approximate the
actual cost of providing the services. Charges paid by the Company for these
services amounted to $1,038 in 1995 (1994 -- $1,413; 1993 -- $1,307).
Until June 30, 1994, Noranda provided engineering services to certain of
the Company's advanced exploration projects at cost. Charges paid by the Company
for these services amounted to $374 in 1994 (1993 -- $839).
Related party transactions as described above gave rise to accounts
receivable at December 31, 1995 of $nil (1994 -- $695) and accounts payable of
$2,153 (1994 -- $2,167).
NOTE 16. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
U.S. GAAP requires that non-cash investing and financing activities be
given note disclosure rather than being disclosed directly on the Consolidated
Statements of Cash Flows as is required under Canadian GAAP. Accordingly, under
U.S. GAAP, the common shares to be issued for the acquisition of Freewest
amounting to $38,302 in 1994 would not appear on this statement and the totals
for investing activities and financing activities would have been $(6,614) and
$(57,800), respectively.
FS-43
<PAGE> 255
HEMLO GOLD MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the acquisition of Freewest, under Financial Accounting
Standards Board 109, property under development and deferred income and mining
taxes would each increase by $21,000 as at each of December 31, 1994 and 1995.
17. SUBSEQUENT EVENT
On March 11, 1996, the Company announced that it had signed an agreement to
combine with Battle Mountain Gold Company ("Battle Mountain") of Houston, Texas.
Under the terms of the Combination Agreement as amended and restated as of April
12, 1996, the Company's shareholders will be entitled to receive 1.48 Hemlo Gold
exchangeable shares for each common share of the Company. Each exchangeable
share will have all the same rights as a share of Battle Mountain common stock,
including voting, dividend and liquidation rights, and can be exchanged for a
share of Battle Mountain common stock at any time at the option of the holder.
The combination is structured as a Canadian plan of arrangement and is
subject to approval by the Ontario Court of Justice, other regulatory
authorities, and by the shareholders of Battle Mountain and of the Company.
FS-44
<PAGE> 256
HEMLO GOLD MINES INC.
(INCORPORATED UNDER THE LAWS OF ONTARIO)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF CANADIAN DOLLARS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1996 1995
-------- -----------
<S> <C> <C>
Current assets:
Cash............................................................... $129,564 $ 105,963
Bullion and bullion settlements receivable......................... 2,905 25,256
Accounts receivable................................................ 6,002 5,830
Product inventories................................................ 2,750 2,905
Materials and supplies............................................. 7,409 7,258
-------- --------
148,630 147,212
Investments.......................................................... 18,700 18,700
Capital assets....................................................... 313,570 314,362
Other assets......................................................... 56,172 55,434
-------- --------
$537,072 $ 535,708
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.............................................. $ -- $ 16,741
Accounts payable and accrued charges............................... 12,730 12,805
Income and mining taxes............................................ 18,989 13,594
-------- --------
31,719 43,140
Mine closure costs................................................... 7,367 7,067
Deferred income and mining taxes..................................... 115,733 116,746
Minority interest.................................................... 16,102 16,102
-------- --------
170,921 183,055
Shareholders' equity................................................. 366,151 352,653
-------- --------
$537,072 $ 535,708
======== ========
</TABLE>
(See accompanying notes)
FS-45
<PAGE> 257
HEMLO GOLD MINES INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1996 1995
------- -------
<S> <C> <C>
Revenue.................................................................. $60,965 $57,521
------- -------
Expense:
Operating costs........................................................ 18,539 18,854
Depreciation, amortization and mine closure............................ 8,966 8,549
Quarter Claim royalties................................................ 1,699 1,483
Administrative and general............................................. 1,149 1,193
------- -------
30,353 30,079
------- -------
Mining income............................................................ 30,612 27,442
Exploration and evaluation............................................... (6,200) (2,785)
Investment income less interest expense.................................. 2,176 3,747
------- -------
Earnings before taxes.................................................... 26,588 28,404
------- -------
Mining taxes............................................................. 5,246 5,681
Income taxes............................................................. 8,784 9,089
------- -------
14,030 14,770
------- -------
Earnings................................................................. $12,558 $13,634
======= =======
Earnings per share....................................................... $ 0.13 $ 0.14
======= =======
Dividends per share...................................................... -- --
======= =======
Weighted average number of common shares outstanding (thousands)......... 100,024 98,360
======= =======
</TABLE>
(See accompanying notes)
FS-46
<PAGE> 258
HEMLO GOLD MINES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF CANADIAN DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THERE MONTHS ENDED
MARCH 31
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash and cash equivalents realized from (used for):
Operating activities:
Earnings.......................................................... $ 12,558 $ 13,634
Adjustments for items not affecting cash:
Depreciation, amortization and mine closure..................... 8,966 8,549
Deferred income and mining taxes................................ (1,013) 905
-------- --------
20,511 23,088
Net change in non-cash working capital balances and other......... 5,344 (32,843)
-------- --------
25,855 (9,755)
-------- --------
Investing activities:
Fixed asset additions (net)....................................... (2,312) (527)
Preproduction and deferred development............................ (1,499) (2,220)
Property under development........................................ (4,063) (5,699)
Deferred exploration.............................................. (930) (1,094)
-------- --------
(8,804) (9,540)
-------- --------
Financing activities:
Issue of common shares............................................ 940 --
-------- --------
Increase (decrease) in cash and cash equivalents..................... 17,991 (19,295)
Cash and cash equivalents, beginning of period....................... 114,478 199,006
-------- --------
Cash and equivalents, end of period.................................. $132,469 $179,711
======== ========
</TABLE>
(See accompanying notes)
FS-47
<PAGE> 259
HEMLO GOLD MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1. GENERAL
The unaudited condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in Canada ("Canadian
GAAP") and include all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of the management of Hemlo Gold, necessary
for a fair presentation. Certain information and note disclosures required by
Canadian GAAP have been condensed or omitted. These financial statements should
be read in conjunction with the audited consolidated financial statements for
the year ended December 31, 1995, which are included elsewhere herein.
NOTE 2. CONTINGENCY
The recoverability of the deferred exploration costs at the New World
property is dependent upon Crown Butte's ability either to attain profitable
production therefrom or to realize proceeds from the disposal of the property.
Profitable production can only be achieved following the obtaining of all the
necessary permits. Crown Butte applied in November 1990 for the permits
necessary to construct and operate a mine and has been involved since then in
the complex and time-consuming permitting process involving numerous U.S.
federal and state agencies. Based on information received from the two lead
permitting agencies, Crown Butte believes that it is likely to receive a draft
of the Environmental Impact Statement, an important milestone in the permitting
process, in the late spring or early summer of 1996. There can be no assurance
that further delays will not occur either through possible administrative and
judicial appeals or inter-governmental coordination problems.
FS-48
<PAGE> 260
ANNEX A
FORM OF THE ARRANGEMENT RESOLUTION
<PAGE> 261
ARRANGEMENT RESOLUTION
RESOLVED THAT:
1. The arrangement (the "Arrangement") under section 182 of the Business
Corporations Act (Ontario) involving Hemlo Gold Mines Inc. (the "Corporation"),
the shareholders of the Corporation, Battle Mountain Gold Company ("Battle
Mountain") and Battle Mountain Canada Holdco, Inc., all as set forth in the plan
of arrangement (the "Plan of Arrangement") attached as Annex D to the Joint
Management Information Circular and Proxy Statement of the Corporation and
Battle Mountain dated June 7, 1996 (the "Joint Proxy Statement") is hereby
authorized, approved and adopted.
2. The Combination Agreement dated as of March 11, 1996 between the
Corporation and Battle Mountain (the "Combination Agreement"), the actions of
the directors of the Corporation in approving the Arrangement and the actions of
the officers of the Corporation in executing and delivering the Combination
Agreement are hereby confirmed, ratified and approved.
3. Notwithstanding that this resolution has been passed (and the
Arrangement adopted) by the shareholders of the Corporation or that the
Arrangement has been approved by the Ontario Court of Justice (General
Division), the directors of the Corporation are hereby authorized and empowered
(i) to amend the Combination Agreement or the Plan of Arrangement to the extent
permitted by the Combination Agreement, and (ii) not to proceed with the
Arrangement at any time prior to the issue of a certificate of arrangement
giving effect to the Arrangement without the further approval of the
shareholders of the Corporation but only if the Combination Agreement is
terminated in accordance with Article 8 thereof.
4. Each officer of the Corporation is hereby authorized, acting for, in the
name of and on behalf of the Corporation, to execute, under the seal of the
Corporation or otherwise, and to deliver articles of arrangement and such other
documents as are necessary or desirable to the Director under the Business
Corporations Act (Ontario) in accordance with the Combination Agreement for
filing.
5. Each officer of the Corporation is hereby authorized, acting for, in the
name of and on behalf of the Corporation, to execute or cause to be executed,
under the seal of the Corporation or otherwise, and to deliver or to cause to be
delivered, all such documents, agreements and instruments, and to do or to cause
to be done all such other acts and things, as such officer determines to be
necessary or desirable in order to carry out the intent of the foregoing
paragraphs of this resolution and the matters authorized thereby, such
determination to be conclusively evidenced by the execution and delivery of such
document, agreement or instrument or the doing of any such act or thing.
A-1
<PAGE> 262
ANNEX B
INTERIM ORDER
AND
NOTICE OF MOTION FOR FINAL ORDER
<PAGE> 263
COURT FILE NO. B 168/96
ONTARIO COURT OF JUSTICE
(GENERAL DIVISION)
COMMERCIAL LIST
THE HONOURABLE MR. JUSTICE BLAIR WEDNESDAY, THE 5TH DAY OF
JUNE, 1996
BETWEEN:
HEMLO GOLD MINES INC.
APPLICANT
APPLICATION UNDER THE BUSINESS CORPORATIONS ACT (ONTARIO),
R.S.O. 1990, C. B.16, AS AMENDED, S. 182, S. 106 AND RULE 14.05(2)
ORDER
THIS MOTION, made by the Applicant, Hemlo Gold Mines Inc. ("Hemlo Gold")
for advice and directions of the Court in connection with an arrangement under
section 182 of the Business Corporations Act (Ontario), R.S.O. 1990, c.B.16, as
amended (the "OBCA"), was heard this day at Toronto, Canada.
ON READING the Affidavit of Joseph J. Baylis sworn June 4, 1996 (the
"Affidavit") and the exhibits thereto, and on hearing the submissions of counsel
for Hemlo Gold,
1. THIS COURT ORDERS that Hemlo Gold call, hold and conduct an annual and
special meeting (the "Meeting") of the holders of its Common Shares (the "Common
Shares") on July 15, 1996 to, among other things, consider and, if deemed
advisable, to pass, with or without variation, a special resolution (the
"Arrangement Resolution") to approve an arrangement (the "Arrangement")
substantially in the form set forth in the Plan of Arrangement attached in
Exhibit "A" to the Affidavit.
2. THIS COURT ORDERS that the Meeting shall be called, held and conducted
in accordance with the OBCA and the articles and by-laws of Hemlo Gold, subject
to what may be provided hereafter and subject to any further order of this
Honourable Court.
3. THIS COURT ORDERS that (i) the Notice of Motion for the Fairness Hearing
herein, (ii) the Notice of the Meeting and (iii) a Joint Management Information
Circular and Proxy Statement of Hemlo Gold and Battle Mountain Gold Company in
substantially the same form as contained in Exhibit A to the Affidavit, with
such amendments thereto as counsel for Hemlo Gold may advise are necessary or
desirable, provided that such amendments are not inconsistent with the terms of
this Order, shall be sent to the registered holders of Common Shares on the
records of Hemlo Gold, as at the close of business on June 13, 1996 (the "Record
Date"), to Hemlo Gold's directors and auditors, and the Director under the OBCA,
by mailing the same by prepaid ordinary mail to such persons at their addresses
as they appear on the records of Hemlo Gold (and, in the case of the Director,
to her official office address) at least twenty-one (21) days prior to the date
of the Meeting, excluding the date of mailing and the date of the Meeting.
4. THIS COURT ORDERS that the vote required to pass the Arrangement
Resolution shall be the affirmative vote of not less than two-thirds of the
votes cast by the holders of Common Shares present in person or represented by
proxy at the Meeting.
B-1
<PAGE> 264
5. THIS COURT ORDERS that the holders of Common Shares shall be permitted
to dissent in respect of the Arrangement in the manner set forth in section 185
of the OBCA except as modified by the provisions of the Plan of Arrangement.
6. THIS COURT ORDERS that only persons entitled to notice of or to attend
the Meeting shall be such registered holders of Common Shares as at the Record
Date, Hemlo Gold's officers, directors and auditors, and the Director and that
the only persons entitled to be represented and to vote at the Meeting shall be
the registered holders of Common Shares as at the Record Date, subject to the
provisions of the OBCA with respect to persons who become holders of shares
after that date.
7. THIS COURT ORDERS that upon approval by the holders of Common Shares of
the Arrangement in the manner set forth in this Order, Hemlo Gold may apply to
this Honourable Court for approval of the Arrangement on a date to be arranged
with the Commercial List Office and that service of the Notice of Motion for the
Fairness Hearing herein, in accordance with paragraph 3 of this Order, shall
constitute good and sufficient service of such Notice of Motion upon all persons
who are entitled to receive such Notice of Motion pursuant to this Order and no
other form of service need be made and no other material need be served on such
persons in respect of these proceedings.
8. THIS COURT ORDERS that any notice of appearance served in response to
this Application shall be served on counsel for Hemlo Gold at the following
address: McCarthy Tetrault, Suite 4700, Toronto Dominion Bank Tower, Toronto
Dominion Centre, Toronto, Ontario, M5K 1E6, Attention: Daryl E. McLean.
9. THIS COURT ORDERS that the time for service of the Notice of Motion in
respect of this Order be and is hereby abridged.
M. KANE
---------------------------
Deputy Local Registrar
Ontario Court (Gen. Div.)
B-2
<PAGE> 265
COURT FILE NO. B 168/96
ONTARIO COURT OF JUSTICE
(GENERAL DIVISION)
COMMERCIAL LIST
BETWEEN:
HEMLO GOLD MINES INC.
APPLICANT
APPLICATION UNDER THE BUSINESS CORPORATIONS ACT (ONTARIO),
R.S.O. 1990, C. B.16 AS AMENDED, S. 182, S. 106 AND RULE 14.05(2)
NOTICE OF MOTION
THE APPLICANT will make a motion to the Court on July 18, 1996, at 10:00
o'clock, or so soon after that time as the motion can be heard at 145 Queen
Street West, Toronto.
PROPOSED METHOD OF HEARING: The motion is to be heard orally.
THE MOTION IS FOR:
1. an Order approving the Plan of Arrangement involving Hemlo Gold
Mines Inc. ("Hemlo Gold") and its shareholders proposed by Hemlo Gold and
described in the Joint Management Information Circular and Proxy Statement
mailed to holders of Common Shares of Hemlo Gold.
THE GROUNDS for the motion are that:
1. the Plan of Arrangement meets all the statutory requirements of
section 182 of the Business Corporations Act (Ontario);
2. the approval of the Court will only be sought if the Plan of
Arrangement is approved by the shareholders of Hemlo Gold;
3. section 182 of the Business Corporations Act (Ontario); and
4. if made, the Order will constitute the basis for an exemption under
the United States Securities Act of 1933, as amended, with respect to
securities to be issued under the Plan of Arrangement.
B-3
<PAGE> 266
THE FOLLOWING DOCUMENTARY EVIDENCE will be used at the hearing on the
motion:
1. the Affidavit of Joseph J. Baylis sworn June 4, 1996 and the
exhibits thereto;
2. further Affidavits reporting on the meeting of the shareholders of
Hemlo Gold; and
3. such further and other material as counsel may advise and this
Honourable Court may permit.
DATE: June 5, 1996
McCarthy Tetrault
Barristers & Solicitors
Suite 4700
Toronto Dominion Bank Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1E6
Michael E. Barrack
(416) 601-7894
(416) 868-1792 (fax)
Norma M. Priday
(416) 601-8899
(416) 868-1792 (fax)
Solicitors for Hemlo Gold Mines Inc.
TO: GOODMAN PHILLIPS & VINEBERG
Barristers & Solicitors
Suite 2400
250 Yonge Street
Toronto, Ontario
M5B 2M6
Benjamin Zarnett
(416) 979-2211
(416) 979-1234 (fax)
Solicitors for Battle Mountain Gold Company
B-4
<PAGE> 267
ANNEX C
COMBINATION AGREEMENT
BETWEEN
BATTLE MOUNTAIN GOLD COMPANY
AND
HEMLO GOLD MINES INC.
MARCH 11, 1996
<PAGE> 268
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 THE ARRANGEMENT AND RELATED MATTERS................................. 1
1.1 (a) The Arrangement................................................. 1
(b) Ancillary Agreements............................................ 2
(c) Exchange of Options............................................. 3
1.2 Adjustments for Capital Changes..................................... 3
1.3 Dissenting Shares................................................... 3
1.4 Hemlo Gold Options.................................................. 3
1.5 Other Effects of the Arrangement.................................... 4
1.6 Joint Management Information Circular/Proxy Statement; Registration
Statement........................................................... 4
1.7 Reorganization...................................................... 5
1.8 "Pooling of Interests".............................................. 5
1.9 Material Adverse Effect............................................. 5
1.10 Currency............................................................ 5
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF HEMLO............................. 6
2.1 Organization; Good Standing; Qualification and Power................ 6
2.2 Capital Structure................................................... 6
2.3 Authority........................................................... 7
2.4 Securities Regulatory Authority Reports and Financial Statements.... 8
2.5 Information Supplied................................................ 9
2.6 Compliance with Applicable Laws..................................... 9
2.7 Title to Assets..................................................... 9
2.8 Reserves............................................................ 9
2.9 Litigation.......................................................... 9
2.10 ERISA and Other Compliance.......................................... 10
2.11 Absence of Certain Changes or Events................................ 10
2.12 Certain Agreements.................................................. 11
2.13 Taxes............................................................... 11
2.14 Fees and Expenses................................................... 12
2.15 Environmental Matters............................................... 12
2.16 Interested Party Transactions....................................... 12
2.17 Material Contracts.................................................. 13
2.18 Insurance........................................................... 13
2.19 No Defaults......................................................... 13
2.20 Restrictions on Business Activities................................. 13
2.21 Books and Records................................................... 13
2.22 Board Approval...................................................... 13
2.23 Vote Required....................................................... 13
2.24 Fairness Opinion.................................................... 14
2.25 Pooling Matters..................................................... 14
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BMG............................... 14
3.1 Organization; Good Standing; Qualification and Power................ 14
3.2 Capital Structure................................................... 14
3.3 Authority........................................................... 15
3.4 SEC Reports and Financial Statements................................ 16
3.5 Information Supplied................................................ 17
3.6 Compliance with Applicable Laws..................................... 17
3.7 Title to Assets..................................................... 17
3.8 Reserves............................................................ 17
</TABLE>
C-i
<PAGE> 269
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.9 Litigation.......................................................... 17
3.10 ERISA and Other Compliance.......................................... 18
3.11 Absence of Certain Changes or Events................................ 19
3.12 Certain Agreements.................................................. 19
3.13 Taxes............................................................... 19
3.14 Fees and Expenses................................................... 20
3.15 Environmental Matters............................................... 20
3.16 Interested Party Transactions....................................... 20
3.17 Material Contracts.................................................. 20
3.18 Insurance........................................................... 21
3.19 No Defaults......................................................... 21
3.20 Restrictions on Business Activities................................. 21
3.21 Books and Records................................................... 21
3.22 Board Approval...................................................... 21
3.23 Vote Required....................................................... 22
3.24 Fairness Opinion.................................................... 22
3.25 Pooling Matters..................................................... 22
ARTICLE 4 COVENANTS........................................................... 22
4.1 Interim Operations.................................................. 22
4.2 Shareholder Approval................................................ 23
4.3 Affiliate Agreements................................................ 23
4.4 Joint Proxy Statement............................................... 23
4.5 Regulatory Approvals................................................ 24
4.6 Necessary Consents.................................................. 24
4.7 Access to Information and Properties................................ 24
4.8 Satisfaction of Conditions Precedent................................ 24
4.9 No Other Negotiations............................................... 24
4.10 Pooling............................................................. 26
4.11 Notification of Certain Matters..................................... 26
4.12 Indemnification..................................................... 27
4.13 Closing; Listing.................................................... 27
4.14 Continued Hemlo Gold Operations..................................... 27
4.15 Certain Employee Benefit Matters.................................... 27
4.16 Action Under Nevada Statute......................................... 27
4.17 Governance.......................................................... 27
4.18 Registration........................................................ 27
4.19 Tax Cooperation..................................................... 28
ARTICLE 5 BREAK-UP FEES....................................................... 28
5.1 Fee on Termination by Reason of Recommendation...................... 28
5.2 Fee on Consummation................................................. 28
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF HEMLO........................ 29
6.1 Accuracy of Representations and Warranties.......................... 29
6.2 Covenants........................................................... 29
6.3 Absence of Material Adverse Change.................................. 29
6.4 Compliance with Law................................................. 29
6.5 Government Consents................................................. 29
6.6 SEC Filings......................................................... 29
6.7 Shareholder Approval................................................ 29
6.8 BMG Approvals....................................................... 29
6.9 No Legal Action..................................................... 29
6.10 Tax Opinion......................................................... 29
</TABLE>
C-ii
<PAGE> 270
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6.11 Pooling Opinion..................................................... 30
6.12 Court Approval...................................................... 30
6.13 OSC, Etc............................................................ 30
6.14 Appointment to BMG Board............................................ 30
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF BMG.......................... 30
7.1 Accuracy of Representations and Warranties.......................... 30
7.2 Covenants........................................................... 30
7.3 Absence of Material Adverse Change.................................. 30
7.4 Compliance with Law................................................. 31
7.5 Government Consents................................................. 31
7.6 SEC Filings......................................................... 31
7.7 Stockholder Approval................................................ 31
7.8 Hemlo Gold Approvals................................................ 31
7.9 No Legal Action..................................................... 31
7.10 Pooling Opinion..................................................... 31
7.11 Affiliate Agreements................................................ 31
7.12 Court Approval...................................................... 31
7.13 OSC, Etc............................................................ 31
ARTICLE 8 TERMINATION OF AGREEMENT............................................ 32
8.1 Termination......................................................... 32
8.2 Notice of Termination............................................... 33
8.3 Effect of Termination............................................... 33
8.4 Termination Fees.................................................... 33
ARTICLE 9 SURVIVAL OF REPRESENTATIONS......................................... 34
ARTICLE 10 MISCELLANEOUS....................................................... 34
10.1 Governing Law....................................................... 34
10.2 Assignment; Binding Upon Successors and Assigns..................... 34
10.3 Severability........................................................ 34
10.4 Counterparts........................................................ 34
10.5 Other Remedies...................................................... 34
10.6 Amendment and Waivers............................................... 34
10.7 Expenses............................................................ 35
10.8 Attorneys' Fees..................................................... 35
10.9 Notices............................................................. 35
10.10 Construction of Agreement........................................... 35
10.11 No Joint Venture.................................................... 35
10.12 Further Assurances.................................................. 36
10.13 Absence of Third Party Beneficiary Rights........................... 36
10.14 Public Announcement................................................. 36
10.15 Entire Agreement.................................................... 36
EXHIBITS
Exhibit 1.1(a) Plan of Arrangement
Exhibit 1.1(b)(i) Voting, Support and Exchange Trust Agreement
Exhibit 1.1(b)(ii) Amendment to Articles of Incorporation
Exhibit 2.4(a) Hemlo Gold 1995 Draft AIF
Exhibit 4.2 Side Letter of Support for the Transaction
Exhibit 4.3(a) Hemlo Gold Affiliate Agreement
Exhibit 4.3(b) BMG Affiliate Agreement
Exhibit 4.19 Tax Cooperation Agreement
</TABLE>
C-iii
<PAGE> 271
COMBINATION AGREEMENT
(AS AMENDED AND RESTATED)
THIS AMENDED AND RESTATED COMBINATION AGREEMENT (this "AGREEMENT") is
entered into as of March 11, 1996, by and between Battle Mountain Gold Company,
a Nevada corporation ("BMG") and Hemlo Gold Mines Inc., an Ontario corporation
("HEMLO GOLD").
RECITALS
A. The respective Boards of Directors of Hemlo Gold and BMG have approved
the transactions contemplated by this Agreement, and the Board of Directors of
Hemlo Gold (the "HEMLO GOLD BOARD ") has agreed to submit the Plan of
Arrangement (as defined in Section 1.1) and other transactions contemplated
hereby to its shareholders for approval and the Board of Directors of BMG (the
"BMG BOARD ") has agreed to submit the BMG Charter Changes (as hereinafter
defined), the transactions contemplated by this Agreement and related matters to
its stockholders for approval.
B. The Arrangement is intended to be treated as (i) a reorganization
pursuant to the provisions of section 368(a)(1)(E) of the United States Internal
Revenue Code of 1986, as amended (the "CODE"), to the extent that Exchangeable
Shares (as defined below) are received in exchange for Hemlo Gold Common Shares,
(ii) a "pooling of interests" under United States generally accepted accounting
principles ("U.S. GAAP ") and (iii) a reorganization of capital for purposes of
section 86 of the Income Tax Act (Canada) (the "ITA") to the extent that
Exchangeable Shares (as defined below) are received in exchange for Hemlo Gold
Common Shares.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE 1
THE ARRANGEMENT AND RELATED MATTERS
1.1 (a) The Arrangement. As promptly as practicable after the
execution of this Agreement, Hemlo Gold will apply to the Ontario Court of
Justice (General Division) (the "COURT ") pursuant to section 182 of the
Business Corporations Act (Ontario) (the "OBCA") for an interim order in
form and substance satisfactory to BMG (such approval not to be
unreasonably withheld or delayed) (the "INTERIM ORDER") providing for,
among other things, the calling and holding of the Hemlo Gold Shareholders
Meeting (as defined below) for the purpose of considering and, if deemed
advisable, approving the arrangement (the "ARRANGEMENT ") under section 182
of the OBCA and pursuant to the Plan of Arrangement substantially in the
Form of Exhibit 1.1 hereto (the "PLAN OF ARRANGEMENT"). If the shareholders
of Hemlo Gold approve the Arrangement, thereafter Hemlo Gold will take the
necessary steps to submit the Arrangement to the Court and apply for a
final order of the Court approving the Arrangement in such fashion as the
Court may direct (the "FINAL ORDER "). At 12:01 a.m. (the "EFFECTIVE TIME")
on the date (the "EFFECTIVE DATE") shown on the certificate of arrangement
issued by the Director under the OBCA giving effect to the Arrangement, the
following reorganization of capital and other transactions shall occur and
shall be deemed to occur in the following order without any further act or
formality:
(i) the articles of incorporation of Hemlo Gold shall be amended,
among other things, to (A) change the designation and terms of the
Subordinate Voting Participating Shares, (B) replace the rights,
privileges, restrictions and conditions attaching to the Common Shares
with those set forth in Appendix A to the Plan of Arrangement, (C)
authorize an unlimited number of Exchangeable Shares ("EXCHANGEABLE
SHARES") having rights, privileges, restrictions and conditions
substantially as set forth in Appendix A to the Plan of Arrangement, and
(D) change the corporate name of Hemlo Gold to "Battle Mountain Canada
Inc.";
<PAGE> 272
(ii) Hemlo Gold shall issue to BMG 100 of its Common Shares ("HEMLO
GOLD COMMON SHARES") in consideration of the delivery by BMG to Hemlo
Gold of 148 shares of Common Stock, par value $0.10 per share, of BMG
("BMG COMMON STOCK");
(iii) the Hemlo Gold Common Shares (other than the Hemlo Gold
Common Shares held by BMG and by holders who have exercised their rights
of dissent in accordance with Article 3 of the Plan of Arrangement and
who are ultimately entitled to be paid fair value for such shares) shall
be exchanged for Exchangeable Shares in a ratio of 1.48 Exchangeable
Shares for each Hemlo Gold Common Share (the ratio of 1.48:1, the
"EXCHANGE RATIO"). No fractional Exchangeable Shares will be delivered.
In lieu thereof, each holder of a Hemlo Gold Common Share who otherwise
would be entitled to receive a fraction of an Exchangeable Share shall
be paid by Hemlo Gold an amount determined in accordance with the Plan
of Arrangement;
(iv) upon the exchange referred to in paragraph (iii) above, each
holder of a Hemlo Gold Common Share whose shares shall have been so
exchanged shall cease to be a holder, shall have its name removed from
the register of holders of Hemlo Gold Common Shares, and shall become a
holder of a number of fully paid Exchangeable Shares to which he is
entitled as above described, and such holder's name shall be added to
the register of holders of Exchangeable Shares;
(v) the stated capital attributable to the Exchangeable Shares will
be as set out in the Plan of Arrangement; and
(vi) the 148 of the shares of BMG Common Stock owned by Hemlo Gold
will be distributed to BMG.
(b) Ancillary Agreements. On or before the Effective Date:
(i) BMG, Hemlo Gold and a Canadian trust company to be selected by
BMG, which shall be satisfactory to Hemlo Gold, acting reasonably, shall
execute and deliver a Voting, Support and Exchange Trust Agreement
substantially in the form set forth in Exhibit 1.1(b)(i) hereto (the
"VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT");
(ii) BMG shall file with the Secretary of State of Nevada
amendments to its Articles of Incorporation pursuant to the Nevada
General Corporation Law (the "NGCL") which effect changes substantially
as set forth in Exhibit 1.1(b)(ii) hereto (the "BMG CHARTER CHANGES")
and which shall:
(A) create one share of BMG Special Voting Stock; and
(B) authorize the shares of BMG Common Stock to be issued in the
Arrangement and a sufficient number of shares of BMG Common Stock so
that the retraction and exchange rights attached to the Exchangeable
Shares and the rights of holders of options issued pursuant to the
Hemlo Gold Stock Option Plan (the "HEMLO GOLD OPTION PLAN") (after
giving effect to the exchange described in Section 1.4 of this
Agreement) may be honored; and
(iii) Each share of BMG Common Stock to be issued to holders of
Exchangeable Shares pursuant to the retraction and exchange rights and
other provisions of the Exchangeable Shares will have an associated
Right (as defined in the Rights Agreement dated as of November 10, 1988,
as amended, between BMG and The Bank of New York, as Rights Agent (the
"RIGHTS AGREEMENT ")) (so long as Rights are issuable with BMG Common
Stock as provided in the Rights Agreement) and each Exchangeable Share
issued in the Arrangement will have an associated right to acquire
additional Exchangeable Shares on terms substantially the same as the
Rights confer the right to acquire either Series A Junior Participating
Preferred Stock, par value $1.00 per share, of BMG (essentially the
economic equivalent of a share of BMG Common Stock) or, in certain
circumstances, shares of BMG Common Stock (it being understood that the
definitions of Beneficial Ownership, the calculation of percentage
ownership and the number of shares outstanding and related provisions
therein shall apply, as appropriate, to BMG Common Stock and
Exchangeable Shares as though they were the same security). BMG shall
supplement the Rights Agreement
C-2
<PAGE> 273
pursuant to Section 26 thereof (A) to provide that Noranda Inc., an
Ontario corporation ("Noranda"), will not be an "ACQUIRING PERSON" (as
defined in the Rights Agreement) thereunder unless and until it or any
of its "AFFILIATES" or "ASSOCIATES" (as defined in the Rights Agreement)
shall purchase or otherwise become the "BENEFICIAL OWNER " (as defined
in the Rights Agreement) of additional Exchangeable Shares or shares of
BMG Common Stock or any other person or persons who is (or collectively
are) the Beneficial Owners of any Exchangeable Shares or shares of BMG
Common Stock shall become an Affiliate or Associate of Noranda unless
(x) in either such case, Noranda, together with all Affiliates and
Associates of Noranda, is not then the Beneficial Owner of 20% or more
of the Exchangeable Shares and shares of BMG Common Stock then
outstanding, considered as one class, or (y) in case Noranda becomes the
Beneficial Owner of such additional shares as a result of the
acquisition of another person or becomes an Affiliate or Associate of
another person as a result of a bona fide transaction undertaken
primarily for another purpose not related to the acquisition of
Beneficial Ownership of Exchangeable Shares or shares of BMG Common
Stock and not for any purpose or with any effect of changing or
influencing control of BMG, Noranda promptly divests or causes to be
divested such additional shares or the shares owned beneficially by such
Affiliate or Associate, (B) to provide a customary "inadvertence"
exception in the definition of Acquiring Person (conditional on prompt
divestiture) and (C) to make such other changes as the BMG Board, with
the consent of Hemlo Gold which shall not be unreasonably withheld,
shall determine to be appropriate following consultation with counsel.
(c) Exchange of Options. Promptly after the Effective Time, BMG will
notify in writing each holder of a Hemlo Gold Option (as defined in Section
1.4) of the exchange of such option for a BMG Option (as defined in Section
1.4), the number of shares of BMG Common Stock or Exchangeable Shares that
are then subject to such option, and the exercise price of such option, as
determined pursuant to Section 1.4.
1.2 Adjustments for Capital Changes. If, prior to the Effective Time,
BMG or Hemlo Gold recapitalizes through a subdivision of its outstanding
shares into a greater number of shares or a combination of its outstanding
shares into a lesser number of shares, or reorganizes, reclassifies or
otherwise changes its outstanding shares into the same or a different
number of shares of other classes, or declares a dividend on 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 Hemlo Gold Common Shares and the holders of the
shares of BMG Common Stock.
1.3 Dissenting Shares. Holders of Hemlo Gold 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 section 185 of
the OBCA and Section 3.1 of the Plan of Arrangement (such holders referred
to as "Dissenting Shareholders"). Hemlo Gold shall give BMG (i) prompt
notice of any written demands of a right of dissent, withdrawals of such
demands, and any other instruments served pursuant to the OBCA and received
by Hemlo Gold and (ii) the opportunity to participate in all negotiations
and proceedings with respect to such rights. Hemlo Gold shall not, except
with the prior written consent of BMG, voluntarily make any payment with
respect to any such rights or offer to settle or settle any such rights.
1.4 Hemlo Gold Options.
(a) Exchange. At the Effective Time, after the actions described in
Sections 1.1(a) through (c), each of the then outstanding options granted
by Hemlo Gold to purchase Hemlo Gold Common Shares (collectively, the
"HEMLO GOLD OPTIONS") (including all outstanding options granted under the
Hemlo Gold Option Plan) will, without any further action on the part of any
holder thereof, be exchanged for an option (a "BMG OPTION") to purchase
that number of shares of BMG Common Stock or, at the option of the holder,
Exchangeable Shares, determined by multiplying the number of Hemlo Gold
Common Shares subject to such Hemlo Gold Option at the Effective Time by
the Exchange Ratio, at an exercise price per share of BMG Common Stock (or
per Exchangeable Share) equal to the exercise price per Hemlo Gold Common
Share of such Hemlo Gold Option immediately prior to the Effective Time
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divided by the Exchange Ratio. If the foregoing calculation results in an
exchanged Hemlo Gold Option being exercisable for a fraction of a share of
BMG Common Stock (or Exchangeable Share) then the number of shares of BMG
Common Stock (or Exchangeable Shares) subject to such option will be
rounded down to the nearest whole number of shares and the total exercise
price for the option will be reduced by the exercise price of the
fractional share. The term, exercisability, currency of payment, vesting
schedule and all other terms and conditions of the Hemlo Gold Options will
otherwise continue with respect to the BMG Options. Continuous employment
with Hemlo Gold or any of the Hemlo Gold Subsidiaries (as hereinafter
defined) will be credited to an optionee of Hemlo Gold for purposes of
determining the number of shares of BMG Common Stock (or Exchangeable
Shares) subject to exercise under an exchanged Hemlo Gold Option after the
Effective Time.
(b) Registration. BMG will cause the BMG Common Stock (or Exchangeable
Shares) issuable upon exercise of the BMG Options to be registered on Form
S-8 promulgated by the Securities and Exchange Commission (the "SEC") as
soon as reasonably practicable after the Effective Time and will use its
reasonable best efforts to maintain the effectiveness of such registration
statement or registration statements for so long as such BMG Options shall
remain outstanding. BMG will reserve a sufficient number of shares of BMG
Common Stock (or Exchangeable Shares) for issuance upon exercise of the BMG
Options pursuant to this Section.
1.5 Other Effects of the Arrangement. At the Effective Time: (a) the
bylaws of Hemlo Gold immediately prior to the Effective Time will continue
as the bylaws of Hemlo Gold, subject to later amendment; (b) the directors
of Hemlo Gold will be as agreed upon by BMG and Hemlo Gold prior to the
Effective Time; (c) the officers of Hemlo Gold will be as agreed upon by
BMG and Hemlo Gold prior to the Effective Time; (d) each Hemlo Gold Common
Share and each Hemlo Gold Option outstanding immediately prior to the
Effective Time will be exchanged as provided in Sections 1.1 and 1.4; and
(e) the Arrangement will, from and after the Effective Time, have all of
the effects provided by applicable law, including, without limitation, the
OBCA.
1.6 Joint Management Information Circular/Proxy Statement;
Registration Statement.
(a) As promptly as practicable after execution of this Agreement, BMG
and Hemlo Gold shall, if so required, prepare and file with the SEC a
preliminary joint management information circular and proxy statement (the
"JOINT PROXY STATEMENT "), together with any other documents required by
the Securities Act of 1933, as amended (the "SECURITIES ACT "), or the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT "), in
connection with the Arrangement. The Joint Proxy Statement shall constitute
(i) the management information circular of Hemlo Gold with respect to the
meeting of the shareholders of Hemlo Gold to be held with respect to the
approval of Hemlo Gold's shareholders of this Agreement and the Arrangement
(the "HEMLO GOLD SHAREHOLDERS MEETING"), (ii) the proxy statement of BMG
with respect to the meeting of stockholders of BMG to be held with respect
to the approval by BMG's stockholders of the issuance of the BMG Common
Stock in connection with this Agreement, the BMG Charter Changes and
related matters (the "BMG STOCKHOLDERS MEETING") and (iii) the prospectus
with respect to the issuance by Hemlo Gold of the Exchangeable Shares in
connection with the Arrangement, which prospectus may, if BMG's counsel or
Hemlo Gold's counsel determines it is required by the Securities Act, be
included in a registration statement filed by Hemlo Gold on Form F-4 or
such other registration Form as may be applicable (collectively, the "FORM
F-4 "). As promptly as practicable after comments are received from the SEC
thereon and after the furnishing by BMG and Hemlo Gold of all information
required to be contained therein, BMG and Hemlo Gold shall cause the Joint
Proxy Statement to be mailed to each company's shareholders.
Notwithstanding anything in this Agreement to the contrary, Hemlo Gold
shall be under no obligation to file the Form F-4 if BMG shall have
determined on the advice of its counsel that the issuance of the
Exchangeable Shares pursuant to the Arrangement is exempt from the
registration requirements of section 5 of the Securities Act by virtue of
section 3(a)(10) thereof. If BMG determines on the advice of its counsel
that it is necessary to file a registration statement on Form S-3 (the
"FORM S-3") in order to register the BMG Common Stock to be issued from
time to time after the Effective Time upon exchange of the Exchangeable
Shares, then BMG shall file the Form S-3 with the SEC and use its
reasonable best efforts to maintain the effectiveness of
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such registration for such period as such Exchangeable Shares remain
outstanding, and BMG and Hemlo Gold shall use all reasonable efforts to
cause the Form S-3 to become effective. Notwithstanding anything herein to
the contrary, BMG shall be under no obligation to file the Form S-3 if it
shall have determined on the advice of its counsel that the issuance of
shares of BMG Common Stock upon exchange of the Exchangeable Shares after
the Effective Time is exempt from the registration requirements of section
5 of the Securities Act by virtue of section 3(a)(9) thereof.
(b) Each party shall promptly furnish to the other party all
information concerning such party and its shareholders as may be reasonably
required in connection with any action contemplated by this Section 1.6.
The Joint Proxy Statement and, if required, the Form F-4 and Form S-3,
shall comply in all material respects with all applicable requirements of
law. Each of BMG and Hemlo Gold will notify the other promptly of the
receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Joint Proxy Statement
or the Form F-4 or Form S-3 or for additional information, and will supply
the other with copies of all correspondence with the SEC or its staff with
respect to the Joint Proxy Statement or the Form F-4 or Form S-3. Whenever
any event occurs which should be set forth in an amendment or supplement to
the Joint Proxy Statement or the Form F-4 or Form S-3, BMG or Hemlo Gold,
as the case may be, shall promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff, and/or mailing to
stockholders of BMG and Hemlo Gold, such amendment or supplement.
1.7 Reorganization. The parties intend to adopt this Agreement and the
Plan of Arrangement as a plan of reorganization constituting a
recapitalization under section 368(a)(1)(E) of the Code to the extent that
Exchangeable Shares are received in exchange for Hemlo Gold Common Shares,
and the parties intend to adopt the Arrangement as a reorganization of
capital of Hemlo Gold under section 86 of the ITA to the extent that
Exchangeable Shares are received in exchange for Hemlo Gold Common Shares.
1.8 "Pooling of Interests". The parties intend that the Arrangement be
treated as a "pooling of interests" under U.S. GAAP. Promptly following the
execution of this Agreement, each of BMG and Hemlo Gold shall use
commercially reasonable efforts to obtain and deliver Affiliates Agreements
from their respective affiliates, as contemplated by Section 4.3.
1.9 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,
businesses, operations, results of operations or prospects of such entity
or group of entities provided that for all purposes of this Agreement other
than Articles 5, 6, 7 and 8, an event, change or effect shall be deemed to
be material if it is or is reasonably likely to be adverse to the extent of
more than $1,000,000 and for purposes of Articles 5, 6, 7 and 8, material
shall mean involving or reasonably likely to involve in the aggregate more
than $50,000,000. 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 to the condition (financial or
otherwise), properties, assets, liabilities, businesses, operations,
results of operations or prospects of such party and its subsidiaries,
taken as a whole, provided that for purposes of this Agreement other than
Articles 5, 6, 7 and 8 a Material Adverse Effect shall be deemed to result
if the effect of such event, change or effect is or is reasonably likely to
be adverse to an extent of more than $1,000,000 and for purposes of
Articles 5, 6, 7 and 8, a Material Adverse Effect shall exist if the impact
of the applicable events, changes or effects in the aggregate, is or is
reasonably likely to be adverse to an extent of more than $50,000,000 and
provided further that a Material Adverse Effect shall not include or be
deemed to result from any change in the market value of BMG Common Stock or
Hemlo Gold Common Shares or any adverse effect resulting from changes in
general economic conditions or conditions generally affecting gold prices.
1.10 Currency. Unless otherwise specified, all references in this
Agreement to "dollars" or "$" shall mean United States dollars.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF HEMLO
Except as and to the extent specifically set forth in a letter dated the
date of this Agreement and delivered by Hemlo Gold to BMG concurrently herewith
(the "HEMLO GOLD DISCLOSURE LETTER "), the Hemlo Gold OSC Reports (as
hereinafter defined) and the Hemlo Gold SEC Documents (as hereinafter defined),
Hemlo Gold hereby represents and warrants to BMG that:
2.1 Organization; Good Standing; Qualification and Power. Each of
Hemlo Gold and each corporation, partnership, company, joint venture, and
other entity in which Hemlo Gold beneficially owns or controls, directly or
indirectly, more than 50% of the equity, voting rights, profits interest,
capital, or other similar interest thereof and that (i) owns or operates
producing properties or properties with proven and probable ore reserves
with a fair market value of more than $1 million or (ii) has cash or other
liquid assets with a fair market value of more than $1 million (the "HEMLO
GOLD SUBSIDIARIES") is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation, has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties
makes such qualification necessary, other than in such jurisdictions where
the failure so to qualify would not have a Material Adverse Effect on Hemlo
Gold. The Hemlo Gold Disclosure Letter sets forth a correct and complete
list of the Hemlo Gold Subsidiaries, the number of each such subsidiary's
outstanding capital stock or other ownership interest owned by Hemlo Gold
or another Hemlo Gold Subsidiary and a correct and complete list of each
jurisdiction in which each of Hemlo Gold and each Hemlo Gold Subsidiary is
duly qualified and in good standing to do business. Hemlo Gold has
delivered to BMG complete and correct copies of the articles of
incorporation and bylaws of Hemlo Gold as amended to the date of this
Agreement and currently in effect.
2.2 Capital Structure.
(a) Stock and Options. The authorized capital stock of Hemlo Gold
consists of an unlimited number of Hemlo Gold Common Shares, without par
value, an unlimited number of Preferred Shares, without par value (the
"HEMLO GOLD PREFERRED SHARES") and an unlimited number of Subordinate
Voting Participating Shares, without par value, ("HEMLO GOLD
SUBORDINATED SHARES"). At the close of business on February 29, 1996,
100,061,082 Hemlo Gold Common Shares were issued and outstanding. No
Hemlo Gold Common Shares are reserved and authorized for issuance
pursuant to the Hemlo Gold Option Plan in respect of which Hemlo Gold
Options granted pursuant to the Hemlo Gold Option Plan to purchase a
total of 356,000 Hemlo Gold Common Shares were outstanding as of
February 29, 1996. There are no outstanding Hemlo Gold Options that have
not been granted under the Hemlo Gold Option Plan. No Hemlo Gold
Preferred Shares or Hemlo Gold Subordinated Shares are issued or
outstanding. All outstanding Hemlo Gold Common Shares have been duly
authorized and validly issued, are fully paid and non-assessable and
were not issued in violation of any preemptive rights. All issued and
outstanding shares of the capital stock of each of the Hemlo Gold
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable, are not subject to any right of rescission, and
have been offered, issued, sold and delivered by Hemlo Gold or the
applicable Hemlo Gold Subsidiary in compliance with all registration,
qualification and prospectus requirements (or applicable exemptions
therefrom) of applicable federal, provincial and state securities laws.
As of February 29, 1996, except as set forth in Section 2.2 of the Hemlo
Gold Disclosure Letter, Hemlo Gold does not have any material
subsidiaries or any material equity interest, direct or indirect, in any
corporation, partnership, joint venture or other business entity the
primary purpose or activity of which is operating or developing a
property or holding a property with proven and probable reserves.
(b) No Other Commitments. Except for the Hemlo Gold Options
disclosed in Section 2.2(a) above and, with respect to the Hemlo Gold
Subsidiaries, as listed in the Hemlo Gold Disclosure Letter and except
for the obligations of Hemlo Gold under this Agreement, there are no
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options, warrants, calls, rights, commitments, conversion rights or
agreements of any character to which Hemlo Gold or any of the Hemlo Gold
Subsidiaries is a party or by which Hemlo Gold or any of the Hemlo Gold
Subsidiaries is bound obligating Hemlo Gold or any of the Hemlo Gold
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, any shares of capital stock of Hemlo Gold or any of the Hemlo
Gold Subsidiaries or securities convertible into or exchangeable for
shares of capital stock of Hemlo Gold or any of the Hemlo Gold
Subsidiaries, or obligating Hemlo Gold or any of the Hemlo Gold
Subsidiaries to grant, extend or enter into any such option, warrant,
call, right, commitment, conversion right or agreement. There are no
voting trusts or other agreements or understandings to which Hemlo Gold
is a party with respect to the voting of the capital stock of Hemlo Gold
or any of the Hemlo Gold Subsidiaries.
(c) Registration Rights. Except as set forth in the Hemlo Gold
Disclosure Letter, Hemlo Gold is not under any obligation to register
under the Securities Act any of its presently outstanding securities.
2.3 Authority.
(a) Corporate Action. Hemlo Gold has all requisite corporate power
and authority to enter into this Agreement and, subject to approval of
the Arrangement by the shareholders of Hemlo Gold and by the Court, to
perform its obligations hereunder and to consummate the Arrangement and
the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Hemlo Gold and, subject to approval of the
Arrangement by the shareholders of Hemlo Gold and by the Court, the
consummation by Hemlo Gold of the Arrangement and the other transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Hemlo Gold. This Agreement has been duly executed
and delivered by Hemlo Gold and this Agreement is the valid and binding
obligation of Hemlo Gold, enforceable in accordance with its terms,
except that such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) No Conflict. Neither the execution, delivery and performance of
this Agreement or the Plan of Arrangement by Hemlo Gold, nor the
consummation of the transactions contemplated hereby or thereby by Hemlo
Gold, nor compliance with the provisions hereof or thereof by Hemlo Gold
will: (i) result in any breach or violation of the articles of
incorporation or bylaws of Hemlo Gold or the comparable governing
instruments of any of the Hemlo Gold Subsidiaries; (ii) result in any
breach or violation of or cause a default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation contained in,
or the loss of any material benefit under, or result in the creation of
any lien, security interest, charge or encumbrance upon, or right of
first refusal or other option to purchase or acquire, any of the
material properties or assets of Hemlo Gold or any of the Hemlo Gold
Subsidiaries under, any term, condition or provision of any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
material contract, agreement, judgment, order, decree, statute, law,
ordinance, rule, license, permit or regulation applicable to Hemlo Gold
or any of the Hemlo Gold Subsidiaries or their respective properties or
assets, other than any such breaches, defaults, losses, liens, security
interests, charges or encumbrances which, individually or in the
aggregate, would not have a Material Adverse Effect on Hemlo Gold; or
(iii) except for the requirement under the OBCA that the Arrangement be
approved by the holders of at least two-thirds (or such other proportion
as may be set out in the Interim Order) of the outstanding Hemlo Gold
Common Shares who are permitted to, and who do, vote in accordance with
the OBCA at the Hemlo Gold Shareholders Meeting, require any vote of the
holders of issued and outstanding Hemlo Gold Common Shares.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
court, administrative agency, regulatory body or commission or other
governmental authority or instrumentality, whether federal, state, or
local and whether domestic or foreign (each, a "GOVERNMENTAL ENTITY"),
is required to be obtained by Hemlo Gold or any of the
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Hemlo Gold 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: (i) the filing
with the Ontario Securities Commission (the "OSC"), all other Canadian
provincial securities regulatory authorities having jurisdiction and the
Court and the mailing to shareholders of Hemlo Gold of the Joint Proxy
Statement relating to the Hemlo Gold Shareholders Meeting; (ii) the
filing of the Form F-4 or the furnishing to the SEC of such reports and
information under the Exchange Act and the rules and regulations
promulgated by the SEC thereunder, as may be required in connection with
this Agreement and the transactions contemplated hereby; (iii) approval
of the Court of the Arrangement and the filings of the Articles of
Arrangement and any other required amalgamation, arrangement or other
documents as required by the OBCA; (iv) such filings, authorizations,
orders and approvals as may be required under state "control share
acquisition," "anti-takeover" or other similar statutes and regulations
(collectively, "STATE TAKEOVER LAWS"); (v) such filings, authorizations,
orders and approvals as may be required under the Securities Act
(Ontario) and other relevant Canadian securities statutes, any other
applicable federal, provincial or state securities laws and the rules of
the American Stock Exchange (the "AMEX"), The Toronto Stock Exchange
(the "TSE"), the London Stock Exchange or The Montreal Exchange; (vi)
such filings and notifications as may be necessary under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR ACT "); (vii) required notices, filings, consents and approvals
under the Investment Canada Act and under the Competition Act (Canada);
and (viii) any such 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 Hemlo Gold from performing its obligations under this Agreement
and would not be reasonably likely to have a Material Adverse Effect on
Hemlo Gold.
2.4 Securities Regulatory Authority Reports and Financial Statements.
(a) Canadian Compliance. Since December 31, 1993, Hemlo Gold has
filed all forms, reports and documents with the OSC required to be filed
by it pursuant to the Securities Act (Ontario) and the regulations
promulgated thereunder, the comparable statutes and regulations of all
other Canadian provinces, and the applicable policies and rules of the
OSC and all other Canadian provincial securities regulatory authorities
having jurisdiction, and attached hereto as Exhibit 2.4(a) is a form of
the Annual Information Form of Hemlo Gold that it intends to file with
the OSC respecting Fiscal Year 1995 (the "1995 AIF") (such forms,
reports and documents, together with the 1995 AIF, collectively, the
"HEMLO GOLD OSC REPORTS"), all of which complied when filed in all
material respects with all then applicable requirements of such statute,
regulations, policies and rules. None of the Hemlo Gold OSC Reports, 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.
(b) SEC Reports. Hemlo Gold has filed each report, schedule,
registration statement and definitive proxy statement with the SEC (the
"HEMLO GOLD SEC DOCUMENTS"), which Hemlo Gold was required to file with
the SEC on or after December 31, 1993. 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 Hemlo Gold 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 Hemlo Gold SEC
Documents complied when filed in all material respects with the then
applicable requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations promulgated by the SEC
thereunder.
(c) Financial Statements. The consolidated balance sheets and the
consolidated statements of operations, retained earnings and cash flows
(including the related notes thereto) of Hemlo Gold
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contained in the Hemlo Gold OSC Reports and the Hemlo Gold SEC Documents
present fairly the consolidated financial position and the consolidated
results of operations and cash flows of Hemlo Gold and its consolidated
subsidiaries as of the dates or for the periods presented therein in
conformity in all material respects with Canadian generally accepted
accounting principles applied on a consistent basis during the periods
involved, except as otherwise noted therein and subject in the case of
quarterly financial statements to normal and recurring year-end audit
adjustments. Except as disclosed in the Hemlo Gold OSC Reports or the
Hemlo Gold Disclosure Letter, neither Hemlo Gold nor any of the Hemlo
Gold Subsidiaries has any liabilities, accrued, contingent or otherwise,
that, individually or in the aggregate, would be reasonably likely to
have a Material Adverse Effect on Hemlo Gold.
2.5 Information Supplied. None of the information supplied or to be
supplied by Hemlo Gold for inclusion or incorporation by reference in the
Joint Proxy Statement (and, if filed, the Form F-4) will, at the time the
Joint Proxy Statement is mailed to the shareholders of Hemlo Gold and at
the time of the Hemlo Gold Shareholders Meeting (and, if filed, at the time
the Form F-4 is declared effective), 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 Joint Proxy
Statement will comply as to form in all material respects with the
provisions of the OBCA and applicable Canadian securities laws and the
rules and regulations promulgated thereunder.
2.6 Compliance with Applicable Laws. Hemlo Gold and the Hemlo Gold
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
Hemlo Gold. Hemlo Gold has not been notified by any Governmental Entity of
any investigation with respect to Hemlo Gold or any of the Hemlo Gold
Subsidiaries that is pending or threatened, nor has any Governmental Entity
notified Hemlo Gold of such entity's intention to conduct the same that
would be reasonably likely to have a Material Adverse Effect on Hemlo Gold.
Each of Hemlo Gold and the Hemlo Gold Subsidiaries has all permits,
licenses, certificates of authority, orders, and approvals of, and has made
all filings, applications and registrations with, federal, state, local,
and foreign governmental or regulatory bodies that are required in order to
permit it or such subsidiary to carry on its business as it is presently
conducted, except for such permits, licenses, certificates, orders,
filings, applications and registrations, the failure to have or make of
which, individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect on Hemlo Gold.
2.7 Title to Assets. Each of Hemlo Gold and the Hemlo Gold
Subsidiaries 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 it is lessee, in
which case it has a valid leasehold interest), except for such defects in
title that, individually or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect on Hemlo Gold. All real and
tangible personal property of Hemlo Gold and each of the Hemlo Gold
Subsidiaries is in generally good repair and is operational and usable in
the operation of Hemlo Gold, subject to normal wear and tear and technical
obsolescence, except for such property whose failure to be in such
condition would not be reasonably likely to have a Material Adverse Effect
on Hemlo Gold.
2.8 Reserves. The proven, probable and possible reserves of Hemlo Gold
as set forth in its 1995 AIF have been prepared in accordance with accepted
engineering practices, and are in all material respects in compliance with
the requirements applicable to the presentation of such reserves in
documents filed with the OSC.
2.9 Litigation. Except as disclosed in the Hemlo Gold OSC Reports
filed prior to the date of this Agreement, there are no suits, actions,
arbitrations, demands, claims or proceedings pending or, to the knowledge
of the executive officers of Hemlo Gold, threatened against Hemlo Gold or
any of the Hemlo Gold Subsidiaries that, individually or in the aggregate,
would be reasonably likely to have a Material
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Adverse Effect on Hemlo Gold nor are there any judgments, decrees,
injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against Hemlo Gold or any of the Hemlo Gold Subsidiaries that,
individually or in the aggregate, would be reasonably likely to have a
Material Adverse Effect on Hemlo Gold.
2.10 Benefit Plans and Other Compliance.
(a) The Hemlo Gold Disclosure Letter identifies all bonus, deferred
compensation, incentive compensation, share purchase, share option,
stock appreciation, phantom stock, savings, profit sharing, severance or
termination pay, health or other medical, life, disability or other
insurance (whether insured or self-insured), supplementary unemployment
benefit, pension, retirement, supplementary retirement and every other
written or formal benefit plan, program, agreement or arrangement
involving direct or indirect compensation or benefits in excess of
$100,000 per person per annum (including any employment agreements
entered into between Hemlo Gold or any of the Hemlo Gold Subsidiaries
and any employee of Hemlo Gold or any of the Hemlo Gold Subsidiaries,
but excluding workers' compensation, unemployment insurance, federal or
provincial pension plans and other government-mandated programs),
maintained or contributed to by Hemlo Gold or any of the Hemlo Gold
Subsidiaries (or under which Hemlo Gold or any Hemlo Gold Subsidiary has
any present or future obligation or ability) for the benefit of any
employee of Hemlo Gold or any Hemlo Gold Subsidiary or their respective
dependents or beneficiaries (collectively, the "Hemlo Gold Employee
Plans").
(b) There has been no amendment to, written interpretation of or
announcement by Hemlo Gold or any of the Hemlo Gold Subsidiaries
relating to, or change in employee participation or coverage under any
Hemlo Gold Employee Plan that would increase materially the expense of
maintaining such Hemlo Gold Employee Plan above the level of the expense
incurred in respect thereof for the fiscal year ended December 31, 1995.
(c) All of the Hemlo Gold Employee Plans are, and have been since
their establishment, duly registered where required by legislation
(including registration with the relevant tax authorities where such
registration is required to qualify for tax exemption or other
beneficial tax status) and are in good standing under, and in material
compliance with, all statutes, orders, rules and regulations, including
the Income Tax Act (Canada) and provincial pension standards
legislation, which are applicable to the Hemlo Gold Employee Plans.
(d) All employer and, if applicable, employee contributions under
the Hemlo Gold Employee Plans due from Hemlo Gold or any Hemlo Gold
Subsidiary have been or will be remitted in a timely manner through the
Effective Time as required by applicable legislation or have been
accrued on Hemlo Gold's or any such Hemlo Gold Subsidiary's financial
statements as of December 31, 1995.
(e) To the best of the knowledge of Hemlo Gold, no event has
occurred and there has been no failure to act on the part of Hemlo Gold
or any Hemlo Gold Subsidiary, any funding agent or any administrator of
any of the Hemlo Gold Employee Plans that could subject Hemlo Gold, any
Hemlo Gold Subsidiary, any officer or director or either of them, or the
fund of any Hemlo Gold Employee Plan to the imposition of any tax,
penalty or other disability with respect to any such plan, whether by
way of indemnity or otherwise.
(f) No Hemlo Gold Employee Plan constitutes a multi-employer
pension plan.
2.11 Absence of Certain Changes or Events. Except as disclosed in the
Hemlo Gold OSC Reports and Hemlo Gold SEC Documents filed prior to the date
of this Agreement and in the 1995 AIF, since December 31, 1995 (the "HEMLO
GOLD BALANCE SHEET DATE"), Hemlo Gold and the Hemlo Gold Subsidiaries have
conducted their respective businesses only in the ordinary and usual course
of such businesses and there has not been: (i) any change or development or
combination of changes or developments (including any worsening of any
condition currently existing) which, individually or in the aggregate,
would be reasonably likely to result in a Material Adverse Effect on Hemlo
Gold; (ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to Hemlo Gold's
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capital stock other than the declaration and payment of Regular Cash
Dividends (as defined in Section 4.1(b)); (iii) any change by Hemlo Gold in
its accounting methods, principles or practices; (iv) any writing down or
writing off the value of any assets other than in the ordinary course of
business; (v) any material increase in or material modification of the
compensation or benefits payable or to become payable by any of Hemlo Gold
or the Hemlo Gold Subsidiaries to any of its directors or employees, except
in the ordinary course of business consistent with past practice; (vi) any
acquisition or sale of a material amount of property or assets of Hemlo
Gold or any Hemlo Gold Subsidiary, other than in the ordinary course of
business consistent with past practice; or (vii) to the knowledge of Hemlo
Gold, any labour dispute or charge of unfair labour practice (other than
routine individual grievances), any activity or proceeding by a labour
union or representative thereof to organize any employees of Hemlo Gold or
any Hemlo Gold Subsidiary or any campaign conducted to solicit
authorization from employees to be represented by such labour union that,
in any such case, would be reasonably likely to have a Material Adverse
Effect on Hemlo Gold.
2.12 Certain Agreements. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming
due to any director or employee of Hemlo Gold or any of the Hemlo Gold
Subsidiaries from Hemlo Gold or any of the Hemlo Gold Subsidiaries, under
any Hemlo Gold Employee Plan, Hemlo Gold Benefit Arrangement or otherwise,
(ii) materially increase any benefits otherwise payable under any Hemlo
Gold Employee Plan or Hemlo Gold Benefit Arrangement or (iii) result in the
acceleration of the time of payment or vesting of any such benefits,
including but not limited to the time of exercise of stock options. Hemlo
Gold and each Hemlo Gold Subsidiary is in compliance in all material
respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, hours, and terms and conditions of
employment, including, but not limited to, employee compensation matters.
Hemlo Gold and each Hemlo Gold Subsidiary believes it has satisfactory
labour relations; nothing has come to Hemlo Gold's attention as a result of
the negotiation or entering into of this Agreement that would lead Hemlo
Gold to believe that the consummation of the transactions contemplated
hereby will have a Material Adverse Effect on labour relations; and neither
Hemlo Gold nor any Hemlo Gold Subsidiary has any knowledge that any of its
or their executive officers intends to leave its or their employ. Neither
Hemlo Gold nor any of the Hemlo Gold Subsidiaries has an employment
contract or material consulting agreement currently in effect that is not
terminable at will or upon reasonable notice (other than agreements with
the sole purpose of providing for the confidentiality of proprietary
information or assignment of inventions), except as such termination rights
are limited under applicable employment laws.
2.13 Taxes. Hemlo Gold and each of the Hemlo Gold Subsidiaries have
timely filed, or caused to be filed, all Tax Returns (as defined below)
required to be filed by them (all of which returns were correct and
complete in all material respects) and have paid, or caused to be paid, all
Taxes (as defined below) that are due and payable, and Hemlo Gold has
provided adequate accruals in accordance with Canadian generally accepted
accounting principles in its financial statements for any Taxes that have
not been paid, whether or not shown as being due on any returns. Since the
Hemlo Gold Balance Sheet Date, no material Tax liability has been assessed,
proposed to be assessed, incurred or accrued other than in the ordinary
course of business. Neither Hemlo Gold nor any Hemlo Gold Subsidiary has
received any written notification that any material issues have been raised
(and are currently pending) by Revenue Canada, the United States Internal
Revenue Service or any other taxing authority, including, without
limitation, any sales tax authority, in connection with any of the Tax
Returns referred to above, and no waivers of statutes of limitations have
been given or requested with respect to Hemlo Gold or any of the Hemlo Gold
Subsidiaries, in each case except for any such written notices or waivers
which have not had and would not be likely to have a Material Adverse
Effect. There are no material proposed (but unassessed) additional Taxes,
none have been asserted and no Tax liens have been filed other than for
Taxes not yet due and payable. None of Hemlo Gold or any of the Hemlo Gold
Subsidiaries (i) has made an election to be treated as a "consenting
corporation" under section 341(f) of the Code, (ii) is a "personal holding
company" within the meaning of section 542 of the Code or (iii) except as
disclosed in
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the Hemlo Gold Disclosure Letter, is a party to any Tax sharing or other
similar agreement or arrangement of any nature with any other person
pursuant to which Hemlo Gold or any of the Hemlo Gold Subsidiaries has or
could have any liabilities in respect of Taxes. Neither Hemlo Gold, any
corporation to which Hemlo Gold is the successor in a reorganization
described in section 368(a) of the Code nor any Hemlo Gold Subsidiary has,
for any prior taxable year, been a "passive foreign investment company" (a
"PFIC ") within the meaning of section 1296 of the Code, and, on the basis
of its income and assets for the current taxable year to date, would not be
a PFIC for such year.
As used in this Agreement, "TAX" and "TAXES" means, with respect to
any entity, (A) all income taxes (including any tax on or based upon net
income, gross income, income as specially defined, earnings, profits or
selected items of income, earnings or profits) and all capital, gross
receipts, mining, resource, commodity, environmental, sales, use, ad
valorem, value added, transfer, franchise, license, withholding, payroll,
employment, Canada or Quebec Pension Plans, excise, severance, utility,
compensation, social security, workers' compensation, unemployment
insurance or compensation, stamp, occupation, premium, property, windfall
profits taxes, alternative or add-on minimum taxes, goods and services tax,
customs duties or other taxes, fees, imposts, assessments or charges of any
kind whatsoever, together with any interest and any penalties or additional
amounts imposed by any taxing authority (domestic or foreign) on such
entity, and any interest, penalties, additional taxes and additions to tax
imposed with respect to the foregoing, and (B) any liability for the
payment of any amount of the type described in the immediately preceding
clause (A) as a result of being a "transferee" (within the meaning of
section 6901 of the Code or any other applicable law) of another entity or
a member of an affiliated or combined group. As used in this Agreement,
"TAX RETURNS" means all returns, declarations, reports, information returns
and statements relating to Taxes.
2.14 Fees and Expenses. Except for the fees and expenses set forth in
the Hemlo Gold Disclosure Letter payable to RBC Dominion Securities Inc.,
neither Hemlo Gold nor any of the Hemlo Gold Subsidiaries has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this
Agreement.
2.15 Environmental Matters. Except as disclosed in the Hemlo Gold OSC
Reports or the Hemlo Gold Disclosure Letter and except for such matters
that, individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect, (i) Hemlo Gold and the Hemlo Gold
Subsidiaries are and have been in compliance with all applicable
Environmental Laws (as defined below) and (ii) neither Hemlo Gold nor any
of the Hemlo Gold Subsidiaries has received any notices, demand letters or
requests for information from any Governmental Entity or any other third
party to the effect that it may be in violation of, or liable under, any
Environmental Law and none of Hemlo Gold, the Hemlo Gold Subsidiaries or
its properties are subject to any court order, administrative order or
decree arising under any Environmental Law.
"ENVIRONMENTAL LAW" means any applicable federal, state, foreign or
local law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, common law, legal doctrine, order,
judgment, decree, injunction, requirement or agreement with any
Governmental Entity, (x) relating to the protection, preservation or
restoration of the environment (including, without limitation, air, surface
water, groundwater, drinking water supply, surface land, subsurface land,
plant and animal life or any other natural resource), or to human health or
safety, or (y) the exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labelling, production,
release or disposal of Hazardous Substances, in each case as amended and as
now in effect. "HAZARDOUS SUBSTANCE" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether by
type or by quantity, including any substance containing any such substance
as a component.
2.16 Interested Party Transactions. Except as disclosed in the Hemlo
Gold OSC Reports filed prior to the date of this Agreement and the 1995
AIF, no officer or director of Hemlo Gold or any "affiliate" or "associate"
(as those terms are defined in Rule 405 promulgated under the Securities
Act) of any such person has had, either directly or indirectly, a material
interest in (i) any person or entity which
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purchases from or sells, licenses or furnishes to Hemlo Gold or any of the
Hemlo Gold Subsidiaries any goods, property, technology or intellectual or
other property rights or services or (ii) any contract or agreement to
which Hemlo Gold or any of the Hemlo Gold Subsidiaries is a party or by
which it may be bound or affected.
2.17 Material Contracts. Except for the contracts, agreements, leases
and commitments listed in the Hemlo Gold Disclosure Letter, neither Hemlo
Gold nor any of the Hemlo Gold Subsidiaries is a party to or bound by: (i)
any contract, agreement, lease or commitment, whether written or oral,
which was not entered into or made in the ordinary course of its business;
(ii) any contract which imposes material geographic or territorial
limitations on the conduct of business by Hemlo Gold or any of the Hemlo
Gold Subsidiaries (excluding customary area of interest provisions relating
to specific properties and similar restrictions entered into in the
ordinary course of business and which do not have a significant impact on
their ability to conduct business generally in that geographic area); or
(iii) any joint venture or partnership agreement respecting its operating
properties or properties with proven and probable ore reserves. As of the
date hereof, the net hedge and future position is not materially different
from that existing on the Balance Sheet Date.
2.18 Insurance. Hemlo Gold and each of the Hemlo Gold Subsidiaries
have their respective assets insured against loss or damages as is
appropriate to their businesses 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 coverage will be
continued in full force and effect to and including the Effective Time all
as set forth in the Hemlo Gold Disclosure Letter.
2.19 No Defaults. Except as disclosed in the Hemlo Gold OSC Reports
filed prior to the date of this Agreement and the 1995 AIF, to Hemlo Gold's
knowledge, neither it nor any of the Hemlo Gold Subsidiaries 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 Hemlo
Gold or any of the Hemlo Gold Subsidiaries under, any contract or agreement
to which Hemlo Gold or any of the Hemlo Gold Subsidiaries is a party and
which would, if terminated due to such default, have, insofar as can
reasonably be foreseen, a Material Adverse Effect on Hemlo Gold.
2.20 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Hemlo Gold or
any Hemlo Gold Subsidiary that has or could reasonably be expected to have
the effect of prohibiting or impairing any business practice of Hemlo Gold
or any Hemlo Gold Subsidiary, any acquisition of property by Hemlo Gold or
any Hemlo Gold Subsidiary or the conduct of business by Hemlo Gold or any
Hemlo Gold Subsidiary as currently conducted in a manner that would be
reasonably likely to have a Material Adverse Effect on Hemlo Gold.
2.21 Books and Records. The books, records and accounts of Hemlo Gold
and the Hemlo Gold Subsidiaries (a) have in all material respects been
maintained in accordance with good business practices on a basis consistent
with prior years and (b) are stated in reasonable detail and in all
material respects accurately and fairly reflect the transactions and
dispositions of the assets of Hemlo Gold. Hemlo Gold has devised and
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (x) transactions are executed in accordance with
management's general or specific authorization; and (y) transactions are
recorded as necessary (i) to permit preparation of financial statements in
conformity with Canadian generally accepted accounting principles, U.S.
GAAP or any other criteria applicable to such statements and (ii) to
maintain accountability for assets.
2.22 Board Approval. The Hemlo Gold Board has, as of the date hereof,
(i) unanimously approved this Agreement and the Arrangement, (ii)
determined that the Arrangement is in the best interests of the
shareholders of Hemlo Gold and is on terms that are fair to such
shareholders and (iii) recommended that the shareholders of Hemlo Gold
approve this Agreement and the Arrangement.
2.23 Vote Required. The affirmative vote of two-thirds of the votes
cast by the holders of the outstanding Hemlo Gold Common Shares entitled to
be cast (or such other vote as may be set out in the
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Interim Order) is the only vote of the holders of any class or series of
Hemlo Gold's capital stock necessary to approve this Agreement and the
Arrangement.
2.24 Fairness Opinion. The Hemlo Gold Board has received an opinion
from RBC Dominion Securities Inc. that the Arrangement is fair to Hemlo
Gold's shareholders from a financial point of view.
2.25 Pooling Matters. Neither Hemlo Gold nor any of its affiliates
has, to Hemlo Gold's knowledge and based upon consultation with its
independent auditors, taken or agreed to take any action that (without
giving effect to this Agreement, the transactions contemplated hereby or
actions related thereto, or any action taken or agreed to be taken by BMG
or any of its affiliates) would adversely affect the ability of BMG to
account for the business combination to be effected by the Arrangement as a
"pooling of interests" under U.S. GAAP.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BMG
Except as and to the extent specifically set forth in a letter dated the
date of this Agreement and delivered by BMG to Hemlo Gold concurrently herewith
(the "BMG DISCLOSURE LETTER") and the BMG SEC Documents (as hereinafter
defined), BMG hereby represents and warrants to Hemlo Gold that:
3.1 Organization; Good Standing; Qualification and Power. Each of BMG
and each corporation, partnership, company, joint venture and other entity
in which BMG beneficially owns or controls, directly or indirectly, more
than 50% of the equity, voting rights, profits interest, capital or other
similar interest thereof and that (i) owns or operates producing properties
or properties with proven and probable ore reserves with a fair market
value of more than $1 million or (ii) has cash or other liquid assets with
a fair market value of more than $1 million (the "BMG SUBSIDIARIES") is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify
would not have a Material Adverse Effect on BMG. The BMG Disclosure Letter
sets forth a correct and complete list of the BMG Subsidiaries, the
percentage of each such subsidiary's outstanding capital stock or other
ownership interest owned by BMG or another subsidiary of BMG and a correct
and complete list of each jurisdiction in which each of BMG and each BMG
Subsidiary is duly qualified and in good standing to do business. BMG has
delivered to Hemlo Gold complete and correct copies of the articles of
incorporation and bylaws of BMG as amended to the date of this Agreement
and currently in effect.
3.2 Capital Structure.
(a) The authorized capital stock of BMG consists of 200,000,000
shares of BMG Common Stock, of which 81,324,619 shares were issued and
outstanding as of February 29, 1996 (the "MEASUREMENT DATE"), 20,000,000
shares of preferred stock par value $1 per share ("BMG PREFERRED
STOCK"), of which 2,000,000 shares of BMG Preferred Stock have been
designated as Series A Junior Participating Preferred Stock ("BMG SERIES
A PREFERRED STOCK"), of which there were no shares outstanding as of
February 29, 1996, and 2,300,000 shares have been designated as $3.25
Convertible Preferred Stock (the "BMG CONVERTIBLE PREFERRED STOCK"), of
which there were 2,299,980 shares outstanding as of the Measurement
Date. As of the Measurement Date, of the authorized but unissued shares
of BMG Common Stock, 10,952,505 shares were reserved for issuance upon
conversion of the BMG Convertible Preferred Stock, 4,847,516 shares were
reserved for issuance upon conversion of BMG's 6% Convertible
Subordinated Debentures due 2005) (the "BMG CONVERTIBLE DEBENTURES"),
2,444,428 shares were reserved for issuance pursuant to the terms of
outstanding employee and director stock options and performance unit
awards and 5,630,198 shares were reserved for issuance pursuant to
options and other stock awards which may be granted in the future
pursuant to existing BMG Employee plans (as defined in Section 3.10(a)).
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As of the Measurement Date, of the authorized but unissued shares of BMG
Series A Preferred Stock, 8,132,462 shares have been reserved for
issuance upon exercise of the rights issued pursuant to the Rights
Agreement. All issued and outstanding shares of BMG Common Stock and BMG
Convertible Preferred Stock have been duly authorized and validly
issued, are fully paid and nonassessable and were not issued in
violation of any preemptive rights. All issued and outstanding shares of
the capital stock of each of the BMG Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, are not
subject to any right of rescission, and have been offered, issued, sold
and delivered by BMG or the applicable BMG subsidiary in compliance with
all registration, qualification and prospectus requirements (or
applicable exemptions therefrom) of applicable federal, provincial and
state securities laws. As of the Measurement Date, except as set forth
in Section 3.2 of the BMG Disclosure Letter, BMG does not have any
material subsidiaries or any material equity interest, direct or
indirect, in any corporation, partnership, joint venture or other
business entity the primary purpose or activity of which is operating or
developing a property or holding a property with proven and probable
reserves. Except as set forth in the BMG SEC Reports or Section 3.2 of
the BMG Disclosure Letter, all of the shares of capital stock of the BMG
Subsidiaries, as of the Measurement Date, were owned by BMG free and
clear of all security interests, liens, claims, pledges, agreements,
limitations on BMG's voting rights, charges or other encumbrances of any
nature whatsoever.
(b) No Other Commitments. Except as referred to in Section 3.2(a)
above and, with respect to the BMG Subsidiaries, as disclosed in the BMG
SEC Reports or Section 3.2 of the BMG Disclosure Letter and except for
the obligations of BMG under this Agreement, there are no options,
warrants, calls, rights, commitments, conversion rights or agreements of
any character to which BMG or any of the BMG Subsidiaries is a party or
by which BMG or any of the BMG Subsidiaries is bound obligating BMG or
any of the BMG Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, any shares of capital stock of BMG or any of
the BMG Subsidiaries or securities convertible into or exchangeable for
shares of capital stock of BMG or any of the BMG Subsidiaries, or
obligating BMG or any of the BMG Subsidiaries to grant, extend or enter
into any such option, warrant, call, right, commitment, conversion right
or agreement. Except for the obligations of BMG pursuant to this
Agreement, there are no voting trusts or other agreements or
understandings to which BMG is a party with respect to the voting of the
capital stock of BMG or any of the BMG Subsidiaries.
(c) Registration Rights. Except as set forth in the BMG Disclosure
Letter, BMG is not under any obligation to register under the Securities
Act any of its presently outstanding securities.
3.3 Authority.
(a) Corporate Action. BMG has all requisite corporate power and
authority to enter into this Agreement and, subject to approval by the
stockholders of BMG of the issuance of BMG Common Stock in connection
with the Arrangement and upon exchange of the Exchangeable Shares and to
approval of the Arrangement by the Court, to perform its obligations
hereunder and to consummate the Arrangement and the other transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by BMG and, subject to approval by the stockholders of BMG of
the issuance of BMG Common Stock in connection with the Arrangement and
upon exchange of the Exchangeable Shares and the BMG Charter Changes and
to approval of the Arrangement by the Court, the consummation by BMG of
the Arrangement and the other transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of BMG.
This Agreement has been duly executed and delivered by BMG and this
Agreement is the valid and binding obligation of BMG, enforceable in
accordance with its terms, except that such enforceability may be
subject to (i) bankruptcy, insolvency, reorganization or other similar
laws affecting or relating to enforcement of creditors' rights generally
and (ii) general equitable principles.
(b) No Conflict. Neither the execution, delivery and performance of
this Agreement or the Plan of Arrangement by BMG, nor the consummation
of the transactions contemplated hereby or
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thereby by BMG, nor compliance with the provisions hereof or thereof by
BMG will: (i) result in any breach or violation of the articles of
incorporation or bylaws of BMG or the comparable governing instruments
of any of the BMG Subsidiaries; (ii) result in any breach or violation
of or cause a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, amendment, cancellation
or acceleration of any obligation contained in, or the loss of any
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon, or right of first refusal or other
option to purchase or acquire, any of the material properties or assets
of BMG or any of the BMG Subsidiaries under, any term, condition or
provision of any loan or credit agreement, note, bond, mortgage,
indenture, lease or other material contract, agreement, judgment, order,
decree, statute, law, ordinance, rule, license, permit or regulation
applicable to BMG or any of the BMG Subsidiaries or their respective
properties or assets, other than any such breaches, defaults, losses,
liens, security interests, charges or encumbrances which, individually
or in the aggregate, would not have a Material Adverse Effect on BMG; or
(iii) require the affirmative vote of the holders of greater than a
majority of the issued and outstanding shares of BMG Common Stock.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained by BMG or any of the BMG
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: (i) the filing
with the SEC of (A) the Form F-4 or the Form S-3 (if applicable) or (B)
the Joint Proxy Statement relating to the BMG Stockholders Meeting, and
(C) such reports and information under the Exchange Act and the rules
and regulations promulgated by the SEC thereunder, as may be required in
connection with this Agreement and the transactions contemplated hereby;
(ii) the filing of the Plan of Arrangement with the Ministry of Consumer
and Commercial Relations of the Province of Ontario and appropriate
documents with the relevant authorities of other states in which BMG is
qualified to do business; (iii) such filings, authorizations, orders and
approvals as may be required under State Takeover Laws; (iv) such
filings, authorizations, orders and approvals as may be required under
foreign laws, state securities laws and the rules of the New York Stock
Exchange ("NYSE"), the Australian Stock Exchange, the Swiss Stock
Exchange or the Frankfurt Stock Exchange; (v) such filings and
notifications as may be necessary under the HSR Act; (vi) required
notices, filings, consents and approvals under the Investment Canada Act
and under the Competition Act (Canada); and (vii) any such 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 BMG from performing
its obligations under this Agreement and would not be reasonably likely
to have a Material Adverse Effect on BMG.
3.4 SEC Reports and Financial Statements.
(a) SEC Reports. Since December 31, 1993, BMG has filed each
report, schedule, registration statement and definitive proxy statement
(other than preliminary material) required to be filed by it with the
SEC (including its Annual Report on Form 10-K for the year ended
December 31, 1995) (the "BMG SEC DOCUMENTS"), which are all the
documents that BMG was required to file with the SEC on or after such
date. 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 BMG 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 BMG SEC Documents complied when filed in
all material respects with the then applicable requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules
and regulations promulgated by the SEC thereunder.
(b) Financial Statements. The financial statements of BMG included
in the BMG SEC Documents complied as to form in all material respects
with the then applicable accounting
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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 BMG
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 the BMG SEC
Reports or the BMG Disclosure Letter, neither BMG nor any of the BMG
Subsidiaries has any liabilities, accrued, contingent or otherwise,
that, individually or in the aggregate, would be reasonably likely to
have a Material Adverse Effect on BMG.
3.5 Information Supplied. None of the information supplied or to be
supplied by BMG for inclusion or incorporation by reference in the Joint
Proxy Statement (and, if filed, the Form F-4 and Form S-3) will, at the
time the Joint Proxy Statement is mailed to the stockholders of BMG and at
the time of the BMG Stockholders Meeting (and, if filed, at the time the
Form F-4 and Form S-3 are declared effective), 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 Joint Proxy
Statement will comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated by the SEC thereunder.
3.6 Compliance with Applicable Laws. BMG and the BMG 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 BMG. BMG has not
been notified by any Governmental Entity of any investigation with respect
to BMG or any BMG Subsidiary that is pending or threatened, nor has any
Governmental Entity notified BMG of such entity's intention to conduct the
same that would be reasonably likely to have a Material Adverse Effect on
BMG. Each of BMG and the BMG Subsidiaries has all permits, licenses,
certificates of authority, orders, and approvals of, and has made all
filings, applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in order to
permit it or such subsidiary to carry on its business as it is presently
conducted, except for such permits, licenses, certificates, orders,
filings, applications and registrations, the failure to have or make of
which, individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect on BMG.
3.7 Title to Assets. Each of BMG and the BMG Subsidiaries 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 it is lessee, in which case it
has a valid leasehold interest), except for such defects in title that,
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect on BMG. All real and tangible personal property of
BMG and each of the BMG Subsidiaries is in generally good repair and is
operational and usable in the operation of BMG, subject to normal wear and
tear and technical obsolescence, except for such property whose failure to
be in such condition would not be reasonably likely to have a Material
Adverse Effect on BMG.
3.8 Reserves. The proven and probable reserves of BMG as set forth in
its Annual Report on Form 10-K for the year ended December 31, 1995 have
been prepared in accordance with accepted engineering practices and are in
all material respects in compliance with the requirements applicable to the
presentation of such reserves in documents filed with the SEC.
3.9 Litigation. Except as disclosed in the BMG SEC Documents filed
prior to the date of this Agreement, there are no suits, actions,
arbitrations, demands, claims or proceedings pending or, to the knowledge
of the executive officers of BMG, threatened against BMG or any of the BMG
Subsidiaries that, individually or in the aggregate, would be reasonably
likely to have a Material Adverse Effect on
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BMG nor are there any judgments, decrees, injunctions, rules or orders of
any Governmental Entity or arbitrator outstanding against BMG or any of the
BMG Subsidiaries that, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on BMG.
3.10 ERISA and Other Compliance.
(a) The BMG Disclosure Letter identifies (i) each "employee benefit
plan," as defined in section 3(3) of ERISA, and (ii) all other written
or formal plans or agreements involving direct or indirect compensation
or benefits in excess of $100,000 per person per annum (including any
employment agreements entered into between BMG or any of the BMG
Subsidiaries and any employee of BMG or any of such BMG Subsidiaries,
but excluding workers' compensation, unemployment compensation and other
government-mandated programs) currently or previously maintained,
contributed to or entered into by BMG or any of such BMG Subsidiaries
under which BMG or any of such BMG Subsidiaries or any ERISA Affiliate
thereof has any present or future obligation or liability (collectively,
the "BMG EMPLOYEE PLANS"). All BMG Employee Plans which individually or
collectively would constitute an "employee pension benefit plan," as
defined in section 3(2) of ERISA (collectively, the "BMG PENSION
PLANS"), are identified as such in the BMG Disclosure Letter. All
contributions due from BMG or any of the BMG Subsidiaries through the
Effective Time with respect to any of the BMG Employee Plans have been
or will be timely made as required under ERISA or any other applicable
legislation or have been accrued on BMG's or any such BMG Subsidiary's
financial statements as of December 31, 1995. Each BMG Employee Plan has
been maintained in material compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and
regulations, including, without limitation, ERISA and the Code, which
are applicable to such BMG Employee Plans.
(b) No BMG Pension Plan constitutes, or has since the enactment of
ERISA constituted, a "multiemployer plan," as defined in section 3(37)
of ERISA. No "prohibited transaction," as defined in section 406 of
ERISA or section 4975 of the Code, has occurred with respect to any BMG
Employee Plan which is covered by Title I of ERISA which would result in
a material liability to BMG and the BMG Subsidiaries taken as a whole,
excluding transactions effected pursuant to a statutory or
administrative exemption. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any BMG
Employee Plan has or will make BMG or any officer or director of BMG
subject to any material liability under Title I of ERISA or liable for
any material Tax or penalty pursuant to section 4972, 4975, 4976 or 4979
of the Code or section 502 of ERISA.
(c) Any BMG Pension Plan which is intended to be qualified under
section 401(a) of the Code (a "BMG 401(A) PLAN") is so qualified and has
been so qualified during the period from its adoption to date, and the
trust forming a part thereof is exempt from tax pursuant to section
501(a) of the Code. BMG has delivered to Hemlo Gold or its counsel a
complete and correct copy of the most recent United States Internal
Revenue Service determination letter with respect to each BMG 401(a)
Plan.
(d) Each BMG plan or arrangement (written or oral) providing for
insurance coverage (including any self-insured arrangements), workers'
benefits, vacation benefits, severance benefits, disability benefits,
death benefits, hospitalization benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock purchase,
phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors (collectively, "BMG Benefit
Arrangements") has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable thereto.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by BMG or any of the BMG
Subsidiaries relating to, or change in employee participation or
coverage under, any BMG Employee Plan or BMG Benefit Arrangement that
would increase materially the expense of maintaining such BMG Employee
Plan or BMG Benefit Arrangement
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above the level of the expense incurred in respect thereof for the
fiscal year ended December 31, 1995.
(f) BMG has provided, or will have provided prior to the Closing
(as defined in Section 4.13), to individuals entitled thereto all
required notices and coverage pursuant to section 4980B of COBRA, with
respect to any "qualifying event" (as defined in section 4980B(f)(3) of
the Code) occurring prior to and including the Closing Date, and no
material Tax payable on account of section 4980B of the Code has been
incurred with respect to any current or former employees (or their
beneficiaries) of BMG or any of the BMG Subsidiaries.
3.11 Absence of Certain Changes or Events. Except as disclosed in the
BMG SEC Documents filed prior to the date of this Agreement, since December
31, 1995 (the "BMG BALANCE SHEET DATE") BMG and the BMG Subsidiaries have
conducted their respective businesses only in the ordinary and usual course
of such businesses and there has not been: (i) any change or development or
combination of changes or developments (including any worsening of any
condition currently existing) which, individually or in the aggregate,
would be reasonably likely to result in a Material Adverse Effect on BMG;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to BMG's capital stock other than the declaration
and payment of Regular Cash Dividends (as defined in Section 4.1(b)); (iii)
any change by BMG in its accounting methods, principles or practices; (iv)
any writing down or writing off the value of any assets other than in the
ordinary course of business; (v) any material increase in or material
modification of the compensation or benefits payable or to become payable
by any of BMG or the BMG Subsidiaries to any of its directors or employees,
except in the ordinary course of business consistent with past practice;
(vi) any acquisition or sale of a material amount of property or assets of
BMG or any BMG Subsidiary, other than in the ordinary course of business
consistent with past practice; or (vii) to the knowledge of BMG, any labour
dispute or charge of unfair labour practice (other than routine individual
grievances), any activity or proceeding by a labour union or representative
thereof to organize any employees of BMG or any BMG Subsidiary or any
campaign conducted to solicit authorization from employees to be
represented by such labour union that, in any such case, would be
reasonably likely to have a Material Adverse Effect on BMG.
3.12 Certain Agreements. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming
due to any director or employee of BMG or any of the BMG Subsidiaries from
BMG or any of the BMG Subsidiaries, under any BMG Employee Plan, BMG
Benefit Arrangement or otherwise, (ii) materially increase any benefits
otherwise payable under any BMG Employee Plan or BMG Benefit Arrangement or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits, including but not limited to the time of exercise of stock
options. BMG and each BMG Subsidiary is in compliance in all material
respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, hours and terms and conditions of
employment, including, but not limited to, employee compensation matters.
BMG and each BMG Subsidiary believes it has satisfactory labour relations;
nothing has come to BMG's attention as a result of the negotiation or
entering into of this Agreement that would lead BMG to believe that the
consummation of the transactions contemplated hereby will have a Material
Adverse Effect on labour relations; and neither BMG nor any BMG Subsidiary
has any knowledge that any of its or their executive officers intends to
leave its or their employ. Neither BMG nor any of the BMG Subsidiaries has
an employment contract or material consulting agreement currently in effect
that is not terminable at will or upon reasonable notice (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions), except as such
termination rights are limited under applicable employment laws.
3.13 Taxes. BMG and each of the BMG Subsidiaries have timely filed, or
caused to be filed, all Tax Returns required to be filed by them (all of
which returns were correct and complete in all material respects) and have
paid, or caused to be paid, all Taxes that are due and payable, and BMG has
provided adequate accruals in accordance with U.S. GAAP in its financial
statements for any Taxes that have not been paid, whether or not shown as
being due on any returns. Since the BMG Balance Sheet Date, no
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material Tax liability has been assessed, proposed to be assessed, incurred
or accrued other than in the ordinary course of business. Neither BMG nor
any BMG Subsidiary has received any written notification that any material
issues have been raised (and are currently pending) by the United States
Internal Revenue Service, Revenue Canada or any other taxing authority,
including, without limitation, any sales tax authority, in connection with
any of the Tax Returns referred to above, and no waivers of statutes of
limitations have been given or requested with respect to BMG or any of the
BMG Subsidiaries, in each case except for any such written notices or
waivers which have not had and would not be likely to have a Material
Adverse Effect. There are no material proposed (but unassessed) additional
Taxes, none have been asserted and no Tax liens have been filed other than
for Taxes not yet due and payable. None of BMG or any of the BMG
Subsidiaries (i) has made an election to be treated as a "consenting
corporation" under section 341(f) of the Code, (ii) is a "personal holding
company" within the meaning of section 542 of the Code or (iii) except as
disclosed in the BMG Disclosure Letter, is a party to any Tax sharing or
other similar agreement or arrangement of any nature with any other person
pursuant to which BMG or any of the BMG Subsidiaries has or could have any
liabilities in respect of Taxes. BMG is not a "specified financial
institution" or "specified person" in relation to any such institution each
as defined in subsection 248(1) of the ITA except in the event BMG is or
will become on the Closing Date a "specified financial institution" or a
"specified person" in relation to any such institution solely because Hemlo
Gold was a "specified financial institution." BMG is not, and has not been,
at any time within the last year prior to the date hereof, a "United States
real property holding corporation" within the meaning of section 897 of the
Code. No BMG Subsidiary or any corporation to which any BMG Subsidiary is
the successor in a reorganization described in section 368(a) of the Code
for any prior taxable year, has been a "PFIC" within the meaning of section
1296 of the Code, and on the basis of its income and assets for the current
taxable year to date, would not be a PFIC for such year.
3.14 Fees and Expenses. Except for the fees and expenses set forth in
the BMG Disclosure Letter payable to Salomon Brothers Inc, neither BMG nor
any of the BMG Subsidiaries has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement.
3.15 Environmental Matters. Except as disclosed in the BMG SEC Reports
or the BMG Disclosure Letter and except for such matters that, individually
or in the aggregate, would not be reasonably likely to have a Material
Adverse Effect, (i) BMG and the BMG Subsidiaries are and have been in
compliance with all applicable Environmental Laws and (ii) neither BMG nor
any of the BMG Subsidiaries has received any notices, demand letters or
requests for information from any Governmental Entity or any other third
party to the effect that it may be in violation of, or liable under, any
Environmental Law and none of BMG, the BMG Subsidiaries or its properties
are subject to any court order, administrative order or decree arising
under any Environmental Law.
3.16 Interested Party Transactions. Except as disclosed in the BMG SEC
Documents filed prior to the date of this Agreement, no officer or director
of BMG or any "affiliate" or "associate" (as those terms are defined in
Rule 405 promulgated under the Securities Act) of any such person has had,
either directly or indirectly, a material interest in (i) any person or
entity which purchases from or sells, licenses or furnishes to BMG or any
of the BMG Subsidiaries any goods, property, technology or intellectual or
other property rights or services or (ii) any contract or agreement to
which BMG or any of the BMG Subsidiaries is a party or by which it may be
bound or affected.
3.17 Material Contracts. Except for the contracts, agreements, leases
and commitments listed in the BMG Disclosure Letter, neither BMG nor any of
the BMG Subsidiaries is a party to or bound by: (i) any contract,
agreement, lease or commitment, whether written or oral, which was not
entered into or made in the ordinary course of its business; (ii) any
contract which imposes material geographic or territorial limitations on
the conduct of business by BMG or any of the BMG Subsidiaries (excluding
customary area of interest provisions relating to specific properties and
similar restrictions entered into in the ordinary course of business and
which do not have a significant impact on their ability to conduct business
generally in that geographic area); or (iii) any joint venture or
partnership agreement respecting
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its operating properties or properties with proven and probable ore
reserves. As of the date hereof, the net hedge and future position is not
materially different from that existing on the Balance Sheet Date.
3.18 Insurance. BMG and each of the BMG Subsidiaries have their
respective assets insured against loss or damages as is appropriate to
their businesses 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 coverage will be continued in full force and
effect to and including the Effective Time all as set forth in the BMG
Disclosure Letter.
3.19 No Defaults. Except as disclosed in the BMG SEC Documents filed
prior to the date of this Agreement, to BMG's knowledge, neither it nor any
of the BMG Subsidiaries 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 BMG or any of the BMG Subsidiaries
under, any contract or agreement to which BMG or any of the BMG
Subsidiaries is a party and which would, if terminated due to such default,
have, insofar as can reasonably be foreseen, a Material Adverse Effect on
BMG.
3.20 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon BMG or any
BMG Subsidiary that has or could reasonably be expected to have the effect
of prohibiting or impairing any business practice of BMG or any BMG
Subsidiary, any acquisition of property by BMG or any BMG Subsidiary or the
conduct of business by BMG or any BMG Subsidiary as currently conducted in
a manner that would be reasonably likely to have a Material Adverse Effect
on BMG.
3.21 Books and Records. The books, records and accounts of BMG and the
BMG Subsidiaries (a) have in all material respects been maintained in
accordance with good business practices on a basis consistent with prior
years and (b) are stated in reasonable detail and in all material respects
accurately and fairly reflect the transactions and dispositions of the
assets of BMG. BMG has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (x)
transactions are executed in accordance with management's general or
specific authorization; and (y) transactions are recorded as necessary (i)
to permit preparation of financial statements in conformity with U.S. GAAP
or any other criteria applicable to such statements and (ii) to maintain
accountability for assets.
3.22 Board Approval. The BMG Board has, as of the date hereof,
unanimously: (i) approved this Agreement and the BMG Charter Changes and
has taken action pursuant to paragraph 1 of NRS 78.438 and paragraph 1 of
NRS 78.439 to approve (for purposes of the Business Combination provisions
of the NGCL, NRS 78.411 through NRS 78.444) the acquisition by Noranda of
up to 65,242,526 Exchangeable Shares in the Arrangement (including the
shares of BMG Common Stock issuable upon the exchange of such Exchangeable
Shares) subject to the condition that if Noranda shall acquire beneficial
ownership (within the meaning of NRS 78.414) of any additional Exchangeable
Shares or BMG Common Stock (unless (x) at the time of such acquisition
Noranda shall not otherwise be an Interested Stockholder within the meaning
of NRS 78.423, (y) such acquisition of beneficial ownership is by virtue of
Noranda acquiring another person or becoming the affiliate or associate of
another person in a bona fide transaction undertaken primarily for another
purpose not related to the acquisition of beneficial ownership of
Exchangeable Shares or shares of BMG Common Stock and not for any purpose
or with any effect of changing or influencing control of BMG provided that
Noranda promptly divests or causes to be divested such additional shares or
the shares beneficially owned by such affiliate or associate or (z) the
additional Exchangeable Shares or shares of BMG Common Stock are
inadvertently acquired and are promptly divested) such approval shall cease
to have any force or effect and shall be void as if it had never been given
and subject to the further condition that any combination (within the
meaning of NRS 78.416) of BMG with Noranda shall require, in addition to
any other vote or approval required, the approval of a majority of the
directors of BMG that were either (x) directors of BMG on the date of this
Agreement or (y) directors whose initial nomination or appointment to the
BMG Board was approved in advance for purposes of this Section 3.22 by a
majority of those directors then in office who are specified in the
preceding clause (x) or this clause (y); (ii) determined that the
transactions contemplated by this Agreement are in the best interests of
the stockholders of BMG and are on terms that are fair to such
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stockholders; and (iii) recommended that the stockholders of BMG approve
this Agreement and the BMG Charter Changes.
3.23 Vote Required. The affirmative vote of a majority of the votes
that holders of the outstanding shares of BMG Common Stock are entitled to
cast is the only vote of the holders of any class or series of BMG's
capital stock necessary to approve this Agreement, the BMG Charter Changes
and related matters.
3.24 Fairness Opinion. The BMG Board has received an opinion from
Salomon Brothers Inc. that the Exchange Ratio is fair to BMG's stockholders
from a financial point of view.
3.25 Pooling Matters. Neither BMG nor any of its affiliates has, to
BMG's knowledge and based upon consultation with its independent auditors,
taken or agreed to take any action that (without giving effect to this
Agreement, the transactions contemplated hereby or actions related thereto,
or any action taken or agreed to be taken by Hemlo Gold or any of its
affiliates) would adversely affect the ability of BMG to account for the
business combination to be effected by the Arrangement as a "pooling of
interests" under U.S. GAAP.
ARTICLE 4
COVENANTS
4.1 Interim Operations. Each of Hemlo Gold and BMG covenants and agrees as
to itself and with respect to Hemlo Gold, the Hemlo Gold Subsidiaries, and with
to the respect to BMG, the BMG Subsidiaries (collectively, the "SUBSIDIARIES")
that, from and after the date hereof until the Effective Time, except insofar as
the other party shall otherwise consent or except as otherwise contemplated by
this Agreement:
(a) The business of it and its Subsidiaries will be conducted only in
the ordinary and usual course in all material respects and, to the extent
consistent therewith, it and its Subsidiaries will use all reasonable
efforts to preserve their business organizations intact and maintain their
existing relations with customers, suppliers, employees and business
associates.
(b) It will not: (i) sell or pledge or agree to sell or pledge any
stock owned by it in any of its Subsidiaries; (ii) amend its Articles of
Incorporation or Bylaws; (iii) split, combine or reclassify any outstanding
capital stock; (iv) declare, set aside or pay any dividend payable in cash,
stock or property with respect to any of its capital stock, other than
Regular Cash Dividends (as defined below); (v) except upon redemption of
BMG Convertible Preferred Stock (on or after May 15, 1996), upon conversion
of BMG Convertible Preferred Stock and BMG Convertible Debentures and
except for the acquisition of BMG Common Stock as consideration for the
exercise of employee stock options, repurchase, redeem or otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire,
directly or indirectly, any shares of capital stock of BMG or any
securities convertible into or exercisable for any shares of capital stock
of BMG; or (vi) enter into any material transaction not in the ordinary
course of its business, consistent with past practice. For purposes of this
Section 4.1(b), "REGULAR CASH DIVIDENDS" means (x) in the case of Hemlo
Gold, semi-annual cash dividends declared, set aside and paid in the
ordinary and usual course of business on dates consistent with past
practice in amounts not exceeding Cdn.$0.10 per Hemlo Gold Common Share and
(y) in the case of BMG, such amounts as are prescribed under the terms of
outstanding BMG Convertible Preferred Stock and semiannual cash dividends
declared, set aside and paid in the ordinary course of business on dates
consistent with past practice in amounts not exceeding $0.05 per share of
BMG Common Stock.
(c) Neither it nor any of its Subsidiaries will: (i) issue, sell,
pledge, dispose of or encumber, or authorize or propose the issuance, sale,
pledge, disposition or encumbrance of, any shares of, or securities
convertible or exchangeable for, or options, puts, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock of any class other than (x) BMG Common Stock issuable pursuant to
options and performance unit awards outstanding on the date hereof or upon
conversion of BMG Convertible Preferred Stock or BMG Convertible
Debentures, in the case of BMG and (y) Hemlo Gold
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Common Shares issuable pursuant to Hemlo Gold Options outstanding on the
date hereof, in the case of Hemlo Gold; (ii) transfer, lease, license,
guarantee, sell, mortgage, pledge or dispose of any other property or
assets or encumber any property or assets or incur or modify any
indebtedness or other liability other than in the ordinary and usual course
of business consistent with past practice; (iii) authorize capital
expenditures other than in the ordinary and usual course of business
consistent with past practice; or (iv) make any material acquisition of, or
investment in, assets, stock or other securities of any other person or
entity other than its wholly owned subsidiaries or in the ordinary and
usual course of business consistent with past practice.
(d) Except as may be required to satisfy contractual obligations
existing as of the date hereof and the requirements of applicable law,
neither it nor any of its Subsidiaries will establish, adopt, enter into,
make, amend in any material respect or make any material elections under
any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, employee stock
ownership, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit
of any directors, officers or employees.
(e) It will not implement any change in its accounting principles,
practices or methods, other than as may be required by generally accepted
accounting principles.
(f) Neither it nor any of its Subsidiaries will authorize or enter
into an agreement to take any of the actions referred to in paragraphs (a)
through (e) above.
Anything to the contrary in this Section 4.1 notwithstanding, nothing in this
Section 4.1 shall require BMG or Hemlo Gold to take or omit to take actions
concerning any partially owned Subsidiaries that would violate its fiduciary
duties to minority stockholders or the fiduciary duties of its representatives
on the board of directors of any such Subsidiaries.
4.2 Shareholder Approval. Hemlo Gold will call the Hemlo Gold Shareholders
Meeting and BMG will call the BMG Shareholders Meeting, each to be held within
45 days after the SEC has indicated that it has no further comments on the Joint
Proxy Statement (or, if the Form F-4 is filed, the date on which the Form F-4 is
declared effective by the SEC) to submit this Agreement, the Arrangement and
related matters for the consideration and approval of the Hemlo Gold
Shareholders and this Agreement, the BMG Charter Changes and related matters for
consideration and approval of the BMG Shareholders. Such approval will be
recommended by the Hemlo Gold Board and management, and by the BMG Board and
management, subject in each case to the fiduciary obligations of such directors
and officers. Such meetings will be called, held and conducted, and any proxies
will be solicited, in compliance with applicable law. Concurrently with the
execution of this Agreement, Noranda has executed a Side Letter of Support for
the Transaction in the form of Exhibit 4.2, agreeing among other things to vote
in favour of the Arrangement.
4.3 Affiliate Agreements. To ensure that the Arrangement will be accounted
for as a "pooling of interests" under U.S. GAAP and to ensure compliance with
Rule 145 of the rules and regulations promulgated by the SEC under the
Securities Act, Hemlo Gold will use commercially reasonable efforts to procure
the signature and delivery of Hemlo Gold Affiliate Agreements substantially in
the form of Exhibit 4.3(a) (the "HEMLO GOLD AFFILIATE AGREEMENTS") from each of
Hemlo Gold's Affiliates promptly after the execution and delivery of this
Agreement. To ensure that the Arrangement will be accounted for as a "pooling of
interests" under U.S. GAAP, BMG will use commercially reasonable efforts to
procure the signature and delivery of BMG Affiliate Agreements substantially in
the form of Exhibit 4.3(b) (the "BMG AFFILIATE AGREEMENTS") from each of BMG's
Affiliates promptly after the execution and delivery of this Agreement. For
purposes of this Agreement (except for clause (iii) of Section 1.1(b)), an
"AFFILIATE" shall have the meaning referred to in Rule 145 under the Securities
Act.
4.4 Joint Proxy Statement. Hemlo Gold and BMG will mail the Joint Proxy
Statement to their respective shareholders in a timely manner for the purpose of
considering and voting upon the Arrangement at the Hemlo Gold Shareholders
Meeting and the BMG Charter Changes and related matters at the BMG Shareholders
Meeting. Each of Hemlo Gold and BMG will promptly provide all information
relating to its business or operations necessary for inclusion in the Joint
Proxy Statement to satisfy all requirements of
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applicable U.S. and Canadian state, provincial and federal corporate and
securities laws. Hemlo Gold shall be solely responsible for any statement,
information or omission in the Joint Proxy Statement relating to it or its
Affiliates based upon written information furnished by it. Hemlo Gold will not
provide to its shareholders or publish any material concerning it or its
Affiliates that violates applicable Canadian law, the Securities Act or the
Exchange Act with respect to the transactions contemplated hereby. BMG shall be
solely responsible for any statement, information or omission in the Joint Proxy
Statement relating to it or its Affiliates based upon written information
furnished by it. BMG will not provide to its stockholders or publish any
material concerning it or its Affiliates that violates applicable Canadian law,
the Securities Act or the Exchange Act with respect to the transactions
contemplated hereby.
4.5 Regulatory Approvals. Each of Hemlo Gold and BMG will promptly execute
and file, or join in the execution and filing of, any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any Governmental Entity which may be reasonably required, or which
the other party may reasonably request in connection with the consummation of
the transactions contemplated by this Agreement. Each of Hemlo Gold and BMG will
use commercially reasonable efforts to obtain promptly all such authorizations,
approvals and consents. Without limiting the generality of the foregoing, as
promptly as practicable after the execution of this Agreement, each of Hemlo
Gold and BMG shall file with the Federal Trade Commission (the "FTC ") and the
Antitrust Division of the Department of Justice (the "DOJ "), a pre-Arrangement
notification report under the HSR Act and shall make such filings as are
necessary under the Investment Canada Act and the Competition Act (Canada).
4.6 Necessary Consents. During the term of this Agreement, each of Hemlo
Gold and BMG will use commercially reasonable efforts to obtain such written
consents and take such other actions as may be necessary or appropriate, in
addition to those set forth in Section 4.5, to allow the consummation of the
transactions contemplated hereby.
4.7 Access to Information and Properties. Each of Hemlo Gold and BMG will
allow the other party and its agents reasonable access to the files, books,
records, properties, assets, operations, personnel and offices of Hemlo Gold and
each Hemlo Gold Subsidiary, or BMG and each BMG Subsidiary, as applicable,
including, without limitation, any and all information relating to Hemlo Gold's
or BMG's Taxes, commitments, contracts, leases, licenses and real, personal and
intangible property and financial condition. Each of Hemlo Gold and BMG will
cause its accountants, mining agents and other advisers to cooperate with the
other party and its agents in making available to such other party all
information reasonably requested, including, without limitation, the right to
examine all working papers pertaining to all Tax Returns, financial statements
and reserve reports prepared or audited by such persons subject to the execution
of customary access or indemnification agreements among the parties with respect
to such review. The rights of access and inspection pursuant to this Section 4.7
shall be subject to the Nondisclosure Agreement referred to in Section 8.3.
4.8 Satisfaction of Conditions Precedent. During the term of this
Agreement, each of Hemlo Gold and BMG will use commercially reasonable efforts
to satisfy or cause to be satisfied all the conditions precedent that are set
forth in Articles 6 and 7, and will use commercially reasonable efforts to cause
the Arrangement and the other transactions contemplated by this Agreement to be
consummated.
4.9 No Other Negotiations.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, Hemlo Gold and the Hemlo Gold Subsidiaries shall not, and shall use
their best efforts to see that their respective directors do not, and shall
not permit their respective officers, employees, representatives,
investment bankers, agents and affiliates to, directly or indirectly: (i)
solicit, initiate or engage in discussions or negotiations with any person,
encourage submission of any inquiries, proposals or offers by, or take any
other action intended or designed to facilitate the efforts of any person,
other than BMG, relating to the possible acquisition of, or business
combination with, Hemlo Gold or any of its Subsidiaries (whether by way of
arrangement, amalgamation, take-over bid, tender offer, purchase of capital
stock, purchase of assets or otherwise) or any material portion of its or
their capital stock or assets (with any such efforts by any such person,
including a firm proposal to make such an acquisition or combination, to be
referred to as a "HEMLO GOLD
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COMPETING TRANSACTION"); (ii) provide non-public information with respect
to Hemlo Gold or any of its Subsidiaries, or afford any access to the
properties, books or records of Hemlo Gold or its Subsidiaries, to any
person, other than BMG, relating to a possible Hemlo Gold Competing
Transaction by any person other than BMG; (iii) make or authorize any
statement, recommendation or solicitation in support of any possible Hemlo
Gold Competing Transaction by any person, other than by BMG; or (iv) enter
into an agreement with any person, other than BMG, providing for a possible
Hemlo Gold Competing Transaction. Hemlo Gold, its Subsidiaries, and their
respective directors, officers, employees, representatives, investment
bankers, agents and affiliates, shall immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) Notwithstanding the foregoing, prior to the approval of the
Arrangement by the Hemlo Gold Shareholders at the Hemlo Gold Shareholders
Meeting, nothing contained in this Agreement shall prevent the Hemlo Gold
Board (or its agents pursuant to its instructions) from (i) engaging in
discussions or negotiations with (but not soliciting or initiating such
discussions or negotiations or encouraging inquiries from) a party
concerning an unsolicited proposal for a Hemlo Gold Competing Transaction,
(ii) providing non-public information with respect to Hemlo Gold or the
Hemlo Gold Subsidiaries that has previously been provided to BMG or (iii)
making any statement or recommendation in support of any Hemlo Gold
Competing Transaction, in each case if the Hemlo Gold Board first
determines in good faith, after consultation with and receiving advice from
its outside legal counsel, that such action is required by reason of the
fiduciary duties of the members of the Hemlo Gold Board to Hemlo Gold's
shareholders under applicable law; provided that in each such event Hemlo
Gold first notifies BMG of such determination by the Hemlo Gold Board and
provides BMG with the fact that it is furnishing information to, or
entering into discussions or negotiations with, a person or entity and
Hemlo Gold keeps BMG informed of the status (but not the identity or terms)
of any such discussions or negotiations. Except to the extent expressly
provided in this Section 4.9, nothing in such section shall relieve Hemlo
Gold from its obligation to comply with the other terms of this Agreement.
If Hemlo Gold or any of its Subsidiaries receives any unsolicited offer or
proposal to enter negotiations relating to a Hemlo Gold Competing
Transaction, Hemlo Gold shall immediately notify BMG thereof. Hemlo Gold
shall be responsible for any breach of this section by any of its (or its
Subsidiaries') directors, officers, employees, representatives, investment
bankers, agents and affiliates.
(c) BMG may, in its sole discretion, prior to the holding of the Hemlo
Gold Shareholders Meeting, amend the terms of the Plan of Arrangement to
increase the consideration payable to Hemlo Gold's shareholders pursuant
thereto, by delivering such amended Plan of Arrangement to Hemlo Gold
before the holding of the Hemlo Gold Shareholders Meeting, provided that
such amendment shall not materially delay the consummation of the
Arrangement.
(d) From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, BMG and the BMG Subsidiaries shall not, and shall use their best
efforts to see that their respective directors do not, and shall not permit
their respective officers, employees, representatives, investment bankers,
agents and affiliates to, directly or indirectly: (i) solicit, initiate or
engage in discussions or negotiations with any person, encourage submission
of any inquiries, proposals or offers by, or take any other action intended
or designed to facilitate the efforts of any person, other than Hemlo Gold,
relating to the possible acquisition of, or business combination with, BMG
or any of its Subsidiaries (whether by way of merger, consolidation,
take-over bid, tender offer, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its or their capital stock or
assets (with any such efforts by any such person, including a firm proposal
to make such an acquisition or combination, to be referred to as a "BMG
COMPETING TRANSACTION"); (ii) provide non-public information with respect
to BMG or any of its Subsidiaries, or afford any access to the properties,
books or records of BMG or its Subsidiaries, to any person, other than
Hemlo Gold, relating to a possible BMG Competing Transaction by any person
other than Hemlo Gold; (iii) make or authorize any statement,
recommendation or solicitation in support of any possible BMG Competing
Transaction by any person, other than by Hemlo Gold; or (iv) enter into an
agreement with any person, other than Hemlo Gold, providing for a possible
BMG Competing Transaction. BMG, its
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Subsidiaries, and their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates, shall
immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of
the foregoing.
(e) Notwithstanding the foregoing, prior to the approval of this
Agreement and the BMG Charter Changes by the BMG Shareholders at the BMG
Shareholders Meeting, nothing contained in this Agreement shall prevent the
BMG Board (or its agents pursuant to its instructions) from (i) engaging in
discussions or negotiations with (but not soliciting or initiating such
discussions or negotiations or encouraging inquiries from) a party
concerning an unsolicited proposal for a BMG Competing Transaction, (ii)
providing non-public information with respect to BMG or the BMG
Subsidiaries that has previously been provided to Hemlo Gold or (iii)
making any statement or recommendation in support of any BMG Competing
Transaction, in each case if the BMG Board determines in good faith, after
consultation with and receiving advice from its outside legal counsel, that
such action is required by reason of its fiduciary duties under applicable
law; provided that in each such event BMG first notifies Hemlo Gold of such
determination by the BMG Board and provides Hemlo Gold with the fact that
it is furnishing information to, or entering into discussions or
negotiations with, a person or entity and BMG keeps Hemlo Gold informed of
the status (but not the identity or the terms) of any such discussions or
negotiations. In addition, and notwithstanding the foregoing, nothing
contained in this Agreement shall prevent the BMG Board (or its agents
pursuant to its instructions) from (x) engaging in discussions with or
soliciting or initiating such discussions or negotiations or encouraging
inquiries from a party concerning a BMG Competing Transaction, (y)
providing information with respect to BMG or the BMG Subsidiaries in
connection therewith or (z) making any statement or recommendation in
support of any BMG Competing Transaction, in each case if the BMG Board has
received a bona fide unsolicited proposal with respect to another BMG
Competing Transaction which the BMG Board has determined in good faith,
after consultation with its outside financial advisors, creates a
substantial risk that the Arrangement will not be consummated and the BMG
Board thereafter in good faith determines that taking such action is an
appropriate response to such proposal and is required by its fiduciary
duties under applicable law. Except to the extent expressly provided in
this Section 4.9, nothing in such section shall relieve BMG from its
obligation to comply with the other terms of this Agreement. If BMG or any
of its Subsidiaries receives any unsolicited offer or proposal to enter
negotiations relating to a BMG Competing Transaction, BMG shall immediately
notify Hemlo Gold thereof. BMG shall be responsible for any breach of this
section by any of its (or its Subsidiaries') directors, officers,
employees, representatives, investment bankers, agents and affiliates.
(f) Notwithstanding any other provisions hereof, Hemlo Gold shall not
(i) enter into a Hemlo Gold Competing Transaction until at least two
business days following the first notification by Hemlo Gold to BMG that it
has entered into discussions with a third party in respect of such Hemlo
Gold Competing Transaction, (ii) for a period of 10 business days following
termination of this Agreement pursuant to paragraph 8.1(h) hereof, grant or
agree to grant to any third party, in connection with a Hemlo Gold
Competing Transaction, an option to purchase treasury securities or assets
of Hemlo Gold or any Hemlo Gold Subsidiary, pay or agree to pay to any such
third party, termination, expense reimbursement, "topping" or similar fees
in the event of non-consummation of such Hemlo Gold Competing Transaction,
in an amount greater than $42.5 million, or (iii) otherwise commit to any
inducement to any such third party which is not contemplated herein in
favour of BMG.
4.10 Pooling. Neither Hemlo Gold nor BMG will take or agree to take any
action that it has reason to believe would adversely affect the ability of BMG
to account for the business combination to be effected by the Arrangement as a
"pooling of interests" under U.S. GAAP.
4.11 Notification of Certain Matters. Each of Hemlo Gold and BMG will give
prompt notice to the other party of (i) any change that is reasonably likely to
result in any Material Adverse Effect with respect to it, (ii) any other change
or event which would cause any representation or warranty made by it to be
untrue or inaccurate as of the Effective Time or (iii) any material failure by
it to comply with or satisfy any covenant, agreement or condition to be complied
with or satisfied by it hereunder.
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4.12 Indemnification.
(a) BMG agrees that all rights to indemnification or exculpation now
existing in favour of the directors or officers (the "INDEMNIFIED PARTIES")
of Hemlo Gold or any Hemlo Gold Subsidiary as provided in its articles of
incorporation or by-laws, a copy of which has been provided to BMG prior to
the date of the execution of this Agreement, in effect on the date hereof
shall survive the Arrangement and shall continue in full force and effect
for a period of not less than six years from the Effective Time and BMG
hereby assumes, effective upon consummation of the Arrangement, all such
liability with respect to any matters arising prior to the Effective Time.
(b) There shall be maintained in effect, for not less than six years
from the Effective Time, coverage equivalent to that in effect under the
current policies of the directors' and officers' liability insurance
maintained by Hemlo Gold which is no less advantageous, and with no gaps or
lapses in coverages with respect to matters occurring prior to the
Effective Time.
4.13 Closing; Listing. Subject to the termination of this Agreement as
provided in Article 8, the closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place at the offices of Baker & Botts,
L.L.P, Houston, Texas on a date (the "CLOSING DATE") and at a time to be
mutually agreed upon by the parties, which date shall be no later than the third
business day after all conditions to Closing set forth herein shall have been
satisfied or waived, unless another place, time and date is mutually selected by
BMG and Hemlo Gold. Concurrently with the Closing, the Plan of Arrangement will
be filed with the Ministry of Consumer and Commercial Relations of the Province
of Ontario. BMG will cause the shares of BMG Common Stock issuable from time to
time upon exchange of the Exchangeable Shares to be listed upon the Closing on
the NYSE. BMG will cause the Exchangeable Shares to be listed upon the Closing
on the TSE or other Canadian securities exchange approved by BMG and Hemlo Gold.
4.14 Continued Hemlo Gold Operations. BMG does not presently have any plan
or intention to liquidate Hemlo Gold, to merge Hemlo Gold with or into another
corporation, or to sell or otherwise dispose of any of the stock of Hemlo Gold
(whether acquired pursuant to the Arrangement or pursuant to the exchange of any
shares of Hemlo Gold stock for shares of BMG stock).
4.15 Certain Employee Benefit Matters. If there are any employee benefit
plans in which employees of Hemlo Gold or any Hemlo Gold Subsidiary, on the one
hand, and employees of any other company, on the other hand, participate, then
appropriate arrangements shall be made for the separation of such plans
following the consummation of the Arrangement and such transitional arrangements
as may be appropriate.
4.16 Action Under Nevada Statute. BMG will, prior to the Effective Date,
take the necessary action pursuant to paragraph 1 of NRS 78.378 so that its
bylaws will provide, on the date specified therein, that the provisions of NRS
78.378 to 78.3793, inclusive, shall not apply to the acquisition by Noranda of
up to 65,242,526 Exchangeable Shares or shares of BMG Common Stock in the
Arrangement (including shares of BMG Common Stock issuable upon exchange for
such Exchangeable Shares).
4.17 Governance. Upon the Effective Time, the BMG Board shall consist of
twelve persons, six of whom shall be members of BMG's current Board of Directors
and six of whom shall be designated by Hemlo Gold's current Board of Directors,
such allocation to be applicable as nearly as practicable on a proportionate
basis to directors of each of the three classes into which the BMG Board is
divided. BMG shall use commercially reasonable efforts to restructure the BMG
Board as provided in this Section 4.17 concurrently with the Closing. Following
the Effective Time, Karl E. Elers shall be Chairman and Ian Bayer shall be
President of BMG and those two officers shall establish an office of the Chief
Executive with officers from BMG and Hemlo Gold to manage BMG, Hemlo Gold and
their respective subsidiaries.
4.18 Registration. To the extent that Noranda desires to sell any
Exchangeable Shares acquired pursuant to the Arrangement or shares of BMG Common
Stock issued pursuant to the retraction and exchange rights and other provisions
in respect of such Exchangeable Shares (including any securities issuable as a
stock dividend or other distribution on, or in subdivision, combination or
reclassification, of the foregoing and any other securities into which such
shares may be changed or for which such securities may be exchanged) following
the first publication of financial statements that include the combined
financial results of
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BMG and Hemlo Gold for a period of at least 30 days, BMG shall provide Noranda
with registration rights under United States law and registration and prospectus
rights under Canadian law with respect to the Exchangeable Shares or the BMG
Common Stock (the "REGISTRATION RIGHTS"). The Registration Rights shall include
up to five demand registrations, subject to reasonable separation requirements,
blackout periods and postponement rights (provided that a demand shall count
against the five demands for registration only to the extent that such
registration becomes effective or to the extent it is withdrawn at the request
of Noranda), an unlimited number of piggyback registrations with respect to
common equity offerings by BMG (subject to priority and cutback provisions in
favour of BMG and proration with other holders to whom BMG may grant such
rights), customary reciprocal indemnification provisions (which shall provide,
among other things, that Noranda shall only be responsible for information
provided by it for inclusion in the disclosure documents), and other customary
provisions. This covenant shall survive so long as Noranda owns Exchangeable
Shares acquired in the Arrangement or BMG Common Stock issued in exchange
therefor entitling Noranda to "beneficial ownership" within the meaning of Rule
13d-3 under the Exchange Act of more than 5% of the outstanding Exchangeable
Shares and shares of BMG Common Stock, considered as one class.
4.19 Tax Cooperation. BMG shall, at or prior to the Closing, execute and
deliver a tax cooperation agreement substantially in the form set forth in
Exhibit 4.19, at the request (given to BMG not less than two business days prior
to the Closing) and for the benefit of any person who is a nonresident alien
individual or a foreign corporation, within the meaning of section 897(a)(1) of
the Code, and who acquires in the Arrangement ownership of at least that number
(the "MINIMUM NUMBER") of the Exchangeable Shares issued by Hemlo pursuant to
the Arrangement that are exchangeable pursuant to any provision of the Plan of
Arrangement, the Exchangeable Share Provisions or the Voting, Support and
Exchange Trust Agreement into more than 5% of the number of shares of Battle
Mountain Common Stock outstanding at the Effective Time (on a non-diluted
basis). For this purpose, ownership shall mean beneficial ownership within the
contemplation of section 897 of the Code, and the constructive ownership rules
of section 897(c)(6)(C) of the Code shall apply. Any person who is entitled to
enter into, and who requests that BMG execute and deliver a tax cooperation
agreement in accordance with this Section 4.19, shall be referred to as an
"INITIAL 5% HOLDER."
ARTICLE 5
BREAK-UP FEES
5.1 Fee on Termination by Reason of Recommendation. If this Agreement is
terminated pursuant to Section 8.1(g) or Section 8.1(h), Hemlo Gold shall pay to
BMG an additional fee of $20 million (by wire transfer in immediately available
funds) within two days of providing the recommendation that is the basis for the
termination. BMG shall not be entitled to receive any payment under this Section
5.1 if, at the time of delivery of applicable notice of termination pursuant to
Section 8.2, BMG is in material breach of this Agreement or BMG's stockholders
have disapproved the Agreement and the BMG Charter Changes.
5.2 Fee on Consummation. If, within the period commencing the date hereof
and ending twelve months after any termination of the Agreement pursuant to
Section 8.1(g) or Section 8.1(h), a Hemlo Gold Competing Transaction is
consummated, then Hemlo Gold shall pay to BMG an additional fee of $42.5 million
less any fees previously paid under Section 5.1 or Section 8.4(a) (by wire
transfer in immediately available funds) either before or simultaneously with
the consummation of the Hemlo Gold Competing Transaction. Hemlo Gold agrees that
the payment of the fee to BMG required under this Section 5.2 shall be a
condition precedent to consummating the Hemlo Gold Competing Transaction. BMG
shall not be entitled to receive any payment under this Section 5.2 if, at the
time of delivery of applicable notice of termination pursuant to Section 8.2,
BMG is in material breach of this Agreement or BMG's stockholders have
disapproved the Agreement and the BMG Charter Changes.
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ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF HEMLO
The obligations of Hemlo Gold hereunder are subject to the fulfilment or
satisfaction on or before the Closing, of each of the following conditions (any
one or more of which may be waived by Hemlo Gold, but only in a writing signed
by Hemlo Gold):
6.1 Accuracy of Representations and Warranties. The representations and
warranties of BMG set forth in Article 3 (as qualified by the introduction to
Article 3) shall be true and accurate when made and on and as of the Closing
Date with the same force and effect as if they had been made at the Closing
except to the extent 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 BMG, and Hemlo Gold shall receive a certificate to
such effect executed by BMG's Chief Executive Officer and Chief Financial
Officer.
6.2 Covenants. BMG 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 Closing, and Hemlo Gold
shall receive a certificate to such effect signed by BMG's Chief Executive
Officer and Chief Financial Officer.
6.3 Absence of Material Adverse Change. 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 BMG.
6.4 Compliance with Law. There shall be no order, decree or ruling by any
governmental agency or threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Arrangement, which would
prohibit or render illegal the transactions contemplated by this Agreement.
6.5 Government Consents. There shall have been obtained on or before the
Closing such material permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Arrangement by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to requirements under applicable
federal, provincial and state securities laws and the compliance with, and
expiration or termination of any applicable waiting period under, the HSR Act or
the Investment Canada Act.
6.6 SEC Filings. The Form F-4 and Form S-3, 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 Joint Proxy Statement
shall on the Closing not be subject to any similar proceedings commenced or
threatened by the SEC or the OSC.
6.7 Shareholder Approval. This Agreement and the Arrangement shall have
been approved and adopted by the Hemlo Gold shareholders in accordance with the
rules of the TSE and the Amex, applicable law and Hemlo Gold's articles of
incorporation and bylaws.
6.8 BMG Approvals. This Agreement and the BMG Charter Changes shall have
been approved by the BMG stockholders in accordance with the rules of the NYSE,
applicable law and BMG's articles of incorporation and bylaws.
6.9 No Legal Action. No temporary restraining order, preliminary injunction
or permanent injunction or other order preventing the consummation of the
Arrangement shall have been issued by any Canadian or U.S. federal, provincial
or state court and remain in effect, nor shall any proceeding be pending which
is reasonably likely to result in any of the foregoing.
6.10 Tax Opinion. Hemlo Gold shall have received (i) an opinion reasonably
satisfactory to Hemlo Gold of McCarthy Tetrault, counsel for Hemlo Gold, to the
effect that the Arrangement will be generally treated for Canadian federal
income tax purposes as a reorganization of capital for those Hemlo Gold
Shareholders who hold their Hemlo Gold Common Shares as capital property for
purposes of the ITA to the extent that Exchangeable Shares are received in
exchange for Hemlo Gold Common Shares, and such other
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opinions as are customary in these transactions and (ii) an opinion reasonably
satisfactory to Hemlo Gold from Fried, Frank, Harris, Shriver & Jacobson,
counsel for Hemlo Gold, to the effect that, although not free from doubt, the
Arrangement should generally be treated for U.S. federal income tax purposes as
a tax-free reorganization under section 368(a) (1)(E) of the Code to the extent
that Exchangeable Shares are received in exchange for Hemlo Gold Common Shares.
6.11 Pooling Opinion. BMG shall have received from Price Waterhouse LLP an
opinion, in form and substance satisfactory to Hemlo Gold and BMG, that the
Arrangement will be treated as a "pooling of interests" for purposes of U.S.
GAAP, and Hemlo Gold shall have received from Ernst & Young an opinion, in form
and substance satisfactory to Hemlo Gold, that no matters have come to their
attention as a result of performing certain agreed upon procedures which would
preclude BMG from accounting for the Arrangement as a "pooling of interests"
under U.S. GAAP.
6.12 Court Approval. The Court shall have issued its final order approving
the Arrangement and such order shall (a) not impose any material conditions or
costs, (b) be in form and substance reasonably satisfactory to BMG and Hemlo
Gold (such approvals not to be unreasonably withheld or delayed by BMG or Hemlo
Gold) and (c) reflect the terms hereof.
6.13 OSC, Etc. All necessary orders shall have been obtained from the OSC
and other relevant Canadian securities regulatory authorities in connection with
the Arrangement. BMG and Hemlo Gold shall each have filed all notices and
information (if any) required under Part IX of the Competition Act (Canada) and
the applicable waiting periods and any extensions thereof shall have expired or
the parties shall have received an Advance Ruling Certificate pursuant to
section 102 of the Competition Act (Canada) setting out that the Director under
such Act is satisfied that he would not have sufficient grounds on which to
apply for an order in respect of the Arrangement. The Arrangement shall have
received the allowance or approval or deemed allowance or approval by the
responsible Minister under the Investment Canada Act in respect of the
Arrangement, to the extent such allowance or approval is required, and such
allowance or approval shall (a) not impose any material conditions or costs and
(b) be on terms and conditions reasonably satisfactory to the parties (such
approvals not to be unreasonably withheld or delayed).
6.14 Appointment to BMG Board. The restructuring of the BMG Board and
management provided for in Section 4.17 shall be effected concurrently with the
Closing.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF BMG
The obligations of BMG hereunder are subject to the fulfilment or
satisfaction on or before the Closing, of each of the following conditions (any
one or more of which may be waived by BMG, but only in a writing signed by BMG):
7.1 Accuracy of Representations and Warranties. The representations and
warranties of Hemlo Gold set forth in Article 2 (as qualified by the
introduction to Article 2) shall be true and accurate when made and on and as of
the Closing Date with the same force and effect as if they had been made at the
Closing except to the extent 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 Hemlo Gold, and BMG shall receive a certificate to
such effect executed by Hemlo Gold's Chief Executive Officer and Chief Financial
Officer.
7.2 Covenants. Hemlo Gold 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 Closing, and BMG shall
receive a certificate to such effect signed by Hemlo Gold's Chief Executive
Officer and Chief Financial Officer.
7.3 Absence of Material Adverse Change. 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 Hemlo Gold.
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7.4 Compliance with Law. There shall be no order, decree or ruling by any
governmental agency or threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Arrangement, which would
prohibit or render illegal the transactions contemplated by this Agreement.
7.5 Government Consents. There shall have been obtained on or before the
Closing such material permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Arrangement by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to requirements under applicable
federal, provincial and state securities laws and the compliance with, and
expiration or termination of any applicable waiting period under, the HSR Act or
the Investment Canada Act.
7.6 SEC Filings. The Form F-4 and Form S-3, 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 Joint Proxy Statement
shall on the Closing not be subject to any similar proceedings commenced or
threatened by the SEC or the OSC.
7.7 Stockholder Approval. This Agreement and the BMG Charter Changes shall
have been approved and adopted by the BMG stockholders in accordance with the
rules of the NYSE, applicable law and BMG's articles of incorporation and
bylaws.
7.8 Hemlo Gold Approvals. This Agreement and the Arrangement shall have
been approved and adopted by the Hemlo Gold shareholders in accordance with the
rules of the TSE, applicable law and Hemlo Gold's articles of incorporation and
bylaws, and Hemlo Gold shall not have received on or prior to the Effective Time
notice from the holders of more than 8% of the Hemlo Gold Common Shares of their
intention to exercise their rights of dissent under section 185 of the OBCA.
7.9 No Legal Action. No temporary restraining order, preliminary injunction
or permanent injunction or other order preventing the consummation of the
Arrangement shall have been issued by any U.S. or Canadian federal, provincial
or state court and remain in effect, nor shall any proceeding be pending which
is reasonably likely to result in any of the foregoing.
7.10 Pooling Opinion. BMG shall have received from Price Waterhouse LLP an
opinion, in form and substance satisfactory to BMG, that the Arrangement will be
treated as a "pooling of interests" for purposes of U.S. GAAP, and Hemlo Gold
shall have received from Ernst & Young an opinion, in form and substance
satisfactory to Hemlo Gold, that no matters have come to their attention as a
result of performing certain agreed upon procedures which would preclude BMG
from accounting for the Arrangement as a "pooling of interests" under U.S. GAAP.
7.11 Affiliate Agreements. BMG shall have received executed originals of
all of the Hemlo Gold Affiliate Agreements.
7.12 Court Approval. The Court shall have issued its final order approving
the Arrangement and such order shall (a) not impose any material conditions or
costs, (b) be in form and substance reasonably satisfactory to BMG and Hemlo
Gold (such approvals not to be unreasonably withheld or delayed by BMG or Hemlo
Gold) and (c) reflect the terms hereof.
7.13 OSC, Etc. All necessary orders shall have been obtained from the OSC
and other relevant Canadian securities regulatory authorities in connection with
the Arrangement. BMG and Hemlo Gold shall each have filed all notices and
information (if any) required under Part IX of the Competition Act (Canada) and
the applicable waiting periods and any extensions thereof shall have expired or
the parties shall have received an Advance Ruling Certificate pursuant to
section 102 of the Competition Act (Canada) setting out that the Director under
such Act is satisfied that he would not have sufficient grounds on which to
apply for an order in respect of the Arrangement. The Arrangement shall have
received the allowance or approval or deemed allowance or approval by the
responsible Minister under the Investment Canada Act in respect of the
Arrangement, to the extent such allowance or approval is required, and such
allowance or approval shall (a) not impose any material conditions or costs and
(b) be on terms and conditions reasonably satisfactory to the parties (such
approvals not to be unreasonably withheld or delayed).
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ARTICLE 8
TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Arrangement by the
stockholders of BMG or Hemlo Gold:
(a) by mutual agreement of Hemlo Gold and BMG;
(b) by Hemlo Gold, if there has been a breach by BMG of any
representation, warranty, covenant or agreement set forth in this Agreement
on the part of BMG, or if any representation of BMG shall have become
untrue, in either case which has or is likely to have a Material Adverse
Effect on BMG and which BMG fails to cure within 15 business days after
written notice thereof from Hemlo Gold (except that no cure period shall be
provided for a breach by BMG which by its nature cannot be cured);
(c) by BMG, if there has been a breach by Hemlo Gold of any
representation, warranty, covenant or agreement set forth in this Agreement
on the part of Hemlo Gold, or if any representation of Hemlo Gold shall
have become untrue, in either case which has or is likely to have a
Material Adverse Effect on Hemlo Gold and which Hemlo Gold fails to cure
within 15 business days after written notice thereof from BMG (except that
no cure period shall be provided for a breach by Hemlo Gold which by its
nature cannot be cured);
(d) by either party (provided that such party is not then in breach of
this Agreement) if the shareholders of Hemlo Gold do not approve the
Arrangement at the Hemlo Gold Shareholders Meeting or the stockholders of
BMG do not approve at the BMG Stockholders Meeting this Agreement and the
BMG Charter Changes;
(e) by either Hemlo Gold or BMG, if all the conditions for Closing the
Arrangement shall not have been satisfied or waived on or before 5:00 p.m.,
Houston time on August 31, 1996, other than as a result of a breach of this
Agreement by the terminating party, or in the case of termination by Hemlo
Gold, a breach by Noranda of the Side Letter of Support for the Transaction
or, in the case of either party, a breach by any of its Affiliates of the
Affiliate Agreements referred to in Section 4.3;
(f) by either 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 nonappealable which would (i) make illegal
or otherwise restrain or prohibit the consummation of the Arrangement, (ii)
prohibit BMG's ownership or operation of all or any material portion of the
business or assets of Hemlo Gold or (iii) compel BMG to dispose of or hold
separate all or any material portion of the business or assets of Hemlo
Gold;
(g) by BMG, if the Hemlo Gold Board shall have made any recommendation
to the shareholders of Hemlo Gold against the Arrangement or in support of
a Hemlo Gold Competing Transaction (a "HEMLO GOLD COMPETING TRANSACTION
TERMINATION");
(h) by Hemlo Gold, if the Hemlo Gold Board determines in good faith,
after consultation with its outside legal counsel, that it is required by
its fiduciary duties to recommend to the Hemlo Gold Shareholders that they
vote against the Arrangement and approve instead a Hemlo Gold Competing
Transaction that the Hemlo Gold Board has determined in good faith, after
consultation with its outside financial advisors, is financially more
favourable to the Hemlo Gold Shareholders than the Arrangement (including
any adjustment to the terms and conditions of the Arrangement proposed by
BMG in response to such Hemlo Gold Competing Transaction), is the subject
of a firm written offer from a third party that is capable of consummating
such Hemlo Gold Competing Transaction and is likely to be successful,
taking into account any amendments to the Plan of Arrangement contemplated
by Section 4.9(c), the Side Letter of Support for the Transaction and the
valid and binding character thereof (a "SUPERIOR PROPOSAL TERMINATION"),
provided that a Superior Proposal Termination shall not be effected until
at least two business days following delivery to BMG of the notice
contemplated by Section 4.9(f)(i);
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(i) by BMG, if the BMG Board determines in good faith, after
consultation with its outside legal counsel, that it is required by its
fiduciary duties to recommend to the BMG Stockholders that they vote
against approval of this Agreement and the BMG Charter Changes and approve
instead a BMG Competing Transaction in which a third party is to acquire
(whether by way of take-over bid, tender offer, purchase of capital stock,
merger, consolidation, purchase of assets or otherwise) all or
substantially all of the business of BMG and which requires that BMG
terminate this Agreement as a condition of the consummation of such
transaction which the BMG Board determines in good faith, after
consultation with its outside financial advisors, is financially more
favourable to the BMG stockholders than the transaction with Hemlo Gold
contemplated by this Agreement, and which is the subject of a firm written
offer from a third party that is capable of consummating such alternative
transaction and is likely to be successful (each an "INCONSISTENT
TRANSACTION" and the termination of this Agreement under such circumstances
an "INCONSISTENT TRANSACTION TERMINATION"); or
(j) by Hemlo Gold, if the BMG Board shall have made any recommendation
to the shareholders of BMG against the Arrangement or in support of a BMG
Competing Transaction (a "BMG COMPETING TRANSACTION TERMINATION").
8.2 Notice of Termination. Any termination of this Agreement under Section
8.1 above will be effective by the delivery of written notice by the terminating
party to the other party hereto.
8.3 Effect of Termination. In the case of any termination of this Agreement
as provided in this Article 8, this Agreement shall be of no further force and
effect (except as provided in Article 5, Section 8.4 and Article 10) and nothing
herein shall relieve any party from liability for any breach of this Agreement.
No termination of this Agreement shall affect the obligations contained in the
separate Nondisclosure Agreement between Hemlo Gold and BMG (the "NONDISCLOSURE
AGREEMENT").
8.4 Termination Fees.
(a) If this Agreement is terminated (i) by BMG pursuant to Section
8.1(c) as a result of a breach by Hemlo Gold of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of
Hemlo Gold, (ii) by either party pursuant to Section 8.1(d) as a result of
the failure of Hemlo Gold's shareholders to approve the Arrangement, (iii)
by BMG pursuant to a Hemlo Gold Competing Transaction Termination under
Section 8.1(g), or (iv) by Hemlo Gold pursuant to a Superior Proposal
Termination under Section 8.1(h), then Hemlo Gold shall pay to BMG (by wire
transfer of immediately available funds) a fee of $5 million within two
business days of the delivery of the notice of termination pursuant to
Section 8.2. BMG shall not be entitled to receive any payment under this
Section 8.4(a) if, at the time of delivery of the applicable notice of
termination pursuant to Section 8.2, BMG is in material breach of this
Agreement or BMG's stockholders have disapproved the Agreement and the BMG
Charter Changes.
(b) If this Agreement is terminated (i) by Hemlo Gold pursuant to
Section 8.1(b) as a result of a breach by BMG of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of
BMG, (ii) by either party pursuant to Section 8.1(d) as a result of the
failure of BMG's stockholders to approve this Agreement and the BMG Charter
Changes, (iii) by Hemlo Gold pursuant to a BMG Competing Transaction
Termination under Section 8.1(j), or (iv) by BMG pursuant to an
Inconsistent Transaction Termination under Section 8.1(i), then BMG shall
pay to Hemlo Gold (by wire transfer of immediately available funds) a fee
of $5 million. Hemlo Gold shall not be entitled to receive any payment
under this Section 8.4(b) if, at the time of delivery of the applicable
notice of termination pursuant to Section 8.2, Hemlo Gold is in material
breach of this Agreement or Hemlo Gold's shareholders have disapproved the
Arrangement.
(c) The parties' obligations to pay the termination fees set forth in
this Section 8.4 and in Sections 5.1 and 5.2 are in lieu of any damages or
any other payment which such party might otherwise be obligated to pay to
the other party as a result of any termination for which payment is due
under such sections, respectively. Hemlo Gold and BMG agree that, in view
of the nature of the issues likely to arise in the event of such a
termination, it would be impracticable or extremely difficult to fix the
actual
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damages resulting from such termination and proving actual damages,
causation and foreseeability in the case of such termination would be
costly, inconvenient and difficult. In requiring a party to pay a
termination fee as set forth herein, it is the intent of the parties to
provide, as of the date of this Agreement, for a liquidated amount of
damages to be paid by such party to the other party. Such liquidated amount
shall be deemed full and adequate damages for such termination and is not
intended by either party to be a penalty.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS
All representations, warranties and covenants of the parties contained in
this Agreement will remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the parties to this Agreement, until
the earlier of the termination of this Agreement or the Closing Date, whereupon
such representations, warranties and covenants will expire (except for covenants
that by their terms survive for a longer period).
ARTICLE 10
MISCELLANEOUS
10.1 Governing Law. The internal laws of the State of New York
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms and the interpretation and enforcement
of the rights and duties of the parties hereto, except to the extent mandatorily
governed by the laws of Ontario or the laws of Nevada.
10.2 Assignment; Binding Upon Successors and Assigns. Neither party hereto
may assign any of its rights or obligations hereunder without the prior written
consent of the other party hereto. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
10.3 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the greatest extent possible, the economic, business and
other purposes of the void or unenforceable provision.
10.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all the parties reflected hereon as signatories.
10.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
10.6 Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
The Agreement may be amended by the parties hereto at any time before or after
approval of the Hemlo Gold Shareholders or the BMG Stockholders, but, after such
approval, no amendment will be made which by applicable law requires the further
approval of the Hemlo Gold Shareholders or the BMG Stockholders without
obtaining such further approval.
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10.7 Expenses. Each party will bear its respective expenses and legal fees
incurred with respect to this Agreement, and the transactions contemplated
hereby.
10.8 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
10.9 Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally recognized overnight courier or by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following address (or at such other address for a party as shall be
specified by like notice):
<TABLE>
<S> <C> <C>
If to Hemlo Gold: Hemlo Gold Mines Inc.
Suite 2902
1 Adelaide Street East
Toronto, Ontario
Canada MSC 2Z9
Attention: General Counsel
Telecopier: (416) 982-7388
With a copy to: McCarthy Tetrault Fried, Frank, Harris, Shriver &
Suite 4700 Jacobson
Toronto Dominion Bank Tower One New York Plaza
Toronto-Dominion Centre New York, New York 10004-1980
Toronto, Ontario Attention: Kenneth Blackman
Canada M5K 1E6 Telecopier: (212) 859-4000
Attention: Daryl E. McLean
Telecopier: (416) 868-0673
If to BMG: Battle Mountain Gold Company
42nd Floor
333 Clay Street
Houston, Texas 77002-4103
Attention: General Counsel
Telecopier: (713) 650-3636
With a copy to: Baker & Botts, L.L.P. Goodman, Phillips & Vineberg
One Shell Plaza 250 Yonge Street, Suite 2400
910 Louisiana Toronto, Ontario
Houston, Texas 77002-4995 Canada M5B 2M6
Attention: C. Michael Watson Attention: Stephen H. Halperin
Telecopier: (713) 229-1522 Telecopier: (416) 979-1234
</TABLE>
All such notices and other communications shall be deemed to be effective
upon receipt by the party to whom given.
10.10 Construction of Agreement. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a section or an exhibit
will mean a section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
10.11 No Joint Venture. Nothing contained in this Agreement will be deemed
or construed as creating a joint venture or partnership between any of the
parties. No party is by virtue of this Agreement authorized as
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an agent, employee or legal representative of any other party. No party will
have the power to control the activities and operations of any other and the
status of each is, and at all times, will continue to be, that of an independent
contractor with respect to the other. No party will have any power or authority
to bind or commit any other. No party will hold itself out as having any
authority or relationship in contravention of this section.
10.12 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.
10.13 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder or partner of any party or any other person or
entity unless specifically provided otherwise herein and, except as so provided,
all provisions hereof will be personal solely between the parties to this
Agreement. Anything contained herein to the contrary notwithstanding, (a) the
Indemnified Parties are intended beneficiaries of Section 4.12, and (b) Noranda
is an intended beneficiary of Section 4.18.
10.14 Public Announcement. Upon execution of this Agreement, BMG and Hemlo
Gold promptly will issue a joint press release approved by both parties
announcing the Arrangement. Thereafter, BMG or Hemlo Gold may issue such press
releases, and make such other disclosures regarding the Arrangement, as it
determines (after consultation with legal counsel) are required under applicable
securities laws or by the NYSE or the TSE rules; provided that to the extent
reasonably practicable each party making any such disclosure will provide
advance notice to the other of the form and content of any such disclosure and
opportunity to comment promptly thereon, and shall in any case promptly deliver
a copy of such disclosure in the form released to the other party.
10.15 Entire Agreement. This Agreement and the exhibits hereto constitute
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto other than the Nondisclosure Agreement,
which shall remain in full force and effect. The express terms hereof control
and supersede any course of performance or usage of the trade inconsistent with
any of the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Combination
Agreement as of the date first above written.
<TABLE>
<S> <C>
BATTLE MOUNTAIN GOLD COMPANY HEMLO GOLD MINES INC.
By: /s/ Karl E. Elers By: /s/ Ian D. Bayer
---------------------------------------- -------------------------------------------
Chief Executive Officer President and Chief Executive Officer
By: /s/ Michael C. Proctor
-------------------------------------------
Vice President -- Finance
</TABLE>
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<PAGE> 307
ANNEX D
PLAN OF ARRANGEMENT
<PAGE> 308
PLAN OF ARRANGEMENT
UNDER SECTION 182
OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
ARTICLE 1
INTERPRETATION
1.1 Definitions.
In this Plan of Arrangement unless something in the subject matter or
context is inconsistent therewith:
"Arrangement" means the arrangement under section 182 of the OBCA on
the terms and subject to the conditions set out in this Plan of
Arrangement, subject to any amendments thereto made in accordance with
section 5.1 or made at the direction of the Court in the Final Order.
"Battle Mountain" means Battle Mountain Gold Company, a corporation
existing under the laws of the State of Nevada.
"Battle Mountain Common Stock" means the shares of Common Stock of
Battle Mountain, par value US$0.10 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 Battle
Mountain 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 an amalgamation, merger, liquidation or similar transaction
affecting, such shares.
"Battle Mountain Sub" means Battle Mountain Canada Holdco, Inc., an
indirect wholly-owned Subsidiary of Battle Mountain existing under the laws
of the State of Nevada, none of the stock of which is directly owned by
Battle Mountain.
"Business Day" means any day other than a Saturday, a Sunday or a day
when banks are not open for business in either or both of Houston, Texas
and Toronto, Ontario.
"Canada Holdco" means a single wholly-owned subsidiary (within the
meaning of the OBCA) of Battle Mountain incorporated under the federal laws
of Canada or a province thereof.
"Corporation" means Hemlo Gold Mines Inc., a corporation existing
under the laws of the Province of Ontario.
"Court" means the Ontario Court of Justice (General Division).
"Current Market Price" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
"Depositary" means The R-M Trust Company at its principal office in
Toronto, Ontario.
"Dissent Procedures" means the procedures referred to in section 3.1.
"Effective Date" means the date shown on the certificate of
arrangement issued by the Director under the OBCA giving effect to the
Arrangement.
"Effective Time" means 12:01 a.m. (Toronto time) on the Effective
Date.
"Exchangeable Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares, which are
set forth in subparagraph 4(9) of Appendix A hereto.
"Exchangeable Shares" means the Exchangeable Shares of the
Corporation.
"Final Order" means the final order of the Court approving the
Arrangement as such order may be amended by the Court at any time prior to
the Effective Time.
"Hemlo Gold Common Shares" means the Common Shares of the Corporation.
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<PAGE> 309
"Meeting" means the annual and special meeting of the shareholders of
the Corporation to be held to consider the Arrangement.
"OBCA" means the Business Corporations Act (Ontario), as amended.
"Proxy Statement" means the Joint Management Information Circular and
Proxy Statement of the Corporation and Battle Mountain dated June 7, 1996.
"Subsidiary" means, when used with reference to Battle Mountain, any
corporation more than 50% of the outstanding stock of which, by vote or by
value, is owned, directly or indirectly, by Battle Mountain, by one or more
other Subsidiaries of Battle Mountain, or by Battle Mountain and one or
more other Subsidiaries of Battle Mountain.
"Transfer Agent" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
1.2 Sections and Headings.
The division of this Plan of Arrangement into articles and sections and the
insertion of headings are for reference purposes only and shall not affect the
interpretation of this Plan of Arrangement. Unless otherwise indicated, any
reference in this Plan of Arrangement to an article, section or Appendix refers
to the specified article or section of or Appendix to this Plan of Arrangement.
1.3 Number, Gender and Persons.
In this Plan of Arrangement, 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. Notwithstanding the
provisions of Article 4, any cheque deliverable to a holder of Exchangeable
Shares whose address as recorded in the securities register of the Corporation
is in the United States shall be payable in U.S. dollars.
ARTICLE 2
ARRANGEMENT
2.1 Binding Effect.
This Plan will become effective on, and be binding on and after, the
Effective Time on (i) the Corporation, (ii) Battle Mountain and its
Subsidiaries, (iii) all holders of Hemlo Gold Common Shares and (iv) all holders
of Exchangeable Shares.
2.2 Events Sequential.
At the Effective Time, each of the provisions of this Article 2 shall occur
and be deemed to occur in the order set out below, without any further act or
formality.
2.3 Amendment of Articles.
The articles of the Corporation shall be amended as set out in the articles
of amendment annexed as Appendix A hereto.
D-2
<PAGE> 310
2.4 Issue of Common Shares.
The Corporation shall issue to Battle Mountain 100 Hemlo Gold Common Shares
in consideration of the delivery by Battle Mountain to the Corporation of 148
shares of Battle Mountain Common Stock. The amount added to the stated capital
account maintained for the Hemlo Gold Common Shares with respect to the Hemlo
Gold Common Shares issued pursuant to this section 2.4 shall be equal to the
product obtained when the Current Market Price on the Effective Date is
multiplied by 148.
2.5 Exchange of Hemlo Gold Common Shares.
(1) Each Hemlo Gold Common Share (other than the Hemlo Gold Common Shares
held by Battle Mountain and by holders who have exercised their rights of
dissent in accordance with Article 3 and who are ultimately entitled to be paid
fair value for such shares) shall be exchanged for 1.48 fully paid and non-
assessable Exchangeable Shares.
(2) Upon the exchange referred to in section 2.5(1), each holder of a Hemlo
Gold Common Share whose share is so exchanged shall be deemed to grant the call
rights set out in Articles 5, 6 and 7 of the Exchangeable Share Provisions,
shall cease to be such a holder, shall have its name removed from the register
of holders of Hemlo Gold Common Shares and shall become a holder of the number
of Exchangeable Shares to which such holder is entitled as a result of the
exchange referred to in section 2.5(1) and such holder's name shall be added to
the register of holders of Exchangeable Shares accordingly.
(3) The amount added to the stated capital account maintained for the
Exchangeable Shares with respect to the Exchangeable Shares issued pursuant to
this section 2.5 shall be equal to the aggregate amount of stated capital
attributable to the Hemlo Gold Common Shares that are exchanged for Exchangeable
Shares pursuant to this section 2.5.
2.6 Battle Mountain Common Stock held by Corporation.
The Corporation shall distribute the 148 shares of Battle Mountain Common
Stock held by the Corporation to Battle Mountain for no consideration.
2.7 Exchange and Call Rights
Each of Battle Mountain and Battle Mountain Sub shall be entitled to
enforce the exchange right and call rights set out in Articles 5, 6 and 7 of the
Exchangeable Share Provisions and in exercising such rights neither Battle
Mountain nor Battle Mountain Sub will be required to purchase Exchangeable
Shares from itself, the other or Canada Holdco.
ARTICLE 3
RIGHTS OF DISSENT
3.1 Rights of Dissent.
(1) Holders of Hemlo Gold 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 section 185 of the OBCA except that, notwithstanding the
provisions of section 185 of the OBCA, holders who duly exercise such rights of
dissent and who:
(a) are ultimately entitled to be paid fair value for their Hemlo Gold
Common Shares shall (i) be deemed to have transferred their Hemlo Gold
Common Shares to Hemlo Gold for cancellation and such shares shall be
cancelled at the Effective Time and (ii) not be entitled to any other
payment or consideration including any payment that would be payable under
the Arrangement had such holders not exercised their right of dissent; or
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<PAGE> 311
(b) are ultimately not entitled, for any reason, to be paid fair value
for their Hemlo Gold Common Shares shall be deemed to have participated in
the Arrangement on the same basis as any non-dissenting holder of Hemlo
Gold Common Shares, including receiving Exchangeable Shares pursuant to
section 2.5.
In no case shall the Corporation be required to recognize such holders as
holders of Hemlo Gold Common Shares after the Effective Time, and the names of
such holders of Hemlo Gold Common Shares shall be deleted from the register of
holders of Hemlo Gold Common Shares at the Effective Time.
(2) Holders of Hemlo Gold Common Shares who are ultimately entitled to be
paid fair value for their Hemlo Gold Common Shares in accordance with section
3.1(1)(a) shall be paid by the Corporation with money provided by the
Corporation.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 Issuance of Certificates.
As soon as practicable after the Effective Date, the Corporation shall
deposit with the Depositary, for the benefit of the holders of Hemlo Gold Common
Shares exchanged pursuant to section 2.5, certificates representing the
Exchangeable Shares issued in exchange for their outstanding Hemlo Gold Common
Shares. Upon surrender to the Depositary for cancellation of a certificate which
immediately prior to the Effective Time represented outstanding Hemlo Gold
Common Shares that were exchanged for Exchangeable Shares, together with such
other documents and instruments as would have been required to effect the
transfer of the shares formerly represented by such certificate under the OBCA
and such additional documents and instruments as the Depositary and the
Corporation may reasonably require, the holder of such surrendered certificate
shall be entitled to receive in exchange therefor, and the Depositary shall
deliver to such holder, a certificate representing that number (rounded down to
the nearest whole number) of Exchangeable Shares that such holder has the right
to receive and a cheque for (i) any dividends or distributions with respect
thereto then payable pursuant to section 4.2 and (ii) any cash in lieu of a
fractional Exchangeable Share payable pursuant to section 4.3, and the
certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Hemlo Gold Common Shares that is not registered in the
transfer records of the Corporation, a certificate representing the proper
number of Exchangeable Shares may be issued to the transferee if the certificate
representing such Hemlo Gold Common Shares is presented to the Depositary
accompanied by all documents required by the Depositary and the Corporation to
evidence and effect such transfer. Until surrendered as contemplated by this
section 4.1, each certificate which immediately prior to the Effective Time
represented outstanding Hemlo Gold Common Shares that were exchanged for
Exchangeable Shares shall be deemed at any time after the Effective Time to
represent only the right to receive, upon such surrender, the certificate
representing Exchangeable Shares as contemplated by this section 4.1 and, at the
time or times set forth in section 4.2, a cheque for (i) any dividends or
distributions with a record date after the Effective Time theretofore paid or
payable with respect to Exchangeable Shares as contemplated by section 4.2 and
(ii) a cash payment in lieu of any fractional Exchangeable Share as contemplated
by section 4.3.
4.2 Distributions with Respect to Unsurrendered Certificates.
No dividends or other distributions declared or made after the Effective
Time with respect to Exchangeable Shares with a record date after the Effective
Time shall be paid to the holder of any unsurrendered certificate that,
immediately prior to the Effective Time, represented outstanding Hemlo Gold
Common Shares and no cash payment in lieu of any fractional share shall be paid
to any such holder pursuant to section 4.3, unless and until such certificate
shall be surrendered in accordance with section 4.1. 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 (i)
the amount of any cash payable in lieu of a fractional Exchangeable Share to
which such holder is entitled pursuant to section 4.3, (ii) the amount of
dividends or other distributions with a record
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date after the Effective Time theretofore paid with respect to such whole
Exchangeable Shares and (iii) the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole Exchangeable
Shares.
4.3 No Fractional Shares.
No certificates or scrip representing fractional Exchangeable Shares shall
be issued upon the surrender of certificates for exchange pursuant to section
4.1 and no dividend, stock split or other change in the capital structure of the
Corporation shall relate to any such fractional security and such fractional
interests shall not entitle the owner thereof to vote or to exercise any rights
as a security holder of the Corporation. In lieu of any such fractional
securities, each person entitled to a fractional interest in an Exchangeable
Share will receive an amount of cash (rounded to the nearest whole cent) equal
to the product obtained when such fraction is multiplied by the Current Market
Price on the Effective Date, such amount to be provided to the Depositary by the
Corporation upon request.
4.4 Lost Certificates.
If any certificate which immediately prior to the Effective Time
represented outstanding Hemlo Gold Common Shares that were exchanged pursuant to
section 2.5 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 Depositary will issue in exchange for such lost, stolen or
destroyed certificate, a certificate representing Exchangeable Shares (and a
cheque for any dividends or distributions with respect thereto pursuant to
section 4.2 and any cash for a fractional share pursuant to section 4.3)
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 is to be issued shall, as a condition precedent
to the issuance thereof, give a bond satisfactory to the Corporation and the
Depositary in such sum as the Corporation may direct or otherwise indemnify the
Corporation, Battle Mountain, Battle Mountain Sub and the Depositary in a manner
satisfactory to them against any claim that may be made against the Corporation,
Battle Mountain, Battle Mountain Sub or the Depositary with respect to the
certificate alleged to have been lost, stolen or destroyed.
4.5 Extinguishment of Rights.
Notwithstanding any of the other provisions hereof, any certificate which
immediately prior to the Effective Time represented outstanding Hemlo Gold
Common Shares that were exchanged pursuant to section 2.5 and has not been
surrendered with all other instruments required by section 4.1 on or prior to
the sixth anniversary of the Effective Date shall cease to represent a claim or
interest of any kind or nature as a shareholder of the Corporation. On such
date, the Exchangeable Shares to which the former registered holder of such
certificate was ultimately entitled shall be deemed to have been surrendered to
the Corporation together with all entitlements to dividends, distributions and
cash for fractional interests thereon held for such former registered holder for
no consideration.
ARTICLE 5
AMENDMENT
5.1 Plan of Arrangement Amendment.
(1) The Corporation reserves the right to amend, modify and/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 (i) agreed to by Battle Mountain, (ii) filed with the Court
and, if made following the Meeting, approved by the Court and (iii) communicated
to holders of Hemlo Gold Common Shares in the manner required by the Court (if
so required).
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(2) Any amendment, modification or supplement to this Plan of Arrangement
may be proposed by the Corporation at any time prior to or at the Meeting
(provided that Battle Mountain shall have consented thereto) with or without any
other prior notice or communication, and, if so proposed and accepted by the
persons voting at the Meeting (other than as may be required under the Court's
interim order), shall become part of this Plan of Arrangement for all purposes.
(3) Any amendment, modification or supplement to this Plan of Arrangement
that is approved by the Court following the Meeting shall be effective only (i)
if it is consented to by the Corporation, (ii) if it is agreed to by Battle
Mountain and (iii), if required by applicable law, it is approved as required by
the holders of the Hemlo Gold Common Shares or the Exchangeable Shares, as the
case may be.
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<TABLE>
<S> <C> <C>
Ontario Corporation Number
APPENDIX A Numero de la societe en Ontario
1108384
-------------------------------
</TABLE>
<TABLE>
<S> <C>
TRANS
CODE
C
18
</TABLE>
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
<TABLE>
<S> <C>
1. The present name of the Corporation is: Denomination sociale actuelle de la societe:
HEMLO GOLD MINES INC.
2. The name of the corporation is changed to Nouvelle denomination sociale de la societe
(if applicable): (s'il y a lieu):
BATTLE MOUNTAIN CANADA INC.
3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion:
1 JANUARY 1995
- ---------------------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are Les statuts de la compagnie sont modifies de
amended as follows: la facon suivante:
</TABLE>
Form 3
Business
Corporation
Act
Formule
numero 3
Loi
sur les
societes
par actions
(1) to change the name of the Corporation to Battle Mountain Canada
Inc.;
(2) to change the minimum number of directors to 3;
(3) to change the designation of the Subordinate Voting Participating
Shares to Subordinate Shares;
(4) to create an unlimited number of Exchangeable Shares;
(5) to declare that the capital of the Corporation after giving effect
to the foregoing consists of an unlimited number of Common Shares, an
unlimited number of Subordinate Shares, an unlimited number of Preferred
Shares and an unlimited number of Exchangeable Shares;
(6) to change the rights, privileges, restrictions and conditions
attaching to the Common Shares so as to provide that such rights,
privileges, restrictions and conditions are as follows:
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
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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 or series.
(7) to change the rights, privileges, restrictions and conditions
attaching to the Subordinate Shares as follows:
(a) by deleting clause 8(2)(b) and substituting therefor the
following:
"(b) Subordination: The Subordinate Shares shall rank junior to the
Exchangeable Shares to the same extent as the Common Shares."; and
(b) by deleting clauses 8(2)(c), (d) and (e);
(8) to change the rights, privileges, restrictions and conditions
attaching to the Preferred Shares as follows:
(a) by deleting clause 8(3)(a) and substituting therefor the
following:
"(a) Series: The Preferred Shares may at any time or from time
to time be issued in one or more series. The board may by resolution
fix from time to time before the issue thereof the number of shares
in, and determine the designation, rights, privileges, restrictions
and conditions attaching to the shares of, each series of Preferred
Shares."; and
(b) by deleting clauses 8(3)(b) and (c).
(9) to provide that the rights, privileges, restrictions and
conditions attaching to the Exchangeable Shares are as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In these Exchangeable Share Provisions, unless something in the subject
matter or context is inconsistent therewith:
"Automatic Exchange Right" has the meaning set out in Section 5.3(2).
"Battle Mountain" means Battle Mountain Gold Company, a corporation
existing under the laws of the State of Nevada, and any successor corporation.
"Battle Mountain Call Notice" has the meaning set out in Section 6.2(2).
"Battle Mountain Common Stock" means the shares of Common Stock of Battle
Mountain, par value US$0.10 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 Battle Mountain 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.
"Battle Mountain Dividend Declaration Date" means the date on which the
board of directors of Battle Mountain declares any dividend on the shares of
Battle Mountain Common Stock.
"Battle Mountain Liquidation Event" has the meaning set out in Section
5.3(1).
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"Battle Mountain Liquidation Event Effective Date" has the meaning set out
in Section 5.3(3).
"Battle Mountain Sub" means Battle Mountain Canada Holdco, Inc., an
indirect wholly-owned Subsidiary of Battle Mountain existing under the laws of
the State of Nevada, none of the stock of which is owned directly by Battle
Mountain.
"BMG Exercise Condition" means any of the following conditions with respect
to an Initial 5% Holder (the existence of which is established by delivery of an
Officer's Certificate):
(1) The receipt by such Initial 5% Holder of consideration from Battle
Mountain Sub in exchange for the Exchangeable Shares held by such Initial
5% Holder would be, or there is a substantial possibility that it might be,
treated as a distribution to such Initial 5% Holder, within the meaning of
section 301 of the Code (it being understood that, for purposes of
determining whether this condition exists, any such Initial 5% Holder shall
be treated as owning shares of Battle Mountain Common Stock only to the
extent that Battle Mountain has actual knowledge of such ownership).
(2) As a result of any change in law (including provisions of the
Code, Treasury regulations promulgated thereunder, rulings and other
official pronouncements of the Internal Revenue Service, and judicial
decisions) occurring on or after March 14, 1996, Battle Mountain Sub would,
or there is a substantial possibility that it might, recognize gain under
any provision of the Code upon the delivery to such Initial 5% Holder of
shares of Battle Mountain Common Stock in exchange for Exchangeable Shares.
(3) The delivery to such Initial 5% Holder by Battle Mountain of
shares of Battle Mountain Common Stock in exchange for Exchangeable Shares
will not be treated as a reorganization within the meaning of section
368(a)(1)(B) of the Code.
(4) Prior to the transaction in question with respect to which the
Officer's Certificate is being delivered (and without regard to such
transaction), no Initial 5% Holder continues to own a number of
Exchangeable Shares which such Initial 5% Holder acquired in the
Arrangement which exceeds the Minimum Number of Exchangeable Shares issued
by the Corporation in the Arrangement. For this purpose, ownership shall
mean beneficial ownership within the contemplation of section 897 of the
Code, and the constructive ownership rules of section 897(c)(6)(C) of the
Code shall apply, except that an Initial 5% Holder shall not be deemed to
own Exchangeable Shares by virtue of owning shares of Battle Mountain
Common Stock.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Houston, Texas and Toronto,
Ontario.
"Canada Holdco" means a single wholly-owned subsidiary (within the meaning
of the OBCA) of Battle Mountain incorporated under the federal laws of Canada or
a province thereof.
"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.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Combination Agreement" means the agreement between Battle Mountain and the
Corporation, dated as of March 11, 1996, as the same may be amended, providing
for, among other things, the Arrangement.
"Common Shares" means the Common Shares of the Corporation.
"Corporation" means Battle Mountain Canada Inc., a corporation existing
under the laws of the Province of Ontario.
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"Current Market Price" means, in respect of a share of Battle Mountain
Common Stock on any date, the Canadian Dollar Equivalent of the average closing
sales price of a share of Battle Mountain Common Stock during a period of 20
consecutive trading days ending not more than five trading days before such date
on the New York Stock Exchange or, if the shares of Battle Mountain 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 Battle Mountain 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
Battle Mountain Common Stock during such period is inadequate to create a market
that reflects the fair market value of a share of Battle Mountain Common Stock,
then the Current Market Price of a share of Battle Mountain 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" means an amount equal to the full amount of all dividends
and distributions declared and unpaid on each Exchangeable Share and all
dividends and distributions declared on a share of Battle Mountain Common Stock
that have not 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 such Exchangeable Share for a share of Battle Mountain Common Stock
hereunder.
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions set out in this paragraph 4(9) of these articles of amendment.
"Exchangeable Shares" mean the Exchangeable Shares of the Corporation to
which are attached the Exchangeable Share Provisions.
"Initial 5% Holder" has the meaning set out in Section 4.19 of the
Combination 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).
"Minimum Number" has the meaning set out in Section 4.19 of the Combination
Agreement.
"OBCA" means the Business Corporations Act (Ontario), as amended.
"Officer's Certificate" means a certificate of an officer of Battle
Mountain establishing that a BMG Exercise Condition exists, which certificate
shall, if it relies upon the occurrence of conditions (1), (2) or (3) set forth
in the definition of BMG Exercise Condition, be accompanied by an opinion of
Baker & Botts L.L.P., or another nationally recognized independent legal
counsel, to the effect that such condition exists, and indicating the legal
basis for such determination (for the avoidance of doubt, but not in limitation
of the foregoing, such opinion in the case of condition (3) to be unqualified)
and which certificate may, for the purposes of determining whether condition (4)
set forth in such definition has occurred, rely on information provided by each
Initial 5% Holder pursuant to Section 8 of the Tax Cooperation Agreement to
which such Initial 5% Holder is a party or on such assumption as Battle Mountain
is entitled to make thereunder.
"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 be earlier than July 31, 2003 unless
there are less than 5,000,000 Exchangeable Shares outstanding (other than
Exchangeable Shares held by Battle Mountain 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
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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 relating to the
arrangement of the Corporation under section 182 of the OBCA contemplated by the
Combination Agreement.
"Redemption Call Purchase Price" has the meaning set out in Section 7.2(l).
"Redemption Call Right" has the meaning set out in Section 7.2(l).
"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).
"RCR Exercising Party" has the meaning set out in Section 6.2.
"Subsidiary" means, when used with reference to Battle Mountain, any
corporation more than 50% of the outstanding stock of which, by vote or by
value, is owned, directly or indirectly, by Battle Mountain, by one or more
other Subsidiaries of Battle Mountain, or by Battle Mountain and one or more
other Subsidiaries of Battle Mountain.
"Tax Cooperation Agreement" means any agreement between Battle Mountain and
an Initial 5% Holder entered into pursuant to Section 4.19 of the Combination
Agreement.
"Transfer Agent" means The R-M Trust Company, 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 The R-M Trust Company, 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 between the Corporation, Battle Mountain 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.
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.
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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, the Subordinate 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 the 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 Battle Mountain
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 Battle
Mountain Common Stock, in an amount in cash for each Exchangeable Share as is
equal to the Canadian Dollar Equivalent on the Battle Mountain Dividend
Declaration Date of the cash dividend or distribution declared on each share of
Battle Mountain Common Stock, (b) in the case of a stock dividend or
distribution declared on the shares of Battle Mountain Common Stock to be paid
in shares of Battle Mountain Common Stock, in such number of Exchangeable Shares
for each Exchangeable Share as is equal to the number of shares of Battle
Mountain Common Stock to be paid on each share of Battle Mountain Common Stock
or (c) in the case of a dividend or distribution declared on the shares of
Battle Mountain Common Stock to be paid in property other than cash or shares of
Battle Mountain 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 Battle Mountain 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
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
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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 Battle Mountain
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.
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, Subordinate Shares or any
other shares ranking junior to the Exchangeable Shares, other than stock
dividends payable in Common Shares, Subordinate Shares or any 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, Subordinate 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
(d) issue any shares other than (i) Exchangeable Shares, (ii) Common
Shares, (iii) Subordinate Shares, (iv) Preferred Shares issuable upon the
exercise of rights associated with Exchangeable Shares having terms
substantially the same as the rights issued under the Rights Agreement
dated as of November 10, 1988, as amended, between Battle Mountain and The
Bank of New York, as Rights Agent, and (v) any other shares not ranking
superior to the Exchangeable Shares.
(2) The restrictions in Sections 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
Battle Mountain Common Stock shall have been declared on the Exchangeable Shares
and paid in full.
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 Battle Mountain or
Battle Mountain Sub 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
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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, the Subordinate 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 Battle Mountain 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
Battle Mountain 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 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 Battle Mountain 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 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 Battle Mountain 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), Battle Mountain
and Battle Mountain Sub 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 Battle Mountain, Battle Mountain Sub and Canada
Holdco) all but not less than all of the Exchangeable Shares held by each such
holder on payment by whichever of Battle Mountain or Battle Mountain Sub is
exercising such right (the "LCR Exercising Party") of an amount per share equal
to (a) the Current Market Price of a share of Battle Mountain 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 Battle Mountain
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 Battle
Mountain, Battle Mountain Sub and Canada Holdco) shall be obligated to sell all
the Exchangeable Shares held by such holder
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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) With respect to an Initial 5% Holder, Battle Mountain shall be entitled
to exercise its Liquidation Call Right only if (a) a BMG Exercise Condition
shall exist, and (b) Battle Mountain shall have delivered notice of its
intention to exercise such right to Battle Mountain Sub, the Transfer Agent, all
Initial 5% Holders and the Corporation on or before the deadline for exercise of
its Liquidation Call Right, provided that in such circumstances, notwithstanding
any other provision hereof, Battle Mountain shall be entitled to exercise its
Liquidation Call Right with respect to such Initial 5% Holder in priority over
any exercise by Battle Mountain Sub of its Liquidation Call Right. For greater
certainty, Battle Mountain Sub shall only be entitled to exercise its
Liquidation Call Right with respect to those holders of Exchangeable Shares, if
any, in respect of which Battle Mountain 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, all Initial 5% Holders 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 Battle Mountain to the
Transfer Agent. If a LCR Exercising Party duly exercises its Liquidation Call
Right in accordance with this Section 5.2, 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 Battle Mountain, Battle Mountain Sub and Canada Holdco) will sell all of
their Exchangeable Shares then outstanding for a price per share equal to the
Liquidation Call Purchase Price. The restriction set forth in the first sentence
of this Section 5.2(2) on the right of Battle Mountain to exercise its
Liquidation Call Right is solely for the benefit of Non-Affiliated Holders who
are Initial 5% Holders and may be waived by any Initial 5% Holder as to whom a
Liquidation Call Right is exercised.
(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 with the Transfer Agent, on or before the Liquidation Date,
certificates representing the total number of shares of Battle Mountain Common
Stock deliverable by the LCR Exercising Party (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 total
Liquidation Call Purchase Price and a cheque in the amount of the remaining
portion, if any, of the total Liquidation Call Purchase Price and any interest
allowed on such deposit shall belong to the LCR Exercising Party. Provided that
the total Liquidation Call Purchase Price has been so deposited with the
Transfer Agent, on and after the Liquidation Date the rights of each holder of
Exchangeable Shares (other than Battle Mountain, Battle Mountain Sub and Canada
Holdco) 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 Battle
Mountain 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 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 Battle Mountain 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 Battle Mountain nor Battle Mountain Sub
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.
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5.3 Automatic Exchange on Liquidation of Battle Mountain
(1) Battle Mountain shall give the Transfer Agent written notice of each of
the following events (each a "Battle Mountain Liquidation Event") at the time
set forth below:
(a) in the event of any determination by the board of directors of
Battle Mountain to institute voluntary liquidation, dissolution or
winding-up proceedings with respect to Battle Mountain or to effect any
other distribution of assets of Battle Mountain among its stockholders for
the purpose of winding up it 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 Battle Mountain of
notice of and (ii) Battle Mountain 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 Battle
Mountain or to effect any other distribution of assets of Battle Mountain
among its stockholders for the purpose of winding up its affairs.
(2) Immediately following receipt by the Transfer Agent from Battle
Mountain of notice of any Battle Mountain 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 Battle
Mountain to the Transfer Agent and shall include a brief description of the
automatic exchange of Exchangeable Shares for shares of Battle Mountain 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 Battle
Mountain, Battle Mountain Sub and Canada Holdco) will be able to participate on
a pro rata basis with the holders of Battle Mountain Common Stock in the
distribution of assets of Battle Mountain in connection with a Battle Mountain
Liquidation Event, on the fifth Business Day prior to the effective date (the
"Battle Mountain Liquidation Event Effective Date") of a Battle Mountain
Liquidation Event all of the then outstanding Exchangeable Shares (other than
Exchangeable Shares held by Battle Mountain, Battle Mountain Sub or Canada
Holdco) shall be automatically exchanged for shares of Battle Mountain Common
Stock. To effect such automatic exchange, Battle Mountain shall purchase each
Exchangeable Share outstanding on the fifth Business Day prior to the Battle
Mountain Liquidation Event Effective Date and held by a holder of Exchangeable
Shares (other than Battle Mountain, Battle Mountain Sub or Canada Holdco), 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
Battle Mountain Common Stock on the fifth Business Day prior to the Battle
Mountain Liquidation Event Effective Date, which shall be satisfied in full by
Battle Mountain delivering to such holder one share of Battle Mountain Common
Stock, plus (b) the Dividend Amount, if any.
(4) On the fifth Business Day prior to the Battle Mountain Liquidation
Event Effective Date, the closing of the transaction of purchase and sale
contemplated by the automatic exchange of Exchangeable Shares for Battle
Mountain Common Stock shall be deemed to have occurred, and each holder of
Exchangeable Shares (other than Battle Mountain, Battle Mountain Sub and Canada
Holdco) shall be deemed to have transferred to Battle Mountain 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 and Battle Mountain shall
deliver or cause to be delivered to the Transfer Agent, for delivery to such
holders, the certificates for the number of shares of Battle Mountain Common
Stock deliverable upon the automatic exchange of Exchangeable Shares for Battle
Mountain Common Stock (which shares shall be duly issued as fully paid and
non-assessable 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 and any interest on such
deposit shall belong to Battle Mountain. 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 Battle Mountain
Common Stock delivered to it, or to the Transfer Agent on its behalf, pursuant
to the automatic exchange of Exchangeable Shares for Battle Mountain Common
Stock and the certificates held by such holder previously representing the
Exchangeable Shares exchanged by such holder with Battle Mountain pursuant to
such
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automatic exchange shall thereafter be deemed to represent the shares of Battle
Mountain Common Stock delivered to such holder by Battle Mountain 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 Battle Mountain Common Stock, duly
endorsed in blank and accompanied by such instruments of transfer as Battle
Mountain may reasonably require, the Transfer Agent shall deliver or cause to be
delivered to such holder certificates representing the shares of Battle Mountain
Common Stock of which such holder is the holder and a cheque in payment of the
remaining portion, if any, of the purchase price.
ARTICLE 6
RETRACTION AT OPTION OF HOLDER
6.1 Retraction at Option of Holder
(1) Subject to applicable law and the due exercise by either Battle
Mountain or Battle Mountain Sub of a Retraction Call Right, 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 Battle Mountain 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 Battle Mountain 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 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 the 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 Battle Mountain Common Stock to which such
holder is entitled (which shares shall be duly issued as fully paid and
non-assessable 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 Retraction Price 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
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Shares represented by any certificate is redeemed, a new certificate for the
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 its proportionate part of 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 Battle
Mountain 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 or other provisions of
applicable law. 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 Battle Mountain nor Battle
Mountain Sub 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 a whole number of
shares) as would not be contrary to such 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 or other provisions of applicable law 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
Battle Mountain nor Battle Mountain Sub 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 or other provisions of applicable
law 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 Battle Mountain to purchase the unredeemed Retracted Shares
from such holder on the Retraction Date or as soon as practicable thereafter on
payment by Battle Mountain 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.
(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), Battle Mountain and Battle Mountain Sub 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
Battle Mountain or Battle Mountain Sub is exercising such right (the "RCR
Exercising Party") of an amount per share equal to the Retraction Price (the
"Retraction Call Purchase
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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 Battle Mountain 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
Battle Mountain 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 Battle Mountain and Battle Mountain Sub
thereof. With respect to a Retraction Request presented by an Initial 5% Holder,
Battle Mountain shall be entitled to exercise its Retraction Call Right only if
(a) a BMG Exercise Condition shall exist, and (b) Battle Mountain shall have
delivered notice of its intention to exercise such right to Battle Mountain Sub,
the Transfer Agent, the Corporation and such Initial 5% Holder on or before the
deadline for exercise of its Retraction Call Right, provided that in such
circumstances, notwithstanding any other provision hereof, Battle Mountain shall
be entitled to exercise its Retraction Call Right with respect to such Initial
5% Holder in priority over any exercise by Battle Mountain Sub of its Retraction
Call Right. For greater certainty, Battle Mountain Sub shall only be entitled to
exercise its Retraction Call Right with respect to those holders of Exchangeable
Shares, if any, in respect of which Battle Mountain has not exercised its
Retraction Call Right. In order to exercise its Retraction Call Right, the RCR
Exercising Party must notify the Corporation and, if the Retraction Request is
presented by a holder that is an Initial 5% Holder, such Initial 5% Holder in
writing of its determination to do so (a "Battle Mountain 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 Battle Mountain or Battle Mountain Sub 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 Battle Mountain or Battle
Mountain Sub delivers a Battle Mountain Call Notice within such two Business Day
period and duly exercises its Retraction Call Right in accordance with this
Section 6.2, 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 Retraction Call Purchase
Price. 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
Battle Mountain 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 Battle Mountain nor Battle Mountain Sub delivers a Battle
Mountain 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 Retracted Shares on the
Retraction Date and in the manner otherwise contemplated in Section 6.1. The
restriction set forth in the second sentence of this Section 6.2(2) on the right
of Battle Mountain to exercise its Retraction Call Right is solely for the
benefit of holders of Exchangeable Shares who are Initial 5% Holders and may be
waived by any Initial 5% Holder as to whom a Retraction Call Right is exercised.
(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 Battle Mountain Common Stock to
which such holder is entitled (which shares shall be
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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 Retraction Call Purchase Price and a cheque of the RCR Exercising Party
payable at par and in Canadian dollars at any branch of the bankers of Battle
Mountain, Battle Mountain Sub or of the Corporation in Canada in payment of the
remaining portion, if any, of such aggregate Retraction Call Purchase Price 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 its proportionate
part of the total Retraction Call Purchase Price 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 Battle Mountain 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 Battle
Mountain or Battle Mountain Sub 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 Battle Mountain 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 Battle Mountain Common Stock for each Exchangeable Share held by such
holder, plus (b) the Dividend Amount, if any (collectively, the "Redemption
Price"). If either Battle Mountain or Battle Mountain Sub exercises a Redemption
Call Right and all of the then outstanding Exchangeable Shares other than the
Exchangeable Shares held by Battle Mountain, Battle Mountain Sub or Canada
Holdco are purchased pursuant to Section 7.2, the remaining outstanding
Exchangeable 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 Battle Mountain
or Battle Mountain Sub 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
Battle Mountain or Battle Mountain Sub 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
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Shares under the OBCA 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 Battle Mountain 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, unless payment of the aggregate Redemption Price
deliverable to a holder for Exchangeable Shares shall not be made upon
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 Battle Mountain Common Stock
delivered to them.
7.2 Redemption Call Rights.
(1) Subject to the limitations set forth in Section 7.2(2), Battle Mountain
and Battle Mountain Sub 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 Battle Mountain,
Battle Mountain Sub and Canada Holdco) 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 Battle Mountain or Battle Mountain Sub is
exercising such right (the "RCR Exercising Party") of an amount per share equal
to (a) the Current Market Price of a share of Battle Mountain 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 Battle
Mountain 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 Battle Mountain,
Battle Mountain Sub and Canada Holdco) 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) With respect to an Initial 5% Holder, Battle Mountain shall be entitled
to exercise its Redemption Call Right only if (a) a BMG Exercise Condition shall
exist, and (b) Battle Mountain shall have delivered notice of its intention to
exercise such right to Battle Mountain Sub, the Transfer Agent, all Initial 5%
Holders and the Corporation on or before the deadline for exercise of its
Redemption Call Right, provided that in such circumstances, notwithstanding any
other provision hereof, Battle Mountain shall be entitled to exercise its
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Redemption Call Right with respect to such Initial 5% Holder in priority over
any exercise by Battle Mountain Sub of its Redemption Call Right. For greater
certainty, Battle Mountain Sub shall only be entitled to exercise its Redemption
Call Right with respect to those holders of Exchangeable Shares, if any, in
respect of which Battle Mountain 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,
all Initial 5% Holders 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 Battle Mountain to the Transfer Agent. If a 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 Battle Mountain, Battle Mountain Sub and Canada Holdco) will sell all of
their Exchangeable Shares then outstanding for a price per share equal to the
Redemption Call Purchase Price. The restriction set forth in the first sentence
of this Section 7.2(2) on the right of Battle Mountain to exercise its
Redemption Call Right is solely for the benefit of holders of Exchangeable
Shares who are Initial 5% Holders and may be waived by any Initial 5% Holder as
to whom a Redemption Call Right is exercised.
(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 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 Battle Mountain Common Stock deliverable by the RCR Exercising Party
(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 total Redemption Call Purchase Price and a cheque in
the amount of the remaining portion, if any, of the total Redemption Call
Purchase Price and any 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 the last Business Day
prior to such Optional Redemption Date the rights of each holder of Exchangeable
Shares (other than Battle Mountain, Battle Mountain Sub and Canada Holdco) 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 Optional Redemption Date
be considered and deemed for all purposes to be the holder of the shares of
Battle Mountain 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 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 Battle Mountain 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 Battle Mountain nor Battle Mountain Sub 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 Sections
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
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shareholders of the Corporation or to vote at any such meeting. The holders of
the Exchangeable Shares shall, however, be entitled to notice of meetings of the
shareholders called for the purpose of authorizing the dissolution of the
Corporation or the sale, lease or exchange of all or substantially all the
property of the Corporation other than in the ordinary course of business of the
Corporation.
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 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 at
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 more than two-thirds of the Exchangeable Shares
represented in person or by proxy at the meeting excluding Exchangeable Shares
beneficially owned by Battle Mountain 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 passed
thereat by the affirmative vote of not less than two-thirds of the votes cast on
such resolution at such meeting shall constitute the approval or consent of the
holders of the Exchangeable Shares.
ARTICLE 10
RECIPROCAL CHANGES, ETC.
IN RESPECT OF BATTLE MOUNTAIN COMMON STOCK
10.1(1) Each holder of an Exchangeable Share acknowledges that the Voting,
Support and Exchange Trust Agreement provides, in part, that Battle Mountain
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 Battle Mountain Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire Battle Mountain Common Stock) to the holders of all or
substantially all of the then outstanding shares of Battle Mountain Common
Stock by way of stock dividend or other distribution, other than an issue
of shares of Battle Mountain Common Stock (or securities exchangeable for
or convertible into or carrying rights to acquire Battle Mountain Common
Stock) to holders of shares of Battle Mountain Common Stock who exercise an
option to receive dividends in shares of Battle Mountain Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Battle Mountain 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 Battle Mountain
Common Stock entitling them to subscribe for or to purchase shares of
Battle Mountain Common Stock (or securities exchangeable for or convertible
into or carrying rights to acquire Battle Mountain Common Stock); or
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(c) issue or distribute to the holders of all or substantially all of
the then outstanding shares of Battle Mountain Common Stock (i) shares or
securities of Battle Mountain of any class other than Battle Mountain
Common Stock (other than shares convertible into or exchangeable for or
carrying rights to acquire shares of Battle Mountain Common Stock), (ii)
rights, options or warrants other than those referred to in Section
10.1(1)(b) above, (iii) evidences of indebtedness of Battle Mountain or
(iv) assets of Battle Mountain;
unless 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 Battle
Mountain 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
of these share provisions:
(a) subdivide, redivide or change the then outstanding shares of
Battle Mountain Common Stock into a greater number of shares of Battle
Mountain Common Stock; or
(b) reduce, combine or consolidate or change the then outstanding
shares of Battle Mountain Common Stock into a lesser number of shares of
Battle Mountain Common Stock; or
(c) reclassify or otherwise change the shares of Battle Mountain
Common Stock or effect an amalgamation, merger, reorganization or other
transaction affecting the Battle Mountain 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.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER THE VOTING,
SUPPORT AND EXCHANGE TRUST AGREEMENT
11.1 The Corporation shall take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by Battle Mountain with all provisions of the Voting,
Support and Exchange Trust Agreement applicable to the Corporation and Battle
Mountain, 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 Corporation or 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
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(c) making such changes in or corrections to such agreement which, on
the advice of counsel to the Corporation, are required for the purpose 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 such changes or corrections will not be prejudicial to
the interests of the holders of the 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 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 the retraction or redemption of Exchangeable Shares 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; and
(10) to remove the other provisions in paragraph 10 of the articles
of the Corporation.
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SCHEDULE A
NOTICE OF RETRACTION
To the Corporation, Battle Mountain and Battle Mountain Sub
c/o The R-M Trust Company
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the share(s) 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 Battle Mountain
and, in certain circumstances, Battle Mountain Sub, 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 Battle Mountain or Battle Mountain Sub, as the case may be, in accordance
with the Retraction Call Right on the Retraction Date for the Retraction Price
and on the other terms and conditions set out in Section 6.3 of the Share
Provisions. If neither Battle Mountain nor Battle Mountain Sub 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 Battle Mountain or Battle Mountain Sub, 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 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 Battle Mountain to purchase the
unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation, Battle
Mountain and Battle Mountain Sub that the undersigned has good title to, and
owns, the share(s) represented by this certificate to be acquired by the
Corporation, Battle Mountain or Battle Mountain Sub, 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
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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 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 a 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 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:
- ---------------------------
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<PAGE> 335
ANNEX E
FORM OF VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
<PAGE> 336
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
AGREEMENT made as of the day of , 1996
BETWEEN:
BATTLE MOUNTAIN GOLD COMPANY, a corporation existing under the laws of the
State of Nevada (the "Parent"),
- and -
HEMLO GOLD MINES INC., a corporation existing under the laws of the
Province of Ontario (the "Corporation"),
- and -
THE R-M TRUST COMPANY, a trust company existing under the laws of Canada
(the "Trustee").
WHEREAS, pursuant to a combination agreement dated as of March 11, 1996
between the Parent and the Corporation (such agreement as it may be amended or
restated is hereinafter referred to as the "Combination Agreement"), the parties
agreed that on the Effective Date (as defined in the Combination Agreement), the
Parent, the Corporation and a Canadian trust company would execute and deliver a
Voting, Support and Exchange Trust Agreement substantially in the form set forth
in Exhibit 1.1(b)(i) to the Combination Agreement;
AND WHEREAS, pursuant to an arrangement (the "Arrangement") effected by
articles of arrangement dated , 1996 filed pursuant to the
Business Corporations Act (Ontario), each issued and outstanding Common Share of
the Corporation (a "Corporation Common Share"), other than Corporation Common
Shares held by Parent or by holders who duly exercised their rights of dissent,
was exchanged for 1.48 issued and outstanding Exchangeable Shares of the
Corporation (the "Exchangeable Shares");
AND WHEREAS the Parent is to grant to and in favour of Non-Affiliated
Holders (as hereinafter defined) from time to time of Exchangeable Shares the
right, in the circumstances set forth herein, to require the Parent 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 the Parent shall be exercisable
by Non-Affiliated Holders from time to time 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 the Parent to purchase
Exchangeable Shares from the Non-Affiliated Holders shall be exercisable by Non-
Affiliated Holders from time to time 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 the Parent will take certain actions and make
certain payments and deliveries necessary to ensure that the Corporation and
Battle Mountain Sub (as hereinafter defined) will be able to make certain
payments and to deliver or cause to be delivered shares of Parent Common Stock
(as hereinafter defined) in satisfaction of the obligations of the Corporation
and/or Battle Mountain Sub under the Exchangeable Share Provisions (as
hereinafter defined) and this trust agreement;
AND WHEREAS these recitals and any statements of fact in this trust
agreement are made by the Parent and the Corporation and not by the Trustee;
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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.
"Article 4 Subsidiary" means a Subsidiary of the Parent that, under Section
78.283 of the Nevada Revised Statutes or any successor provision thereto, is
precluded from voting any shares of Parent Common Stock held by it.
"Arrangement" has the meaning set out in the recitals hereto.
"Automatic Exchange Rights" means the automatic exchange of shares of
Parent Common Stock for Exchangeable Shares pursuant to Section 5.3 of the
Exchangeable Share Provisions.
"Battle Mountain Sub" means Battle Mountain Canada Holdco, Inc., an
indirect wholly-owned Subsidiary of the Parent existing under the laws of the
State of Nevada, none of the stock of which is directly owned by the Parent.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means a day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of Houston, Texas and Toronto,
Ontario.
Canada Holdco" means a single wholly-owned subsidiary (within the meaning
of the OBCA) of Battle Mountain incorporated under the federal laws of Canada or
a province thereof.
"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.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Combination Agreement" has the meaning set out in the recitals hereto.
"Corporation Common Shares" has the meaning set out in the recitals hereto.
"Current Market Price" means, in respect of a share of Parent Common Stock
on any date, the Canadian Dollar Equivalent of the average closing sales price
of shares of Parent Common Stock during a period of 20 consecutive trading days
ending not more than five trading days before such date on the New York Stock
Exchange or, if the shares of Parent 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 Parent 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 Parent Common Stock during such period is
inadequate to create a market that reflects the fair market value of the Parent
Common Stock, then the Current Market Price of a share of the Parent 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.
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"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.
"Initial 5% Holder" has the meaning set out in Section 4.19 of the
Combination Agreement.
"Insolvency Event" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or wound
up, or the consent of the Corporation 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 the Corporation to contest in good faith any
such proceedings commenced in respect of the Corporation within 15 days of
becoming aware thereof, or the consent by the Corporation to the filing of any
such petition or to the appointment of a receiver, or the making by the
Corporation of a general assignment for the benefit of creditors, or the
admission in writing by the Corporation of its inability to pay its debts
generally as they become due, or the Corporation not being permitted, pursuant
to solvency requirements or other provisions of applicable law, 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.
"Minimum Number" has the meaning set out in Section 4.19 of the Combination
Agreement.
"Minimum Ownership Requirement" means that at least one Initial 5% Holder
continues to own a number of the Exchangeable Shares which such Initial 5%
Holder acquired in the Arrangement which exceeds the Minimum Number of
Exchangeable Shares issued by the Corporation in the Arrangement. For this
purpose (1) ownership shall mean beneficial ownership within the contemplation
of section 897 of the Code, (2) the constructive ownership rules of section
897(c)(6)(C) of the Code shall apply, except that an Initial 5% Holder shall not
be deemed to own Exchangeable Shares by virtue of owning Parent Common Stock,
and (3) the determination whether the Minimum Ownership Requirement is satisfied
shall be made on the basis of information which each Initial 5% Holder provides
in accordance with Section 8 of the Tax Cooperation Agreement applicable to such
Initial 5% Holder or on such assumption as the Parent is entitled to make
thereunder.
"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 votes to be cast by the holder
of the Voting Shares, means the registered holders of Exchangeable Shares other
than the Parent and its Article 4 Subsidiaries and, for all other purposes,
means the registered holders of Exchangeable Shares other than the Parent and
its Subsidiaries.
"Offer" has the meaning set out in section 6.8 hereof.
"Officer's Certificate" means, with respect to the Parent or the
Corporation, as the case may be, a certificate signed by any one of the Chairman
of the Board, the Vice-Chairman of the Board, the President, any Vice-President
or any other senior officer of the Parent or the Corporation, as the case may
be.
"Parent Board of Directors" means the board of directors of the Parent.
"Parent Common Stock" means the shares of Common Stock of the Parent, par
value US$0.10 per share, having voting rights of one vote per share, and any
other securities into which such shares may be
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changed or for which such shares may be exchanged (whether or not the Parent
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.
"Parent Consent" has the meaning set out in section 4.2 hereof.
"Parent Meeting" has the meaning set out in section 4.2 hereof.
"Parent Successor" has the meaning set out in section 11.1 hereof.
"Plan of Arrangement" means the plan of arrangement of the Corporation
providing for the Arrangement.
"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 the Parent means any corporation more than 50% of the
outstanding stock of which, by vote or value, is owned, directly or indirectly,
by the Parent, by one or more other Subsidiaries of the Parent or by the Parent
and one or more other Subsidiaries of the Parent.
"Tax Cooperation Agreement" means any agreement executed in accordance with
Section 4.19 of the Combination Agreement.
"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 The R-M Trust Company 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 the Parent,
par value US$0.10, issued by the Parent to and deposited with the Trustee, which
entitles the holder of record to a number of votes at meetings of holders of
Parent 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 entities 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.
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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.
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 the Voting Share. Simultaneously with the
execution and delivery of this trust agreement, the Parent will issue to and
deposit with the Trustee the Voting Share to be hereafter held 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. The Parent 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
the Parent 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 Certificates. The Corporation 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
consent to or to vote in person or by proxy the Voting Share, on any matter,
question or proposition whatsoever that may come before the stockholders of the
Parent at a Parent Meeting or in connection with a Parent 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 Parent Consent is sought or the Parent Meeting is held. To the extent
that no instructions are received from a Non-Affiliated Holder with respect to
the Voting
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Rights to which such Non-Affiliated Holder is entitled, the Trustee shall not
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 the
Parent at which holders of shares of Parent Common Stock are entitled to vote (a
"Parent Meeting") and with respect to all written consents sought from the
holders of shares of Parent Common Stock (a "Parent 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 the
Parent or by applicable law for such Parent Meeting or Parent 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 Parent Meeting or to be consented
to in connection with such Parent Consent.
4.3 Mailings to Shareholders. With respect to each Parent Meeting and
Parent Consent, the Trustee will mail or cause to be mailed (or otherwise
communicate in the same manner that the Parent utilizes in communications to
holders of Parent 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 the
Parent 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 the
Parent;
(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 Parent
Meeting or Parent Consent, as the case may be, or, pursuant and subject to
section 4.7 hereof, to attend such Parent 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 the Parent 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 Parent 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 the Parent to the
Trustee, but 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 Parent Meeting or Parent 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 the
Parent or by applicable law for purposes of determining stockholders entitled to
vote at such Parent Meeting or to give written consent in connection with such
Parent Consent. The Parent will notify the Trustee in writing of any decision of
the board of directors of the Parent with respect to the calling of any such
Parent Meeting or the seeking of any such Parent Consent 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.
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4.4 Copies of Stockholder Information. The Parent will deliver to the
Trustee copies of all proxy materials (including notices of Parent Meetings but
excluding proxies to vote shares of Parent Common Stock), information
statements, reports (including without limitation all interim and annual
financial statements) and other written communications that are to be
distributed from time to time to holders of Parent 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 Parent Common Stock. The Trustee will mail or otherwise
send to each Non-Affiliated Holder, at the expense of Parent, 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 the Parent)
received by the Trustee from the Parent at the same time as such materials are
first sent to holders of Parent 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 Montreal, Toronto and Vancouver.
4.5 Other Materials. Immediately after receipt by the Parent or any
stockholder of the Parent of any material sent or given generally to the holders
of Parent 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), the Parent 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 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 the Parent, copies of all such materials received by the Trustee from
the Parent. 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 Montreal, Toronto and Vancouver.
4.6 List of Persons Entitled to Vote. The Corporation shall, (a) prior to
each annual, general and special Parent Meeting or the seeking of any Parent
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 Parent Meeting or a Parent Consent, at the close of business
on the record date established by the Parent or pursuant to applicable law for
determining the holders of Parent Common Stock entitled to receive notice of
and/or to vote at such Parent Meeting or to give consent in connection with such
Parent Consent. Each such List shall be delivered to the Trustee promptly after
receipt by the Corporation 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. The Parent agrees to give the Corporation written notice (with a copy
to the Trustee) of the calling of any Parent Meeting or the seeking of any
Parent 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 the Corporation 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 Parent Meeting or any Parent 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 thereat (or to exercise with respect to any written
consent), as the proxy of the Trustee, the Non-Affiliated Holder Votes to which
such Non-Affiliated Holder is entitled except, in each case, to the extent that
such Non-Affiliated Holder has transferred the ownership of any Exchangeable
Shares in respect of which such Non-Affiliated Holder is entitled to
Non-Affiliated Holder Votes after the close of business on the record date for
such meeting or seeking of consent.
4.8 Voting by Trustee, and Attendance of Trustee Representative, at
Meeting.
(1) In connection with each Parent Meeting and Parent Consent, the Trustee
shall exercise, either in person or by proxy, in accordance with the
instructions received from a Non-Affiliated Holder pursuant to
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section 4.3 hereof, the Non-Affiliated Holder Votes as to which such
Non-Affiliated Holder is entitled to direct the vote (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
notice 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 Parent 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, 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 rights 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 the Parent utilizes in communications to holders of Parent 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 books of the Corporation. The Corporation 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 the Parent 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 the Parent 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 Parent 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, dissolution or winding-up of the Corporation pursuant to
Article 5 of the Exchangeable Share Provisions, or upon the purchase of
Exchangeable Shares from the holder thereof by the Parent or Battle Mountain Sub
pursuant to the exercise by the Parent or Battle Mountain Sub of the Retraction
Call Right, the Redemption Call Right or the Liquidation Call Right (unless in
any case the Corporation, the Parent or Battle Mountain Sub shall not have
delivered the requisite shares of Parent Common Stock and cheque, if any,
deliverable in exchange therefor to the Transfer Agent or the Trustee for
delivery to the Non-Affiliated Holders).
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ARTICLE 5
EXCHANGE RIGHT AND PARENT SUPPORT
5.1 Grant and Ownership of the Exchange Right. The Parent 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 the Parent to purchase
from each or any 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. The Parent 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 the Parent 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 Certificates. The Corporation 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 the Parent for each
Exchangeable Share to be purchased by the Parent under the Exchange Right shall
be an amount per share equal to (a) the Current Market Price of a share of
Parent 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 Parent Common Stock, plus (b) the Dividend Amount, if any. The purchase price
for each such Exchangeable Share so purchased may be satisfied only by the
Parent delivering or causing to be delivered to the Trustee, on behalf of the
relevant Non-Affiliated Holder, one share of Parent 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 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 the
Corporation. 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 Toronto, Ontario 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 the Parent 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 such additional documents and
instruments as the Trustee or the Corporation 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 the Parent to purchase from the
Non-Affiliated Holder the
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number of Exchangeable Shares specified therein, (ii) that such Non-Affiliated
Holder has good title to and owns all such Exchangeable Shares to be acquired by
the Parent free and clear of all liens, claims and encumbrances, (iii) the names
in which the certificates representing Parent 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, the
Corporation and the Parent 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 the Parent under the Exchange Right, a new certificate for
the balance of such Exchangeable Shares shall be issued to the holder at the
expense of the Corporation.
5.6 Delivery of Parent Common Stock; Effect of Exercise. Promptly after
receipt of the certificates representing the Exchangeable Shares that a
Non-Affiliated Holder desires the Parent 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 the Parent, the Trustee shall notify the Parent and the Corporation
of its receipt of the same, which notice to the Parent and the Corporation shall
constitute exercise of the Exchange Right by the Trustee on behalf of the holder
of such Exchangeable Shares, and the Parent 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 Parent 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, the Corporation and the
Parent 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 the Parent and the Corporation 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 the Parent 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 Parent Common Stock (together
with a cheque for the balance, if any, of the total purchase price therefor) is
not delivered by the Parent 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 Parent Common Stock are so
delivered by the Parent and any such cheque is so 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 Parent
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 the Corporation to redeem any or all of
the Exchangeable Shares held by the Non-Affiliated Holder (the "Retracted
Shares") and is notified by the Corporation pursuant to Section 6.1(4) of the
Exchangeable Share Provisions that the Corporation 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
the Corporation and provided that neither the Parent nor Battle Mountain Sub
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 the Corporation pursuant to
Section 6.1 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 the Corporation is unable to redeem.
In any such event, the Corporation hereby agrees with the Trustee and in favour
of the Non-Affiliated Holder immediately to notify the Trustee of such
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prohibition against the Corporation 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 the Corporation or to the
Transfer Agent (including without limitation a copy of the retraction request
delivered pursuant to Section 6.1(1) of the Exchangeable Share 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 the Corporation is not permitted to redeem and will require the Parent 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
the Parent pursuant to the Exchange Right, the share certificate or certificates
representing the Parent 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 the Parent, the Corporation 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, the
Parent and the Corporation 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, the Corporation and the Parent shall
give written notice thereof to the Trustee. As soon as practicable after
receiving notice from the Corporation or the Parent 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 the Parent, a notice of such Insolvency
Event in the form provided by the Parent, which notice shall contain a brief
statement of the right of the Non-Affiliated Holders with respect to the
Exchange Right.
5.10 Parent Support of Battle Mountain Sub. Notwithstanding any of the
other provisions of this trust agreement, so long as any Exchangeable Shares are
outstanding and the Minimum Ownership Requirement is satisfied, Battle Mountain
Sub shall be an indirect wholly-owned subsidiary of the Parent, and Battle
Mountain Sub, the Parent and Canada Holdco will collectively own all of the
Hemlo Gold Common Shares outstanding, and the Parent will take all actions and
do all such things as are necessary or desirable to enable and permit Battle
Mountain Sub, in accordance with applicable law, to perform its obligations and
exercise its rights with respect to the satisfaction of the Liquidation Call
Right, the Redemption Call Right and the Retraction Call Right, including
without limitation, all such actions and all such things as are necessary or
desirable to enable and permit Battle Mountain Sub to cause to be delivered
Parent Common Stock to the holders of Exchangeable Shares in accordance with the
Plan of Arrangement including the Exchangeable Share Provisions. In furtherance
of the foregoing obligations, upon notice of any event which requires Battle
Mountain Sub to cause to be delivered shares of Parent Common Stock to any
holder of Exchangeable Shares, the Parent shall, in any manner deemed
appropriate by it, provide such shares or cause such shares to be provided to
Battle Mountain Sub, which shall forthwith deliver the requisite shares of
Parent Common Stock to or to the order of the former holder of the surrendered
Exchangeable Shares. All such shares of Parent 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. As
long as the Minimum Ownership Requirement is satisfied, without the prior
approval of the Parent Board of Directors, (i) the Corporation shall not have,
and the Parent shall not permit the Corporation to have, any class of shares
outstanding other than the Common Shares and Exchangeable Shares, unless the
Parent and Battle Mountain Sub shall collectively own directly at least 50.1% of
the shares of each such class outstanding, and (ii) the Corporation shall not
issue, purchase, redeem or otherwise acquire (other than in accordance with the
terms of the Exchangeable Shares), and Parent, Battle Mountain Sub and Canada
Holdco shall not transfer, sell or otherwise dispose of, any Exchangeable
Shares, unless after any such actions, the Parent, Battle Mountain Sub, Canada
Holdco and all Initial 5% Holders collectively own at least 50.1% of the
outstanding Exchangeable Shares and (iii) the Parent shall cause Battle Mountain
Sub not to distribute to its immediate parent corporation or to Parent any
Exchangeable Shares received by it pursuant to its exercise of the
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Liquidation Call Right, the Redemption Call Right or the Retraction Call Right.
Solely for purposes of this section 5.10, the term "Battle Mountain Sub" shall
include a wholly-owned Subsidiary of Battle Mountain Sub.
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 the Parent under this
trust agreement.
ARTICLE 6
COVENANTS, REPRESENTATIONS AND WARRANTIES
6.1 Covenants of Parent Regarding Exchangeable Shares. So long as any
Exchangeable Shares are outstanding, the Parent will:
(a) not declare or pay any dividend on the Parent Common Stock unless
(i) the Corporation 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) the Corporation
shall simultaneously declare or pay, as the case may be, an equivalent
dividend on the Exchangeable Shares;
(b) advise the Corporation sufficiently in advance of the declaration
by the Parent of any dividend on the Parent Common Stock and take all such
other actions as are necessary, in cooperation with the Corporation, 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 Parent Common Stock and that such dividend on the
Exchangeable Shares shall correspond with any requirements of the stock
exchange on which the Exchangeable Shares are listed;
(c) ensure that the record date for determining shareholders entitled
to receive any dividend declared on the Parent 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 the Corporation, 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 the Corporation, including without limitation all such actions and
all such things as are necessary or desirable to enable and permit the
Corporation to cause to be delivered shares of Parent 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 the Corporation, 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 the Corporation to cause to be
delivered shares of Parent 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 the Corporation to maintain the
listing of the Exchangeable Shares on The Toronto Stock Exchange or another
stock exchange in Canada prescribed 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 the Corporation nor take any
action or omit to take any action that is designed to result in the
liquidation, dissolution or winding up of the Corporation.
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6.2 Segregation of Funds. The Parent will cause the Corporation 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 the Corporation 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. The Parent hereby represents, warrants and
covenants that:
(a) it has irrevocably reserved for issuance and will at all times
keep available, free from pre-emptive and other rights, out of its
authorized and unissued capital stock such number of shares of Parent
Common Stock (or other shares or securities into which the Parent 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 the Corporation, the Parent and
Battle Mountain Sub to meet its obligations hereunder, under the
Exchangeable Share Provisions and under any other security or commitment
pursuant to which the Corporation, the Parent or Battle Mountain Sub may
now or hereafter be required to issue and/or deliver shares of Parent
Common Stock; and
(b) it is not as of the Effective Date, and has not been at any time
within the last year prior to the Effective Date, a "United States real
property holding corporation" within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended.
6.4 Notification of Certain Events. In order to assist the Parent to
comply with its obligations hereunder, the Corporation will give the Parent
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 the Corporation or to effect any other distribution of the
assets of the Corporation 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 the Corporation of
notice of, and (ii) the Corporation 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 the
Corporation or to effect any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its
affairs;
(c) immediately, upon receipt by the Corporation 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 the Corporation of any
Exchangeable Shares or rights to acquire Exchangeable Shares.
6.5 Delivery of Shares of Parent Common Stock. Upon notice of any event
that requires the Corporation to cause to be delivered shares of Parent Common
Stock to any holder of Exchangeable Shares, the Parent shall, in any manner
deemed appropriate by it, provide such shares or cause such shares to be
provided to the Corporation, which shall forthwith deliver the requisite shares
of Parent Common Stock to or to the order of the former holder of the
surrendered Exchangeable Shares, as the Corporation shall direct. All such
shares of Parent 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.
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6.6 Qualification of Shares of Parent Common Stock. The Parent covenants
that if any shares of Parent Common Stock (or other shares or securities into
which the Parent 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, 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 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 the Parent Common
Stock may be reclassified or changed as contemplated by section 6.7 hereof) may
be issued and delivered by the Parent 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 the Parent for
purposes of Canadian federal or provincial securities law or an "affiliate" of
the Parent or, prior to the Effective Date, of the Corporation for purposes of
United States federal or state securities law), the Parent will in good faith
expeditiously take all such actions and do all such things as are necessary to
cause such shares of Parent Common Stock (or other shares or securities into
which the Parent Common Stock may be reclassified or changed as contemplated by
section 6.7 hereof) to be and remain duly registered, qualified or approved. The
Parent represents and warrants that it has in good faith taken all actions and
done all things as are necessary under Applicable Laws as they exist on the date
hereof to cause the shares of Parent Common Stock (or other shares or securities
into which the Parent 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 the Parent for the purposes of Canadian federal and
provincial securities law or an "affiliate" of the Parent or, prior to the
Effective Date, of the Corporation for the purposes of United States federal or
state securities law). The Parent will in good faith expeditiously take all such
actions and do all such things as are necessary to cause all shares of Parent
Common Stock (or other shares or securities into which the Parent 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 such shares are listed, quoted or posted for trading at such
time. The Parent 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) The Parent will not 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 of the Exchangeable Share Provisions:
(a) issue or distribute shares of Parent Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire shares
of Parent Common Stock) to the holders of all or substantially all of the
then outstanding Parent Common Stock by way of stock dividend or other
distribution, other than an issue of shares of Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Parent Common Stock) to holders of shares of Parent
Common Stock who exercise an option to receive dividends in Parent Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of Parent 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 Parent Common
Stock entitling them to subscribe for or to purchase shares of Parent
Common Stock (or securities exchangeable for or convertible into or
carrying rights to acquire shares of Parent Common Stock); or
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(c) issue or distribute to the holders of all or substantially all of
the then outstanding shares of Parent Common Stock (i) shares or securities
of the Parent of any class other than Parent Common Stock (other than
shares convertible into or exchangeable for or carrying rights to acquire
shares of Parent Common Stock), (ii) rights, options or warrants other than
those referred to in section 6.7(1)(b) above, (iii) evidences of
indebtedness of the Parent or (iv) assets of the Parent;
unless (x) the Corporation 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) the Corporation shall issue or
distribute such rights, options, securities, shares, evidences of
indebtedness or other assets simultaneously to holders of the Exchangeable
Shares.
(2) The Parent will not 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 of the Exchangeable Share Provisions:
(a) subdivide, redivide or change the then outstanding shares of
Parent Common Stock into a greater number of shares of Parent Common Stock;
or
(b) reduce, combine or consolidate or change the then outstanding
shares of Parent Common Stock into a lesser number of shares of Parent
Common Stock; or
(c) reclassify or otherwise change the shares of Parent Common Stock
or effect an amalgamation, merger, reorganization or other transaction
affecting the shares of Parent Common Stock;
unless (x) the Corporation 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) The Parent 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 20 Business Days
after the date on which such event is declared or announced by the Parent (with
simultaneous notice thereof to be given by the Parent to the Corporation).
(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 the
Parent. 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 Parent Common Stock, the number of such shares issued in
proportion to the number of shares of Parent 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 Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of Parent 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 Parent 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 the
Parent of any class other than Parent Common Stock, any rights, options or
warrants other than those referred to in section 6.7(4)(b) above, any
evidences of indebtedness of the Parent or any assets of the Parent), the
relationship between the fair market value (as determined by the Board of
Directors in the manner above contemplated) of such property to be issued
or distributed with respect to each outstanding share of Parent Common
Stock and the current market value (as
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determined by the Board of Directors in the manner above contemplated) of a
share of Parent Common Stock;
(d) in the case of any subdivision, redivision or change of the then
outstanding shares of Parent Common Stock into a greater number of shares
of Parent Common Stock or the reduction, combination or consolidation or
change of the then outstanding shares of Parent Common Stock into a lesser
number of shares of Parent Common Stock or any amalgamation, merger,
reorganization or other transaction affecting the Parent Common Stock, the
effect thereof upon the then outstanding shares of Parent Common Stock; and
(e) in all such cases, the general taxation consequences of the
relevant event to holders of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to holders of shares
of Parent Common Stock as a result of differences between taxation laws of
Canada and the United States (except for any differing consequences arising
as a result of differing marginal taxation rates and without regard to the
individual circumstances of holders of Exchangeable 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 20 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 the Parent.
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 Parent
Common Stock (each, an "Offer") is proposed by the Parent or is proposed to the
Parent or its shareholders and is recommended by the board of directors of the
Parent, or is otherwise effected or to be effected with the consent or approval
of the board of directors of the Parent, the Parent 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 Parent Common Stock, without
discrimination. Without limiting the generality of the foregoing, the Parent
will use reasonable efforts expeditiously and in good faith to ensure that
holders of Exchangeable Shares may participate in all such Offers without being
required to retract Exchangeable Shares as against the Corporation (or, if so
required, to ensure that any such retraction 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 the
Corporation and the prior approval of the Non-Affiliated Holders given in
accordance with Section 9.2 of the Exchangeable Share Provisions and subject to
the provisions of Section 5.10, the Parent covenants and agrees that, as long as
any outstanding Exchangeable Shares are owned by any person or entity other than
the Parent, Battle Mountain Sub or any of their Subsidiaries, the Parent will be
and remain the direct or indirect beneficial owner of at least 50.1% of all
issued and outstanding securities of the Corporation carrying or otherwise
entitled to voting rights in any circumstances, other than the Exchangeable
Shares.
6.10 Parent Not to Vote Exchangeable Shares. The Parent covenants and
agrees that it will appoint and cause to be appointed proxyholders with respect
to all Exchangeable Shares held by the Parent 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. The Parent 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
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the Corporation 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, the Parent shall, and shall cause Battle Mountain Sub to, duly and
timely perform all of their 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, Battle Mountain or Battle Mountain Sub under the
Exchangeable Share Provisions, and Parent shall be responsible for the due
performance of all of Battle Mountain Sub's obligations hereunder and under the
Plan of Arrangement including the Exchangeable Share Provisions.
6.12 Issue of Additional Shares. During the term of this trust agreement,
the Parent will not issue any shares of Parent Special Voting Stock in addition
to the Voting Share.
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 the Parent 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 the Parent 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 Parent 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 the Corporation and/or the Parent under this
trust agreement and/or under the Plan of Arrangement, including the
Exchangeable Share Provisions; and
(i) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
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
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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 the Corporation and
the Parent 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 of Justice (General Division) for an order that the Trustee be
replaced as trustee hereunder.
7.3 Dealings with Transfer Agents, Registrars, etc. The Corporation and
the Parent 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 the Parent 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. The Parent
covenants that it will supply, and will cause Battle Mountain Sub 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 Parent 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
the Parent and the Corporation, at the Trustee's principal office in Toronto,
Ontario, 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 November 30, 1996, and on or
before November 30 in every year thereafter, so long as the Voting Share is on
deposit with the Trustee, the Trustee shall transmit to the Parent and the
Corporation a brief report, dated as of the preceding August 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 the Parent of shares of
Parent 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
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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 requested by the Trustee, the Parent 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 or 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 shall 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. The Corporation and/or the Parent
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 the Corporation and/or the Parent or the Trustee under this trust
agreement or 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 the Corporation and/or the Parent 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 the Corporation and/or the
Parent 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 the Corporation
and/or the Parent or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such
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<PAGE> 355
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 the Corporation and/or the Parent 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:
(b) describing the nature and scope of the examination or
investigation upon which such person based the statutory declaration,
certificate, statement or opinion; and
(c) 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 the Corporation and/or the Parent 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 the Corporation. Pending
the investment of any money as herein before provided, such money may be
deposited in the name of the Trustee in any chartered bank in Canada or, with
the consent of the Corporation, in the deposit department of the Trustee or any
other loan or trust company 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 Corporation'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 the Corporation and/or the
Parent or of the directors thereof until a duly authenticated copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall
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be empowered to act and rely upon any such copy purporting to be authenticated
and believed by the Trustee to be genuine.
7.14 Authority to Carry on Business. The Trustee represents to the
Corporation and the Parent 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.
ARTICLE 8
COMPENSATION
8.1 Fees and Expenses of the Trustee. The Parent and the Corporation
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 the Parent and the Corporation 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.
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ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 Indemnification of the Trustee. The Parent and the Corporation 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 the Parent or the
Corporation pursuant hereto. In no case shall the Parent or the Corporation 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
the Parent and the Corporation 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, the Parent and the Corporation shall be entitled to
participate at their own expense in the defense and, if the Parent or the
Corporation 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 the Parent or the Corporation, such authorization not to be
unreasonably withheld; or (ii) the named parties to any such suit include both
the Trustee and the Parent or the Corporation and the Trustee shall have been
advised by counsel acceptable to the Parent or the Corporation that there may be
one or more legal defenses available to the Trustee that are different from or
in addition to those available to the Parent or the Corporation and that an
actual or potential conflict of interest exists (in which case the Parent and
the Corporation 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 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.
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 the Parent and
the Corporation 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 the Parent and the Corporation 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, the Parent and
the Corporation 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 of Justice
(General Division) upon application of one or more of the parties hereto.
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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 the Parent and the Corporation, 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 the Parent and
the Corporation 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 the Parent and the Corporation 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, the Parent
and the Corporation 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, the Parent and the Corporation shall cause
to be mailed notice of the succession of such trustee hereunder to each
Non-Affiliated Holder specified in a List. If the Parent or the Corporation
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 the Parent and the Corporation.
ARTICLE 11
PARENT SUCCESSORS
11.1 Certain Requirements in Respect of Combination, etc. The Parent 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 "Parent
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 and in the opinion of legal counsel to the
Trustee are necessary or advisable to evidence the assumption by the Parent
Successor of liability for all money payable and property deliverable
hereunder and the covenant of such Parent 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 the Parent under this trust agreement; and
(b) such transaction shall, to the satisfaction of the Trustee 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 Parent Successor and the Corporation shall execute and
deliver the supplemental trust agreement provided for in Article 12 hereof and
thereupon the Parent Successor shall possess and from time to time may exercise
each and every right and power of the Parent under this trust agreement in the
name of the Parent 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 the Parent or any officers of the Parent may be done and performed with like
force and effect by the directors or officers of such Parent Successor.
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11.3 Wholly-Owned Subsidiaries. Except as provided in section 5.10,
nothing herein shall be construed as preventing the amalgamation or merger of
any wholly-owned Subsidiary of the Parent with or into the Parent or the winding
up, liquidation or dissolution of any wholly-owned Subsidiary of the Parent
provided that all of the assets of such Subsidiary are transferred to the Parent
or another wholly-owned Subsidiary of the Parent, and any such transactions are
expressly permitted by this Article 11; provided that any limitation on such
amalgamation, merger, winding up, liquidation or dissolution contained in
section 5.10 shall not apply if (i) as a result of any change in law (including
provisions of the Code, Treasury regulations promulgated thereunder, rulings and
other official pronouncements of the Internal Revenue Service and judicial
decisions) after the Effective Time Battle Mountain Sub would, or there is a
substantial possibility that it might recognize gain under any provision of the
Code upon the delivery of Parent Common Stock in exchange for Exchangeable
Shares, or (ii) the Minimum Ownership Requirement is not satisfied and one year
has passed since the Minimum Ownership Requirement ceased to be satisfied. Prior
to the initiation of any amalgamation, merger, winding up, liquidation or
dissolution that would otherwise be limited by section 5.10, the Parent shall
deliver to the Trustee an Officer's Certificate to the effect that such
transaction may be carried out, in accordance with the preceding sentence,
notwithstanding the limitations that would otherwise apply under section 5.10.
If the Officer's Certificate relies upon a change in law, as above described, it
shall be accompanied by an opinion of independent legal counsel to the effect
that such change in law has occurred and indicating the legal basis for such
determination and the Parent shall deliver a copy of such Officer's Certificate
(together with such opinion of counsel) to all Initial 5% Holders.
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 the
Corporation, the Parent and the Trustee and approved by the Non-Affiliated
Holders in accordance with Section 9.2 of the Exchangeable Share Provisions.
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 the Parent and in the opinion of the Trustee and its counsel,
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 and its counsel 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 the Corporation, the Parent 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
the Trustee and its counsel and the Board of Directors and the board of
directors of the Parent 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.
12.3 Meeting to Consider Amendments. The Corporation, at the request of
the Parent, 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 the Corporation, the Exchangeable Share
Provisions and all applicable laws.
12.4 Changes in Capital of Parent and the Corporation. At all times after
the occurrence of any event effected pursuant to section 6.7 or section 6.8 of
this trust agreement, as a result of which either the Parent
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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 the Parent 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 the Corporation (when
authorized by a resolution of its Board of Directors), the Parent (when
authorized by a resolution of the Parent Board of Directors) 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 Parent Successors to the Parent and
the covenants of and obligations assumed by each such Parent 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 and its counsel, 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 the Parent, the Corporation, 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 and its counsel, 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 the Corporation and the Parent 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 and the representation contained in
section 6.3(b) hereof shall survive any such termination of this trust
agreement.
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
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<PAGE> 361
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, and with respect to
the representations contained in section 6.3(b), all shareholders of the
Corporation who receive Parent Common Stock through holding Exchangeable Shares.
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):
<TABLE>
<S> <C>
(a) if to the Parent at: Battle Mountain Gold Company
333 Clay Street, 42nd Floor
Houston, Texas 77002-4103
Attention: General Counsel
Telecopy: (713) 650-3636
(b) if to the Corporation at: Hemlo Gold Mines Inc.
1 Adelaide Street East
Suite 2902
Toronto, Ontario
M5C 2Z9
Attention: President
Telecopy: (416) 982-7388
(c) if to the Trustee at: The R-M Trust Company
393 University Avenue, 5th Floor
Toronto, Ontario M5G 2M7
Attention: Vice President, Client
Services
Telecopy: (416) 813-4555
</TABLE>
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 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 Holders 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 the
Corporation, the Parent or by such Non-Affiliated Holder to the Trustee or to
the Parent or the Corporation, the making of such payment or sending of such
document sent through the post shall be at the risk of the Corporation, in the
case of payments made or documents sent by the Trustee or the Corporation or the
Parent 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. The Parent 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 judgment
of the said courts and agrees not to seek, and hereby waives, any review of the
merits of any such judgment by the courts of any other jurisdiction and hereby
appoints the Corporation 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.
BATTLE MOUNTAIN GOLD COMPANY
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
HEMLO GOLD MINES INC.
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
THE R-M TRUST COMPANY
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
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<PAGE> 363
ANNEX F
AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
OF BATTLE MOUNTAIN GOLD COMPANY
<PAGE> 364
PROPOSED AMENDMENTS TO
BATTLE MOUNTAIN GOLD COMPANY'S
ARTICLES OF INCORPORATION
Article FOURTH of the Restated Articles of Incorporation of the Corporation
shall be amended to read in its entirety as follows:
FOURTH: The amount of the total authorized capital stock of the
Corporation, and the number and par value of the shares of which it is to
consist, is 550,000,001 shares, amounting in the aggregate to One Hundred
Million Dollars and ten cents ($100,000,000.10 ), divided into classes as
follows:
50,000,000 shares shall be Preferred Stock, $1.00 par value
("Preferred Stock");
500,000,000 shares shall be Common Stock, $0.10 par value ("Common
Stock"); and
One share shall be Special Voting Stock, $0.10 par value ("Special
Voting Stock").
Shares of any class of stock of the Corporation may be issued for such
consideration and for such corporate purposes as the Board of Directors may
from time to time determine. The capital stock, after the amount of the
subscription price (which shall not be less than the par value) has been
paid in, shall not be subject to assessment.
The following is a description of the different classes and a
statement of the relative rights of the holders of the Preferred Stock, the
Common Stock and the Special Voting Stock.
SECTION I. PREFERRED STOCK
The Board of Directors of the Corporation is authorized at any time
and from time to time to provide for the issuance of shares of Preferred
Stock of the Corporation in one or more series with such voting powers,
full or limited, or without voting powers, and with such designations,
preferences and relative, participating, optional or other special rights,
and qualifications, limitations or restrictions thereof as are stated and
expressed in these Articles of Incorporation, and, to the extent not so
stated or expressed, as may be stated and expressed in a resolution or
resolutions establishing such series and providing for the issuance thereof
adopted by the Board of Directors pursuant to the authority so to do which
is hereby expressly vested in it including, without limiting the generality
of the foregoing, the following:
(1) the designation and number of shares of each such series;
(2) the dividend rate of each such series, the conditions and dates upon
which such dividends shall be payable, the preference or relation of
such dividends to dividends payable on any other class or classes of
capital stock of the Corporation, and whether such dividends shall
be cumulative or noncumulative;
(3) whether the shares of each such series shall be subject to
redemption by the Corporation, and, if made subject to such
redemption, the times, prices, rates, adjustments and other terms
and conditions of such redemption;
(4) the terms and amount of any sinking or similar fund provided for the
purchase or redemption of the shares of each such series;
(5) whether the shares of each such series shall be convertible into or
exchangeable for shares of capital stock or other securities of the
Corporation or of any other corporation, and, if provision be made
for conversion or exchange, the times, prices, rates, adjustments
and other terms and conditions of such conversion or exchange;
(6) the extent, if any, to which the holders of the shares of any series
shall be entitled to vote as a class or otherwise with respect to
the election of directors or otherwise;
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<PAGE> 365
(7) the restrictions and conditions, if any, upon the issue or reissue
of any additional Preferred Stock ranking on a parity with or prior
to such shares as to dividends or upon dissolution;
(8) the rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the
Corporation, which rights may be different in the case of voluntary
dissolution than the case of involuntary dissolution; and
(9) any other relative rights, preferences or limitations of shares of
such series consistent with this Article FOURTH and applicable law.
The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock of the Corporation,
and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding. All
shares of any one series of Preferred Stock of the Corporation shall be
identical in all respects with all other shares of such series, except that
shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative. Except as may
otherwise be required by law or these Articles of Incorporation, the terms
of any series of Preferred Stock may be amended without consent of the
holders of any other series of Preferred Stock or of any class of Common
Stock of the Corporation.
SECTION II. COMMON STOCK AND SPECIAL VOTING STOCK
1. Voting Rights.
(a) Each share of Common Stock shall entitle the holder thereof to one
vote for each share held and the holder of the share of Special Voting
Stock shall have a number of votes equal to the number of Exchangeable
Shares ("Exchangeable Shares") of Hemlo Gold Mines Inc. (to be renamed
Battle Mountain Canada Inc.), an Ontario corporation, from time to time
which are not owned by the Corporation or any of its direct or indirect
subsidiaries that, under Section 78.283 of the Nevada Revised Statutes or
any successor provision thereto, cannot vote shares of Common Stock held by
it (an "Article 4 Subsidiary"). Except as otherwise required by law or
these Articles of Incorporation, the Common Stock and the Special Voting
Stock shall vote together as a single class in the election of directors
and on all matters submitted to a vote of stockholders of the Corporation.
(b) No holder of Common Stock or Special Voting Stock shall have the
right to cumulate votes in the election of Directors of the Corporation or
for any other purpose.
2. Dividends. Subject to the rights of holders of Preferred Stock of
the Corporation, the holders of Common Stock shall be entitled to share
ratably, on a share for share basis, in any and all dividends, payable in
cash or otherwise, as may be declared in respect of their holdings by the
Board of Directors from time to time out of assets or funds of the
Corporation legally available therefor, and the holders of Special Voting
Stock shall not be entitled to receive any such dividends.
3. Provisions Regarding Special Voting Stock.
(a) Pursuant to the terms of that certain Combination Agreement, dated
as of March 11, 1996, by and among the Corporation and Hemlo Gold Mines
Inc. one share of Special Voting Stock is being issued to the trustee (the
"Trustee") under the Voting, Support and Exchange Trust Agreement, dated as
of , 1996 by and between the Corporation, Hemlo Gold Mines Inc.
and the Trustee.
(b) The holder of the share of Special Voting Stock is entitled to
exercise the voting rights attendant thereto in such manner as such holder
desires.
(c) At such time as the Special Voting Stock has no votes attached to
it because there are no Exchangeable Shares of Hemlo Gold Mines Inc.
outstanding which are not owned by the Corporation or an Article 4
Subsidiary and there are no shares of stock, debt, options or other
agreements of Hemlo Gold Mines Inc. which could give rise to the issuance
of any Exchangeable Shares of Hemlo Gold Mines Inc. to any person (other
than the Corporation or an Article 4 Subsidiary), the Special Voting Stock
shall be cancelled.
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<PAGE> 366
SECTION III. PROVISIONS APPLICABLE TO ALL CLASSES
1. Liquidation Rights. In the event of any dissolution, liquidation
or winding up of the affairs of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of each series of Preferred
Stock shall be entitled to receive, out of the net assets of the
Corporation, an amount for each share equal to the amount fixed and
determined in accordance with the respective rights and priorities
established by the Board of Directors in any resolution or resolutions
providing for the issuance of any particular series of Preferred Stock
before any of the assets of the Corporation shall be distributed or paid
over to holders of Common Stock. After payment in full of said amounts to
the holders of Preferred Stock of all series, holders of Common Stock shall
be entitled to share ratably in the remaining net assets of the
Corporation, such that an equal amount of net assets shall be allocated to
each share of Common Stock, and the holders of Special Voting Stock shall
not be entitled to receive any such assets. A merger or consolidation of
the Corporation with or into any other corporation or a sale or conveyance
of all or any part of the assets of the Corporation (which shall not in
fact result in the liquidation of the Corporation and the distribution of
assets to stockholders) shall not be deemed to be a voluntary or
involuntary liquidation or dissolution or winding up of the Corporation
within the meaning of this paragraph 1.
2. Preemptive Rights. No stockholder of the Corporation shall, by
reason of his holding any shares of any class of the Corporation, have any
preemptive or preferential right to acquire or subscribe for any treasury
or unissued shares of any class of the Corporation now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities
convertible into or carrying any right, option or warrant to subscribe for
or acquire shares of any class of the Corporation now or hereafter to be
authorized, whether or not the issuance of any such shares, or such notes,
debentures, bonds or other securities, would adversely affect the dividends
or voting rights of such stockholder, and the Board of Directors of the
Corporation may issue shares of any class of this Corporation, or any
notes, debentures, bonds or other securities convertible into or carrying
rights, options or warrants to subscribe for or acquire shares of any class
of the Corporation, without offering any such shares of any class of the
Corporation, either in whole or in part, to the existing stockholders of
any class of the Corporation.
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<PAGE> 367
ANNEX G
SALOMON BROTHERS INC
FAIRNESS OPINION
<PAGE> 368
[LETTERHEAD OF SALOMON BROTHERS INC]
March 11, 1996
Members of the Board of Directors
Battle Mountain Gold Company
333 Clay Street, 42nd Floor
Houston, Texas 77002-4103
Attention: Karl E. Elers
Chairman of the Board and Chief Executive Officer
Dear Sirs:
You have asked us to advise you with respect to the fairness to the stockholders
of Battle Mountain Gold Company (the "Acquiror") from a financial point of view
of the Exchange Ratio (as defined below) which will be used to exchange shares
of Hemlo Gold Mines Inc. (the "Company") common stock for Exchangeable Shares
(as defined below) pursuant to the terms of a combination agreement, dated March
11, 1996 (the "Combination Agreement"), between the Company and the Acquiror.
The Combination Agreement provides for the acquisition of all of the common
stock of the Company by the Acquiror. Each share of common stock of the Company
outstanding prior to the Combination (as defined below) will be converted into
1.48 shares of the Company (the "Exchangeable Shares") which shall be
exchangeable for an equal number of shares of common stock of the Acquiror. Such
ratio of 1.48 Exchangeable Shares for each outstanding share of common stock of
the Company shall be defined as the "Exchange Ratio." The actions contemplated
by the Combination Agreement shall collectively be known as the "Combination."
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to the Acquiror and the Company, including a
draft of the Combination Agreement (which you have informed us is the form of
the Agreement which will be executed). We have also reviewed certain other
information, including financial forecasts and life of mine plans, provided to
us by the Company and the Acquiror, and have met with each of the Company's and
the Acquiror's management to discuss the business and prospects of the Company
and the Acquiror, respectively.
We have also considered certain financial and stock market data of the Acquiror
and the Company, and we have compared that data with similar data for the other
publicly held companies in businesses similar to those of the Acquiror and the
Company, and we have considered the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all respects. With respect to the financial
forecasts and life of mine plans, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Acquiror's and the Company's management as to the future
financial performance of the Acquiror and the Company, respectively. In
<PAGE> 369
BATTLE MOUNTAIN GOLD COMPANY
MARCH 11, 1996
PAGE 2
addition, we have not made an independent evaluation or appraisal of the assets
of the Acquiror or the Company, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist on the date hereof. It
should be understood that, although subsequent developments may affect this
opinion, we do not have any obligation to update, revise or reaffirm this
opinion. We are not expressing any opinion as to what the value of the
Exchangeable Shares actually will be when issued pursuant to the Combination or
the prices at which such Exchangeable Shares will trade subsequent to the
Combination. We have relied on advice of counsel to the Acquiror as to all legal
matters regarding the structure and tax implications of the Combination and
related matters. We have assumed that the Exchangeable Shares will be the
economic and voting equivalent of the underlying shares of the Acquiror's common
stock into which they are exchangeable. We have assumed that the Combination
will be treated as a pooling of interests under generally accepted accounting
principles in the United States. We have assumed that the Combination will
result in a tax-free rollover of bases for U.S. and Canadian shareholders of
Hemlo Gold Mines Inc.
We have acted as financial advisor to the Acquiror in connection with the
Combination and will receive a fee for our services, a significant portion of
which is contingent upon the consummation of the Combination. Additionally, we
have previously rendered investment banking and financial advisory services to
the Acquiror for which we received compensation. In the ordinary course of our
business, we actively trade the equity securities of both the Company and the
Acquiror, and the debt securities of the Acquiror, for our own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Acquiror only and is not to be quoted or referred to, in whole
or in part, in any registration statement, prospectus or proxy statement, or in
any other document used in connection with the offering or sale of securities,
nor shall this letter be used for any other purposes, without our prior written
consent, other than as provided for in the engagement agreement dated February
22, 1996 between the Acquiror and Salomon Brothers Inc. Our opinion does not
constitute a recommendation to any board member or stockholder of the Acquiror
or the Company as to how such board member or stockholder should vote on the
Combination or otherwise address the Acquiror's or the Company's respective
decisions to effect the Combination or the relative attractiveness of the
Combination compared to other strategic alternatives available to the Acquiror.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair to the stockholders of the Acquiror from a
financial point of view.
Very truly yours,
Salomon Brothers Inc
/s/ Graeme A. Gilfillan
Managing Director
G-2
<PAGE> 370
ANNEX H
RBC DOMINION SECURITIES INC.
FAIRNESS OPINION
<PAGE> 371
[Letterhead of RBC Dominion Securities, Inc.]
March 11, 1996
The Board of Directors
Hemlo Gold Mines Inc.
Suite 2902
1 Adelaide Street East
Toronto, Ontario
MSC 2Z9
Dear Sirs:
We understand that Battle Mountain Gold Company ("Battle Mountain") and
Hemlo Gold Mines Inc. ("Hemlo Gold") have executed a Combination Agreement dated
as of March 11, 1996 (the "Combination Agreement"), which agreement contemplates
an arrangement (the "Arrangement") whereby each outstanding Hemlo Gold common
share ("Hemlo Gold Common Share") will be exchanged for 1.48 shares of a new
class of Exchangeable Shares of Hemlo Gold, which are in turn exchangeable on a
one-for-one basis for Battle Mountain Common Stock. Pursuant to the Combination
Agreement, Battle Mountain will become the beneficial owner of the sole
outstanding Hemlo Gold Common Share and Hemlo Gold will change its name to
Battle Mountain Canada Inc. We have assumed that the Arrangement will be treated
as a pooling of interests under generally accepted accounting principles in the
United States and that the Arrangement will result in a tax-free roll-over of
bases for United States and Canadian holders of Hemlo Gold Common Shares.
The board of directors of Hemlo Gold (the "Board") has retained RBC
Dominion Securities Inc. ("RBC Dominion Securities") to provide its opinion (the
"Fairness Opinion") as to the fairness, from a financial point of view, of the
Arrangement, to the holders of Hemlo Gold Common Shares.
CREDENTIALS OF RBC DOMINION SECURITIES
RBC Dominion Securities 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, investment research and
investment management. The Fairness Opinion represents the opinion of RBC
Dominion Securities and the form and content hereof has 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 rendering the Fairness Opinion, we have reviewed and
relied upon, or carried out, among other things, the following:
<TABLE>
<S> <C>
(i) the Combination Agreement;
(ii) a draft of the 1995 Annual Information Form of Hemlo Gold, including audited
financial statements for the three years ended December 31, 1995;
(iii) life of mine operating and financial projections for the principal operations of
Hemlo Gold, prepared by Hemlo Gold management;
(iv) discussions with senior management of Hemlo Gold with respect to the current
operations, financial condition and future prospects of Hemlo Gold;
(v) discussions with the auditors of Hemlo Gold;
</TABLE>
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<PAGE> 372
<TABLE>
<S> <C>
(vi) the report on Form 10-K for Battle Mountain for the year ended December 31, 1995,
including the audited financial statements for the three years ended December 31,
1995;
(vii) life of mine operating and financial projections for the principal operations of
Battle Mountain, prepared by Battle Mountain management;
(viii) discussions with senior management of Battle Mountain with respect to the current
operations, financial condition and future prospects of Battle Mountain;
(ix) discussions with the auditors of Battle Mountain;
(x) publicly available information relating to the business, operations, financial
performance and stock trading history of Hemlo Gold, Battle Mountain and other
selected public companies;
(xi) information with respect to other transactions of a comparable nature considered
by RBC Dominion Securities to be relevant in the circumstances;
(xii) representations contained in a certificate addressed to us dated the date hereof
from senior officers of Hemlo Gold; and
(xiii) such other information, investigations and analyses as we considered necessary or
appropriate in the circumstances.
</TABLE>
RBC Dominion Securities has not, to the best of its knowledge, been denied
access by Hemlo Gold or Battle Mountain to any information requested by RBC
Dominion Securities.
CONSIDERATIONS
For the purpose of rendering the Fairness Opinion we have considered, among
other things, the following:
<TABLE>
<S> <C>
(i) the terms and conditions of the Exchangeable Shares;
(ii) the exchange ratio results in a premium of approximately 20 percent based on the
closing market prices of the common shares of Hemlo Gold and Battle Mountain
prior to the public announcement of the Arrangement and represents a premium of
approximately 29 percent based on the ratio of the average of the closing market
prices of the respective shares for the 20 trading days prior to such
announcement;
(iii) the pro-forma increase, on a per Hemlo Gold Common Share basis, in proven and
probable reserves, near term production, near term cash flow and net asset values
based upon undiscounted free cash flows;
(iv) the pro-forma decrease, on a per Hemlo Gold Common Share basis, in near term
earnings;
(v) the benefits of holding shares in a larger company with a more diversified asset
base; particularly the reduction in the proportion of gold production from a
single mine from more than 80 percent to less than 40 percent;
(vi) the increase in the proportion of reserves and production derived from non-North
American operations;
(vii) the increase in total market capitalization and liquidity of the combined company
relative to Hemlo Gold;
(viii) that holders of the Hemlo Gold Common Shares will continue to own approximately
62% of the equity of the combined company; and
(ix) that Hemlo Gold and Battle Mountain have a number of complementary capabilities
and characteristics.
</TABLE>
ASSUMPTIONS AND LIMITATIONS
We have relied upon, and have assumed the completeness, accuracy and fair
presentation of all financial and other information, data, advice, opinions and
representations obtained by us from public sources or provided to us by Hemlo
Gold and Battle Mountain and their respective affiliates of advisors, or
otherwise
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<PAGE> 373
pursuant to our engagement. The Fairness Opinion is conditional upon such
completeness, accuracy and fair presentation. Subject to the exercise of
professional judgment and except as expressly described herein, we have not
attempted to verify independently the accuracy or completeness of any of such
information, data, advice, opinions and representations. Certain senior officers
of Hemlo Gold have represented to us, in a certificate delivered as of the date
hereof, among other things, that the information, data and other material
(financial and otherwise) (the "Information") provided to RBC Dominion
Securities relating to Hemlo Gold or any of its subsidiaries for the purpose of
preparing the Fairness Opinion was, at the date the Information was provided to
RBC Dominion Securities, and is, complete, true and correct in all material
respects, and that, since the dates on which the Information was provided to RBC
Dominion Securities, there has been no material change, financial or otherwise,
in the financial condition, assets, liabilities (contingent or otherwise),
business, operations or prospects of Hemlo Gold, or any of 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 Fairness Opinion. In rendering our opinion, we have assumed that the
Arrangement will be consummated on the terms and conditions set forth in the
Combination Agreement without material modification, amendment or waiver.
The Fairness Opinion is rendered on the basis of securities markets,
economic and general business and financial conditions prevailing as at the date
hereof and the condition and prospects, financial and otherwise, of Hemlo Gold
and Battle Mountain as they were reflected in the information and documents
reviewed by RBC Dominion Securities and as they were represented to RBC Dominion
Securities in discussions with management of Hemlo Gold and Battle Mountain. In
our analysis and in connection with the preparation of the Fairness Opinion, we
have made numerous assumptions with respect to industry performance, general
business, market and economic conditions and other matters, many of which are
beyond the control of any party involved with the Arrangement. The Fairness
Opinion is not intended to be and does not constitute a recommendation to any
shareholder of Hemlo Gold as to how such shareholder should vote in connection
with the Arrangement.
RBC Dominion Securities has acted as financial advisor to Hemlo Gold in
connection with the Arrangement and will be paid a fee for services as financial
advisor, a significant portion of which is contingent on the consummation of the
Arrangement.
OPINION
Based upon and subject to the foregoing, RBC Dominion Securities is of the
opinion that, as of the date hereof, the Arrangement is fair from a financial
point of view to the holders of the Hemlo Gold Common Shares.
Yours very truly,
/s/ RBC DOMINION SECURITIES INC.
RBC DOMINION SECURITIES INC.
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<PAGE> 374
ANNEX I
AMENDED AND RESTATED
1994 LONG-TERM INCENTIVE PLAN
OF BATTLE MOUNTAIN GOLD COMPANY
<PAGE> 375
AMENDED AND RESTATED
1994 LONG-TERM INCENTIVE PLAN
OF
BATTLE MOUNTAIN GOLD COMPANY
1. Objectives. The 1994 Long-Term Incentive Plan (the "Plan") of Battle
Mountain Gold Company, a Nevada corporation (the "Company"), as amended and
restated as of June 1, 1996, is designed to retain key executives and other
selected employees and reward them for making major contributions to the success
of the Company and its Subsidiaries (as hereinafter defined). These objectives
are to be accomplished by making awards under the Plan and thereby providing
Participants (as hereinafter defined) with a proprietary interest in the growth
and performance of the Company and its Subsidiaries.
2. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Award" means the grant of any form of stock option, stock
appreciation right, stock award or cash award, whether granted singly, in
combination or in tandem, to a Participant pursuant to any applicable
terms, conditions and limitations as the Committee may establish in order
to fulfill the objectives of the Plan.
"Award Agreement" means a written agreement between the Company and a
Participant that sets forth the terms, conditions and limitations
applicable to an Award.
"Board" means the Board of Directors of the Company.
"BMG Canada" means Battle Mountain Canada Inc., an Ontario corporation
(formerly named Hemlo Gold Mines Inc.).
"BMG Canada Shares" means the Exchangeable Shares of BMG Canada.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means such committee of the Board as is designated by the
Board to administer the Plan. The Committee shall be constituted to permit
the Plan to comply with Rule 16b-3, as hereinafter defined.
"Common Stock" means the Common Stock, par value $0.10 per share, of
the Company.
"Director" means an individual serving as a member of the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" of the Common Stock means, as of a particular
date, (i) if the shares of Common Stock are listed on a national securities
exchange, the closing sales price per share of Common Stock on the
consolidated transaction reporting system for the principal such national
securities exchange in the United States on that date, or, if there shall
have been no such sale so reported on that date, on the last preceding date
on which such a sale was so reported, (ii) if the shares of Common Stock
are not so listed but are quoted in the NASDAQ National Market System, the
closing sales price per share of Common Stock on the NASDAQ National Market
System on that date, or, if there shall have been no such sale so reported
on that date, on the last preceding date on which such a sale was so
reported or (iii) if the Common Stock is not so listed or quoted, the mean
between the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the last preceding date on which
such quotations shall be available, as reported by NASDAQ, or, if not
reported by NASDAQ, by the National Quotation Bureau, Inc.
"Fair Market Value" of the BMG Canada Shares means, as of a particular
date, (i) if the BMG Canada Shares are listed on the Toronto Stock Exchange
or, if not then listed on the Toronto Stock Exchange, on any other
recognized stock exchange in Canada the closing sales price per share on
the principal such exchange as of such date, or if there shall have been no
sale as reported on that date, on the
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<PAGE> 376
last preceding date on which a sale was so reported, (ii) if the BMG Canada
Shares are not so listed but are quoted on an over-the-counter market, the
closing sales price per share of BMG Canada Shares on such market on that
date, or, if there shall have been no such sale reported on that date, on
the last preceding date on which such a sale was so reported or (iii) if
the BMG Canada Shares are not so listed or quoted, the amount determined by
the Board.
"Participant" means an employee of the Company or any of its
Subsidiaries to whom an Award has been made under this Plan.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
"Subsidiary" means any corporation of which the Company directly or
indirectly owns shares representing more than 50% of the voting power of
all classes or series of capital stock of such corporation which have the
right to vote generally on matters submitted to a vote of the stockholders
of such corporation.
3. Eligibility. Employees of the Company and its Subsidiaries eligible for
an Award under this Plan are those who hold positions of responsibility and
whose performance, in the judgment of the Committee, can have a significant
effect on the success of the Company and its Subsidiaries.
4. Common Stock Available for Awards. There shall be available for Awards
granted wholly or partly in Common Stock or BMG Canada Shares (including rights
or options which may be exercised for or settled in Common Stock or BMG Canada
Shares) during the term of this Plan an aggregate of 10,000,000 shares of Common
Stock or BMG Canada Shares. Notwithstanding the foregoing, not more than an
aggregate of 2,500,000 shares of Common Stock or BMG Canada Shares shall be
available for Awards other than stock options and stock appreciation rights
granted at an exercise or strike price not less than the Fair Market Value on
the date of grant. Shares of Common Stock and BMG Canada Shares shall count
against the foregoing 10,000,000 share and 2,500,000 share limits on an equal
basis. The Board of Directors and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file required documents
with governmental authorities and stock exchanges and transaction reporting
systems to make shares of Common Stock or BMG Canada Shares available for
issuance pursuant to Awards. Common Stock or BMG Canada Shares related to Awards
that are forfeited or terminated, expire unexercised, are settled in cash in
lieu of shares or in a manner such that all or some of the shares covered by an
Award are not issued to a Participant, or are exchanged for Awards that do not
involve Common Stock or BMG Canada Shares, shall immediately become available
for Awards hereunder. The Committee may from time to time adopt and observe any
such procedures concerning the counting of shares against the Plan maximum as it
may deem appropriate under Rule 16b-3.
5. Administration. This Plan shall be administered by the Committee, which
shall have full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. Unless
otherwise provided in an Award Agreement with respect to a particular award, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Award, accelerate the vesting or exercisability of an
Award, eliminate or make less restrictive any restrictions contained in an
Award, waive any restriction or other provision of this Plan or an Award or
otherwise amend or modify an Award in any manner that is either (i) not adverse
to the Participant holding such Award or (ii) consented to by such Participant.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect. Any decision of
the Committee in the interpretation and administration of this Plan shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. No member of the Committee or officer of the
Company to whom it has delegated authority in accordance with the provisions of
Paragraph 6 of this Plan shall be liable for anything done or omitted to be done
by him or her, by any member of the Committee or by any officer of the Company
in connection with the performance of any duties under this Plan, except for his
or her own willful misconduct or as expressly provided by statute.
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<PAGE> 377
6. Delegation of Authority. The Committee may delegate to senior officers
of the Company its duties under this Plan pursuant to such conditions or
limitations as the Committee may establish, except that the Committee may not
delegate to any person the authority to grant Awards to, or take other action
with respect to, Participants who are subject to Section 16 of the Exchange Act.
7. Awards. The Committee shall determine the type or types of Awards to be
made to each Participant under this Plan. Each Award made hereunder shall be
embodied in an Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant and by the Chief Executive Officer, the Chief
Operating Officer, or any Vice President of the Company for and on behalf of the
Company. Awards may consist of those listed in this Paragraph 7 and may be
granted singly, in combination or in tandem. Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under this Plan or any other employee plan of the Company or any of
its Subsidiaries, including the plan of any acquired entity. An Award may
provide for the granting or issuance of additional, replacement or alternative
Awards upon the occurrence of specified events, including the exercise of the
original Award. An Award may provide that to the extent that the acceleration of
vesting or any payment made to a Participant under this Plan in the event of a
change of control of the Company is subject to federal income, excise, or other
tax at a rate above the rate ordinarily applicable to like payments paid in the
ordinary course of business ("Penalty Tax"), whether as a result of the
provisions of Sections 280G and 4999 of the Code, any similar or analogous
provisions of any statute adopted subsequent to the date hereof, or otherwise,
then the Company shall be obligated to pay such Participant an additional amount
of cash (the "Additional Amount") such that the net amount received by such
Participant, after paying any applicable Penalty Tax and any federal or state
income tax on such Additional Amount, shall be equal to the amount that such
Participant would have received if such Penalty Tax were not applicable.
Notwithstanding anything herein to the contrary, no Participant may be granted,
during any 3-year period, Awards consisting of stock options or stock
appreciation rights exercisable for more than 12.5 percent of the aggregate
shares of Common Stock and BMG Canada Shares reserved for issuance under the
Plan.
(a) Stock Option. An Award may consist of a right to purchase a specified
number of shares of Common Stock or BMG Canada Shares at a specified price that
is not less than the greater of (i) the Fair Market Value of the Common Stock or
BMG Canada Shares, as applicable, on the date of grant and (ii) in the case of a
right to purchase Common Stock, the par value of the Common Stock on the date of
grant. A stock option may be in the form of an incentive stock option ("ISO")
which, in addition to being subject to applicable terms, conditions and
limitations established by the Committee, complies with Section 422 of the Code.
(b) Stock Appreciation Right. An Award may consist of a right to receive a
payment, in cash or Common Stock, equal to the excess of the Fair Market Value
or other specified valuation of a specified number of shares of Common Stock or
BMG Canada Shares on the date the stock appreciation right ("SAR") is exercised
over a specified strike price as set forth in the applicable Award Agreement.
(c) Stock Award. An Award may consist of Common Stock or BMG Canada Shares
may be denominated in units of Common Stock or BMG Canada Shares. All or part of
any stock award may be subject to conditions established by the Committee, and
set forth in the Award Agreement, which may include, but are not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining
specified growth rates and other comparable measurements of performance. Such
Awards may be based on Fair Market Value or other specified valuations. The
certificates evidencing shares of Common Stock or BMG Canada Shares issued in
connection with a stock award shall contain appropriate legends and restrictions
describing the terms and conditions of the restrictions applicable thereto.
(d) Cash Award. An Award may be denominated in cash with the amount of the
eventual payment subject to future service and such other restrictions and
conditions as may be established by the Committee, and set forth in the Award
Agreement, including, but not limited to, continuous service with the Company
and its Subsidiaries, achievement of specific business objectives, increases in
specified indices, attaining specified growth rates and other comparable
measurements of performance.
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8. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash, Common
Stock, BMG Canada Shares or combinations thereof and may include such
restrictions as the Committee shall determine, including in the case of Common
Stock or BMG Canada Shares, restrictions on transfer and forfeiture provisions.
As used herein, "Restricted Stock" means shares of Common Stock or BMG Canada
Shares that are restricted or subject to forfeiture provisions.
(b) Deferral. With the approval of the Committee, payments may be deferred,
either in the form of installments or a future lump sum payment. The Committee
may permit selected Participants to elect to defer payments of some or all types
of Awards in accordance with procedures established by the Committee. Any
deferred payment, whether elected by the Participant or specified by the Award
Agreement or by the Committee, may be forfeited if and to the extent that the
Award Agreement so provides.
(c) Dividends and Interest. Dividends or dividend equivalent rights may be
extended to and made part of any Award denominated in Common Stock or BMG Canada
Shares or units of Common Stock or BMG Canada Shares, subject to such terms,
conditions and restrictions as the Committee may establish. The Committee may
also establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payment denominated in
Common Stock or BMG Canada Shares or units of Common Stock or BMG Canada Shares.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another Award
or Awards of the same or different type.
9. Stock Option Exercise. The price at which shares of Common Stock or BMG
Canada Shares may be purchased under a stock option shall be paid in full at the
time of exercise in cash or, if permitted by the Committee, by means of
tendering Common Stock or BMG Canada Shares or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of exercise,
or any combination thereof. The Committee shall determine acceptable methods for
tendering Common Stock, BMG Canada Shares or other Awards to exercise a stock
option as it deems appropriate. If permitted by the Committee, payment may be
made by successive exercises by the Participant. The Committee may provide for
loans from the Company to permit the exercise or purchase of Awards and may
provide for procedures to permit the exercise or purchase of Awards by use of
the proceeds to be received from the sale of Common Stock or BMG Canada Shares
issuable pursuant to an Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as consideration
for the exercise of a stock option, a number of the shares issued upon the
exercise of the stock option, equal to the number of shares of Restricted Stock
used as consideration therefor, shall be subject to the same restrictions as the
Restricted Stock so submitted as well as any additional restrictions that may be
imposed by the Committee.
10. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Award payment and withhold, at the time of delivery or vesting of
cash or shares of Common Stock or BMG Canada Shares under this Plan, an
appropriate amount of cash or number of shares of Common Stock or BMG Canada
Shares or a combination thereof for payment of taxes required by law or to take
such other action as may be necessary in the opinion of the Company to satisfy
all obligations for withholding of such taxes. The Committee may also permit
withholding to be satisfied by the transfer to the Company of shares of Common
Stock or BMG Canada Shares theretofore owned by the holder of the Award with
respect to which withholding is required. If shares of Common Stock or BMG
Canada Shares are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value thereof when the tax withholding is required to
be made.
11. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law except that (i) no amendment or alteration that would impair the rights
of any Participant under any Award previously granted to such Participant shall
be made without such Participant's consent and (ii) no amendment or alteration
shall be effective prior to approval by the Company's stockholders to the extent
such approval is then required pursuant to Rule 16b-3 in order to preserve the
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applicability of any exemption provided by such rule to any Award then
outstanding (unless the holder of such Award consents) or to the extent
stockholder approval is otherwise required by applicable legal requirements.
12. Termination of Employment. Upon the termination of employment by a
Participant, any unexercised, deferred or unpaid Awards shall be treated as
provided in the specific Award Agreement evidencing the Award. In the event of
such a termination, the Committee may, in its discretion, provide for the
extension of the exercisability of an Award, accelerate the vesting or
exercisability of an Award, eliminate or make less restrictive any restrictions
contained in an Award, waive any restriction or other provision of this Plan or
an Award or otherwise amend or modify the Award in any manner that is either (i)
not adverse to such Participant or (ii) consented to by such Participant.
13. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c) under the
Exchange Act shall be assignable or otherwise transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. The Committee may prescribe and include
in applicable Award Agreements other restrictions on transfer. Any attempted
assignment of an Award or any other benefit under this Plan in violation of this
Paragraph 13 shall be null and void.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the
right or power of the Company or its stockholders or of BMG Canada to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the capital stock of the Company or BMG Canada or their respective
businesses or any merger or consolidation of the Company or BMG Canada, or any
issue of bonds, debentures, preferred or prior preference stock (whether or not
such issue is prior to, on a parity with or junior to the Common Stock or the
BMG Canada Shares) or the dissolution or liquidation of the Company or BMG
Canada, or any sale or transfer of all or any part of their respective assets or
businesses, or any other corporate act or proceeding of any kind, whether or not
of a character similar to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock or BMG Canada Shares or declaration of a dividend payable in
shares of Common Stock or BMG Canada Shares or capital reorganization or
reclassification or other transaction involving an increase or reduction in the
number of outstanding shares of Common Stock or BMG Canada Shares, the Committee
may adjust proportionally (i) the number of shares of Common Stock and BMG
Canada Shares reserved under this Plan and covered by outstanding Awards
denominated in Common Stock or units of Common Stock or BMG Canada Shares; (ii)
the exercise or other price in respect of such Awards; and (iii) the appropriate
Fair Market Value and other price determinations for such Awards. In the event
of any consolidation or merger of the Company with another corporation or entity
or the adoption by the Company of a plan of exchange affecting the Common Stock
or BMG Canada Shares or any distribution to holders of Common Stock or BMG
Canada Shares of securities or property (other than normal cash dividends or
dividends payable in Common Stock or BMG Canada Shares), the Committee shall
make such adjustments or other provisions as it may deem equitable, including
adjustments to avoid fractional shares, to give proper effect to such event. In
the event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Committee shall be
authorized to issue or assume stock options, regardless of whether in a
transaction to which Section 424(a) of the Code applies, by means of
substitution of new options for previously issued options or an assumption of
previously issued options, or to make provision for the acceleration of the
exercisability of, or lapse of restrictions with respect to, Awards and the
termination of unexercised options in connection with such transaction.
15. Restrictions. No shares of Common Stock or BMG Canada Shares or other
form of payment shall be issued with respect to any Award unless the Company
shall be satisfied based on the advice of its counsel that such issuance will be
in compliance with applicable federal and state securities laws. It is the
intent of the Company that this Plan comply with Rule 16b-3 with respect to
persons subject to Section 16 of the Exchange Act unless otherwise provided
herein or in an Award Agreement, that any ambiguities or inconsistencies in the
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construction of this Plan be interpreted to give effect to such intention, and
that if any provision of this Plan is found not to be in compliance with Rule
16b-3, such provision shall be null and void to the extent required to permit
this Plan to comply with Rule 16b-3. Certificates evidencing shares of Common
Stock or BMG Canada Shares delivered under this Plan may be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable under
the rules, regulations and other requirements of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which
shares of Common Stock or BMG Canada Shares are then listed and any applicable
federal and state securities law. The Committee may cause a legend or legends to
be placed upon any such certificates to make appropriate reference to such
restrictions.
16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock
or BMG Canada Shares or rights thereto, this Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Participants who are
entitled to cash, Common Stock or BMG Canada Shares or rights thereto under this
Plan, any such accounts shall be used merely as a bookkeeping convenience. The
Company shall not be required to segregate any assets that may at any time be
represented by cash, Common Stock or BMG Canada Shares or rights thereto, nor
shall this Plan be construed as providing for such segregation, nor shall the
Company nor the Board nor the Committee be deemed to be a trustee of any cash,
Common Stock or BMG Canada Shares or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with respect
to a grant of cash, Common Stock or BMG Canada Shares or rights thereto under
this Plan shall be based solely upon any contractual obligations that may be
created by this Plan and any Award Agreement, and no such liability or
obligation of the Company shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company. Neither the Company nor the Board
nor the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by this Plan.
17. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of Nevada.
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ANNEX J
GLOSSARY OF CERTAIN MINING TERMS
<PAGE> 382
GLOSSARY OF CERTAIN MINING TERMS
Unless the context otherwise requires, the following terms shall have the
following meanings when used in the Joint Proxy Statement.
"acre" means one acre or 0.4047 net hectare.
"carbon-in-leach" means a milling process for the recovery of gold from
slurried ore in a dilute sodium cyanide solution, whereby the gold is dissolved
and adsorbed onto coarse carbon particles and then stripped from the carbon by a
screening process.
"carbon-in-pulp" means a milling process for the recovery of precious
metals by adsorption onto activated carbon. The precious metals are recovered
from the enriched carbon by elution and electrolysis.
"contained ounces" means ounces before allowance for mining dilution and
metallurgical recovery.
"cutoff grade" means the lowest grade of mineralized rock that qualifies as
ore grade in a given deposit, or the grade below which the mineralized rock
currently cannot be economically mined. Cutoff grades vary between deposits
depending upon the amenability of ore to gold extraction, costs of production
and assumed gold prices.
"dore" means an unrefined alloy of gold, silver and other impurities
normally in the form of bars or buttons.
"equivalent ounce of gold" means a comparable unit obtained by applying a
silver-to-gold or a copper-to-gold price ratio to the total market value of
silver and copper, respectively, produced during a given period, based on Battle
Mountain's average realized prices for each metal during that period.
"grass-roots exploration" means exploration for a mineral deposit in an
area which may be located near a known mineral deposit, but in which a mineral
deposit has not previously been discovered.
"leach" means to dissolve minerals or metals out of ore with chemicals.
Heap leaching gold involves the percolation of a cyanide solution either through
crushed ore or ore transported directly from the mine (run-of-mine).
"mile" means one mile or 1.6093 kilometers.
"mining claim" means that portion of public mineral lands which a party has
staked or marked out in accordance with federal, provincial or state mining laws
to acquire the right to explore for and exploit the minerals under the surface.
"net smelter return" means actual gold and silver sales revenues after
customary deductions for the cost of refining, freight, insurance and taxes.
"ore" means material that can be economically mined and processed.
"ore body" means a deposit of economically recoverable minerals, the extent
and grade of which has been defined through exploration and development work.
"ore reserve" means that part of a mineral deposit which at the time of the
reserve determination could be economically and legally extracted or produced.
"ounce" or "oz" means a troy ounce, 1.097 avoirdupois ounces or 31.103
grams.
"patented mining claim" means a mining claim with respect to which the U.S.
federal government has granted fee title after fulfillment of the government's
qualifying requirements.
"probable ore reserves" means reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven reserves,
but the sites for inspection, sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven reserves, is high enough to assume continuity between points of
observation.
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"proven ore reserves" means reserves for which (a) the quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes and
grade and/or quality are computed from the results of detailed sampling and (b)
the sites for inspection, sampling and measurements are spaced so closely and
the geologic character is so well defined that size, shape, depth and mineral
content of reserves are well established.
"reclamation" means the process of restoring mined land to a condition
which allows future beneficial use. Reclamation standards vary widely from
jurisdiction to jurisdiction but usually address ground and surface water,
topsoil, final slope gradients, waste handling and revegetation issues.
"stripping ratio" means the ratio of the number of tons of waste to the
number of tons of ore which will be extracted during the excavation of an open
pit mine.
"sulfide" means a mineral compound characterized by the presence of sulfur.
"tailing" means material rejected from a mill after the recoverable
valuable minerals have been extracted.
"tailings facility" means a natural or man-made area suitable for
depositing ground waste material resulting from the milling and/or processing of
ore.
"ton" means a short ton of 2,000 pounds or 907.2 kilograms, dry weight
basis.
"tonnes" means a unit of mass and weight equal to 1,000 kilograms or
2,204.6 pounds, dry weight basis.
"unpatented mining claim" means a claim, either lode or placer, for which
no patent has been issued. The claim owner has the right to exclusive possession
of the locatable minerals in the area claimed. Such property rights are subject
to the paramount title of the U.S. federal government until a patent is
obtained.
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PROXY
BATTLE MOUNTAIN GOLD COMPANY
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting of Stockholders to be held Monday, July 15, 1996
The undersigned hereby appoints Joseph L. Mazur, R. Dennis O'Connell and
Robert J. Quinn, jointly and severally, proxies, with full power of
substitution and with discretionary authority, to represent and to vote, as
designated on the reverse side hereof, all shares of Common Stock which the
undersigned is entitled to vote at the 1996 annual meeting of stockholders of
Battle Mountain Gold Company, or any adjournment or postponement thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder.
If no direction is made, this proxy will be voted FOR Proposals 1, 2, 3 and
4.
(Continued and to be signed and dated on other side)
BATTLE MOUNTAIN GOLD COMPANY
P.O. BOX 11394
NEW YORK, N.Y. 10203-0394
- --------------------------------------------------------------------------------
1. Election of Directors
FOR all nominees listed below [ ]
WITHHOLD AUTHORITY to vote for all nominees listed below [ ]
* EXCEPTIONS [ ]
Nominees: Charles E. Childers, Karl E. Elars, Kenneth R. Werneburg
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided
below.)
*Exceptions____________________________________________________________________
2. PROPOSAL TO APPROVE AND ADOPT THE COMBINATION AGREEMENT effective as of
March 11, 1996 by and between the Company and Hemlo Gold Mines Inc. and the
transactions contemplated thereby, including the amendment of the Company's
Restated Articles of Incorporation.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO AMEND THE COMPANY'S 1994 LONG-TERM INCENTIVE PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO RATIFY THE APPOINTMENT of Price Waterhouse LLP as the Company's
independent accountants in 1996.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the proxies are authorized to vote upon any other
business as may properly come before the annual meeting.
Change of Address and/or Comments Mark Here [ ]
(In signing as Attorney, Administrator,
Executor, Guardian, Trustee or Corporate
Officer, please add your title as such.)
Date:
-----------------------------------
----------------------------------------
(Signature of Stockholder)
----------------------------------------
(Signature of Stockholder)
Votes must be indicated (x) in Black or
Blue ink. [ ]
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope
