<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1997
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMAX GOLD INC.
(Exact name of registrant as specified in its charter)
-------------------
DELAWARE 06-1199974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
-------------------
9100 EAST MINERAL CIRCLE
ENGLEWOOD, COLORADO 80112
(303) 643-5500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------
DEBORAH J. FRIEDMAN, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
AMAX GOLD INC.
9100 EAST MINERAL CIRCLE
ENGLEWOOD, COLORADO 80112
(303) 643-5500
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-------------------
Copies to:
PAUL HILTON, ESQ.
DAVIS, GRAHAM & STUBBS LLP
370 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 892-9400
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by the Registrant.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
-------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED/(1)/ PER UNIT/(2)/ OFFERING PRICE/(1)(3)/ REGISTRATION FEE/(1)(3)/
<S> <C> <C> <C> <C>
Debt Securities/(4)/
Common Stock, par value $.01 per share/(5)/
Preferred Stock, par value $1.00 per share/(6)/
Warrants/(7)/
Total $200,000,000 100% $200,000,000 $60,607
===================================================================================================================================
</TABLE>
(1) In U.S. dollars or the equivalent thereof in one or more foreign currencies
or currency units or composite currencies, including the European Currency
Unit. Pursuant to Rule 429(b) under the Securities Act of 1933, securities
in the amount of $108,000,000 are being carried forward from Registration
Statement No. 33-53963, previously filed by the Registrant on Form S-3, and
the amount of the filing fee associated with such securities that was paid
previously with such filing was $37,242.
(2) The proposed maximum initial offering price per unit will be determined,
from time to time, by the Registrant.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o). In no event will the aggregate initial offering
price of all securities issued from time to time pursuant to this
Registration Statement exceed $200,000,000.
(4) Subject to Footnote (3), there are being registered hereunder an
indeterminate principal amount of Debt Securities as may be sold from time
to time by the Registrant. If any such Debt Securities are issued at an
original issue discount, then the offering price shall be in such greater
principal amount as shall result in an aggregate initial offering price of
up to $200,000,000.
(5) Subject to Footnote (3), there are being registered hereunder an
indeterminate number of shares of Common Stock as may be sold from time to
time by the Registrant. There are also being registered hereunder an
indeterminate number of shares of Common Stock as may be issued upon
conversion of Debt Securities or Preferred Stock.
(6) Subject to Footnote (3), there are being registered hereunder an
indeterminate number of shares of Preferred Stock as may be sold from time
to time by the Registrant.
(7) Subject to Footnote (3), there are being registered hereunder an
indeterminate number of warrants to purchase Debt Securities, Common Stock
or Preferred Stock as may be sold from time to time by the Registrant.
--------------------------
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in this Registration Statement will also be used in connection with the
issuance of securities registered pursuant to Registration Statement No. 33-
53963 previously filed by the Registrant on Form S-3 and declared effective on
July 21, 1994. This Registration Statement, which is a new registration
statement, also constitutes Post-Effective Amendment No. 1 to Registration
Statement No. 33-53963, and such Post-Effective Amendment shall hereafter become
effective concurrently with the effectiveness of this Registration Statement and
in accordance with Section 8(c) of the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
-2-
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
SUBJECT TO COMPLETION
FEBRUARY __, 1997
PROSPECTUS
AMAX GOLD INC.
[LOGO OF AMAX GOLD INC. APPEARS HERE]
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
Amax Gold Inc. (the "Company" or "Amax Gold") may offer from time to time
(i) debt securities ("Debt Securities"), consisting of debentures, notes,
bonds and/or other unsecured evidences of indebtedness in one or more series,
(ii) shares of preferred stock, par value $1.00 per share ("Preferred Stock"),
in one or more series, (iii) shares of common stock, par value $.01 per share
("Common Stock") and (iv) warrants ("Warrants") to purchase Debt Securities,
Preferred Stock or Common Stock. The Debt Securities, Preferred Stock, Common
Stock and Warrants (collectively, the "Securities") may be offered either
together or separately in amounts, at prices and on terms to be determined at
the time of offering. The Securities offered pursuant to this Prospectus will
be limited to an aggregate initial offering price not to exceed U.S.$200,000,000
(or the equivalent in foreign currency or currency units).
The accompanying Prospectus Supplement sets forth with regard to the particular
Securities in respect of which this Prospectus is being delivered (i) in the
case of Debt Securities, the title, aggregate principal amount, denominations
(which may be in United States dollars, in any other currency, currencies or
currency unit, including the European Currency Unit), maturity, rate, if any
(which may be fixed or variable) or method of calculation thereof, and time of
payment of any interest, any terms for redemption at the option of the Company
or the holder, any terms for sinking fund payments, any conversion or exchange
rights, any modification of the covenants, any listing of such Debt Securities
on a securities exchange and the initial public offering price and any other
terms in connection with the offering and sale of such Debt Securities, (ii) in
the case of Preferred Stock, the designation, aggregate principal amount, and
stated value and liquidation preference per share, initial public offering
price, dividend rate (or method of calculation), dates on which dividends shall
be payable, any redemption or sinking fund provisions, any conversion or
exchange rights, whether the Company has elected to offer the Preferred Stock in
the form of depositary shares, any listing of such Preferred Stock on a
securities exchange, and any other terms in connection with the offering and
sale of such Preferred Stock; (iii) in the case of Common Stock, the number of
shares of Common Stock and the terms of the offering and sale thereof; and (iv)
in the case of Warrants, the number and terms thereof, the number of shares of
Common Stock or Preferred Stock, or amount of Debt Securities, issuable upon
their exercise, the exercise price, the periods during which the Warrants are
exercisable, the terms of the Preferred Stock or Debt Securities issuable upon
exercise, any listing of such Warrants on a securities exchange and any other
terms in connection with the offering, sale and exercise of such Warrants. If
so specified in the applicable Prospectus Supplement, Securities may be issued
in whole or in part in the form of one or more temporary or permanent global
securities. The Prospectus Supplement will also contain information, as
applicable, about certain United States federal income tax considerations
relating to the Securities in respect of which this Prospectus is being
delivered.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE SECURITIES.
The Company's outstanding Common Stock and $3.75 Series B Convertible Preferred
Stock are listed on the New York Stock Exchange (the "NYSE") under the symbols
"AU" and "AUPrB", respectively. The Common Stock is also listed on The
Toronto Stock Exchange (the "TSE") under the symbol "AXG". Each Prospectus
Supplement will indicate if the Securities offered thereby will be listed on any
securities exchange.
<PAGE>
The Company may sell Securities to or through one or more underwriters, and also
may sell Securities directly to other purchasers or through agents. Such
underwriters may include Salomon Brothers Inc. The accompanying Prospectus
Supplement sets forth the names of any underwriters, dealers or agents involved
in the sale of the Securities in respect of which this Prospectus is being
delivered, the principal amounts, if any, to be purchased by such underwriters
and the compensation, if any, of such underwriters or agents. See "Plan of
Distribution" herein.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is _____________, 1997.
-2-
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR
IN THE PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY UNDERWRITER, AGENT, DEALER OR OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES IN RESPECT OF WHICH THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT ARE DELIVERED OR AN OFFER OF ANY SECURITIES
IN ANY JURISDICTION TO ANY PERSON WHERE SUCH AN OFFER WOULD BE UNLAWFUL.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its Regional Offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511,
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W. Plaza, Washington, D.C. 20549. The
Company is also subject to the information and reporting requirements of the
securities regulatory authorities of certain provinces of Canada and files
similar reports, proxy statements and other information with such authorities.
The Common Stock is listed on the NYSE and the TSE. Such reports, proxy
statements and other information can also be inspected and copied at the
respective offices of these exchanges at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005 and The Toronto Stock Exchange, 2 First
Canadian Place, Toronto, Ontario, Canada M5X 1J2. The Commission maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Securities offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and the
exhibits thereto for further information with respect to the Company and the
Securities. The Registration Statement and the exhibits thereto can be obtained
from or inspected and copied at the public reference facilities maintained by
the Commission as described in the prior paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 29, 1996.
2. Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1996, filed with the Commission on May 15, 1996.
3. Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1996, filed with the Commission on August 13, 1996.
4. Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996, filed with the Commission on November 14, 1996.
5. Consent Solicitation Statement, dated August 19, 1996, filed with
the Commission on August 23, 1996.
-3-
<PAGE>
6. Consent Solicitation Statement, dated November 29, 1996, filed with
the Commission on December 3, 1996.
7. The description of the Common Stock and Preferred Stock contained
in the Registration Statement on Form 8-B, filed with the Commission on June 21,
1995.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Securities
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of filing of such documents. Any statement contained herein, or in
a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein or in the Prospectus Supplement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner of Securities, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated by reference herein, except for the exhibits to such documents
(unless such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to Investor Relations, 9100 East Mineral
Circle, Englewood, Colorado 80112. Telephone requests may be directed to
Investor Relations at (303) 643-5625.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and any Prospectus Supplement,
including statements made in documents incorporated by reference herein or
therein, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements include statements regarding expected dates for
commencement of mining, gold production and commercial production, projected
quantities of future gold production, estimated reserves and recovery rates,
anticipated production rates, costs and expenditures, prices realized by the
Company, growth plans and sources of financing and repayment alternatives.
Factors that could cause actual results to differ materially include, among
others: risks and uncertainties relating to general domestic and international
economic and political conditions, the volatile price of gold (that has recently
declined below $350 per ounce), the political and economic risks associated with
foreign operations, cost overruns, construction delays, unanticipated ground and
water conditions, unanticipated grade and geological problems, metallurgical and
other processing problems, availability of materials and equipment, the timing
of receipt of necessary governmental permits, the occurrence of unusual weather
or operating conditions, force majeure events, lower than expected ore grades,
the failure of equipment or processes to operate in accordance with
specifications or expectations, labor relations, accidents, delays in
anticipated start-up dates, environmental risks, the results of financing
efforts and financial market conditions and other risk factors detailed in "Risk
Factors" and the Company's filings with the Commission. Many of such factors
are beyond the Company's ability to control or predict. Readers are cautioned
not to put undue reliance on forward-looking statements. The Company disclaims
any intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
-4-
<PAGE>
THE COMPANY
Amax Gold Inc. ("Amax Gold" or the "Company") and its subsidiaries are
engaged in the mining and processing of gold and silver ore and in the
exploration for, and acquisition and development of, gold-bearing properties,
principally in the Americas, Russia, Australia and Africa.
The Company owns a 100 percent interest in the Fort Knox mine near
Fairbanks, Alaska, which is nearing completion of construction and commencement
of commercial production. The Company's operating properties consist of a 50
percent interest in the Refugio mine in Chile; a 100 percent interest in the
Hayden Hill mine in Lassen County, California; and a 90 percent interest in the
Guanaco mine in Chile. The Company has agreed to acquire, subject to certain
conditions, from Cyprus Amax Minerals Company ("Cyprus Amax") a 50 percent
interest in the Kubaka gold mine in the Russian Federation. Cyprus Amax's share
of reserves at the Kubaka mine is approximately 2.47 million tons of ore with an
average grade of 0.540 ounces of gold per ton, and approximately 1.33 million
contained ounces. The first gold was poured at Kubaka in late February 1997,
and the Company expects to complete the acquisition of the Kubaka mine in early
1997. With the completion of development at the Refugio and Fort Knox mines and
the pending acquisition of the Kubaka mine, the Company is now evaluating how to
achieve further growth. The Company recently has decided to evaluate the
desirability of seeking a merger partner or other business combination
transaction.
The Company's share of production from its operating properties in the
United States and Chile totaled 268,331 and 238,255 ounces during 1996 and 1995,
respectively, and its share of reserves in all its properties as of December 31,
1996 totaled approximately 202 million tons of ore reserves with a weighted
average grade of 0.032 ounces of gold per ton, with 6.4 million contained ounces
of gold.
The Company was incorporated in Delaware in 1987 and reincorporated in
1995. Cyprus Amax owns approximately 52.5 percent of the Company's outstanding
common stock and has the right to acquire additional shares in connection with
the Kubaka acquisition and under certain financing arrangements, including
arrangements entered into to finance the Fort Knox project. See "Risk Factors--
Relationship with Cyprus Amax" and "Certain Transactions and Relationship with
Cyprus Amax."
The Company's Common Stock is listed on the NYSE and the TSE and its
$3.75 Series B Convertible Preferred Stock is listed on the NYSE. The Company's
executive offices are located at 9100 East Mineral Circle, Englewood, Colorado
80112, and its telephone number is (303) 643-5500.
PROVEN AND PROBABLE GOLD ORE RESERVES
The following table sets forth the Company's proven and probable gold
ore reserves as of December 31, 1996. Reserves are that part of a mineral
deposit that can be economically and legally extracted or produced at the time
of reserve determination and are customarily stated in terms of "ore" when
dealing with metals. Reserves represent in-place grades and do not reflect
losses in the milling or heap leaching processes but do include allowance for
ore dilution in the mining process. Reference to "tons" and "ounces" are to
short tons of 2,000 pounds and to troy ounces of 31.103 grams, respectively.
Information regarding the status of properties as producing, under construction
or development, is as of December 31, 1996.
Ore reserves were calculated by the Company, and reserves at the Haile
property have been verified by Derry, Michener, Booth & Wahl. The ore reserves
at Fort Knox and Refugio were independently verified by Mineral Resources
Development, Inc.
-5-
<PAGE>
PROVEN AND PROBABLE GOLD ORE RESERVES
AT DECEMBER 31, 1996
(THOUSANDS, EXCEPT AVERAGE GRADES)
<TABLE>
<CAPTION>
Tons Average Gold Gold Content (ounces)
Ore Grade -----------------------
(ounces per ton) Total Company's Share
- -----------------------------------------------------------------------------------------------------
Producing mines:
<S> <C> <C> <C> <C>
Guanaco/(1)/.......................... 2,673 0.045 119 119
Hayden Hill/(2)/...................... 5,635 0.029 164 164
Refugio/(3)/.......................... 107,204 0.029 3,117 1,558
----- -----
Total producing mines................... 3,400 1,841
----- -----
Properties under construction:
Fort Knox/(4)/........................ 161,315 0.025 4,079 4,079
----- -----
Development properties:
Haile/(5)/............................ 8,736 0.089 780 488
----- -----
Total gold.............................. 8,259 6,408
===== =====
Properties pending acquisition:
Kubaka/(6)/........................... 4,949 0.540 2.665 1,332
----- -----
Total gold -- including pending
acquisition ........................... 10,924 7,740
====== =====
- ---------------
</TABLE>
(1) The Company owns a 90 percent interest in the Guanaco mine. Under existing
stockholder arrangements, the Company receives 100 percent of production and
therefore, 100 percent of Guanaco's reserves have been included in the
Company's reserves. Reserves were calculated based on a $400 per ounce gold
price and a cut-off grade of 0.021 ounces per ton. The Company estimates the
average gold recovery rate will be approximately 57 percent.
(2) Reserves were calculated based on a $400 per ounce gold price and variable
cut-off grades. The Company estimates the average gold recovery rate will be
approximately 60 percent.
(3) Reserves were based on a $375 per ounce gold price and variable cut-off
grades.The Company estimates the average gold recovery rate will be
approximately 66 percent.
(4) Reserves were based on a $400 per ounce gold price and a gold cut-off grade
of 0.013 ounces per ton. The Company estimates the average gold recovery
rate will be approximately 90 percent.
-6-
<PAGE>
(5) Pits were designed on the basis of a $375 per ounce gold price, while ore
within the pits was summarized using a $400 per ounce gold price. The
Company estimates that average gold recovery rates will range from 65
percent to 85 percent.
(6) Reserves were calculated based on a $400 per ounce gold price. The Company
estimates the average gold recovery rate will be approximately 97 percent.
-7-
<PAGE>
GOLD PRODUCTION AND PRODUCTION COSTS
The following table sets forth the Company's gold production, cash
operating costs, total cash costs and total production costs per ounce of gold
produced, ounces of gold sold and average realized prices for the periods
indicated. Production is defined as gold or silver produced in the form of dore
plus any inventory in mill carbon circuits.
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gold production (ounces)
Refugio 30,612 -- --
Guanaco 96,018 70,850 57,675
Hayden Hill 103,502 80,031 65,785
Sleeper 38,199 82,062 106,912
Wind Mountain -- 5,312 10,513
- ----------------------------------------------------------------------------------------
Total gold production 268,331 238,255 240,885
- ----------------------------------------------------------------------------------------
Cash operating costs ($ per ounce of gold produced)(1)
Refugio 224 -- --
Guanaco 278(2) 362 408
Hayden Hill 219 249 368
Sleeper 241 319 258
Wind Mountain -- 191 133
- ----------------------------------------------------------------------------------------
Average cash operating costs 244 306 318
- ----------------------------------------------------------------------------------------
Total cash costs ($ per ounce of gold produced)(1)
Refugio 242 -- --
Guanaco 290(2) 375 420
Hayden Hill 229 253 382
Sleeper 247 325 264
Wind Mountain -- 202 159
- ----------------------------------------------------------------------------------------
Average total cash costs 255 313 329
- ----------------------------------------------------------------------------------------
Total production costs ($ per ounce of gold produced)(1)
Refugio $ 337 $ -- $ --
Guanaco 450(2) 526 567
Hayden Hill 346 362 511
Sleeper 333 392 365
Wind Mountain -- 217 164
- ----------------------------------------------------------------------------------------
Average total production costs $ 381 $ 417 $ 445
- ----------------------------------------------------------------------------------------
Ounces of gold sold 262,975 238,094 235,664
Average price per ounce sold $ 412 $ 406 $ 401
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Effective January 1, 1996, the Company adopted the Gold Production Cost
Standard developed by the Gold Institute in order to facilitate
comparisons among companies in the gold industry. Cash production costs
reported in prior periods have been restated as cash operating costs and
total cash costs in accordance with the new standard. Cash operating
costs calculated under the new standard include all operating costs
(including overhead) at the mine sites, but exclude royalties, production
taxes and reclamation. Total cash costs include royalties and production
taxes, but exclude reclamation. Total production costs remain unchanged
and include reclamation and depreciation, depletion and amortization.
(2) Cash costs in 1996 do not include the impact of the write-down of heap
leach inventories.
-8-
<PAGE>
RISK FACTORS
Prospective purchasers of Securities should carefully read this
Prospectus, any Prospectus Supplement delivered herewith, and the documents
incorporated by reference herein and therein. Ownership of Securities involves
certain risks. In determining whether to purchase Securities, prospective
investors should consider carefully the following risk factors and the other
information contained in this Prospectus, in addition to the other risk factors
and information set forth in any Prospectus Supplement delivered herewith.
RISK OF SUBSTANTIAL LEVERAGE
At December 31, 1996, the Company had current assets of $62.9 million
and current liabilities and long-term debt of $484.9 million. In order to
finance the Fort Knox project, the Company borrowed $250 million from a group of
banks and as of February 15, 1997, had borrowed $139.7 million from Cyprus Amax
under a demand loan arrangement. The Company's share of borrowings to finance
the Refugio mine was $38.25 million at February 15, 1997. Assuming the Kubaka
acquisition is completed, the Company will acquire a subsidiary that has
guaranteed $144 million of borrowings from financial institutions.
Substantially all of the Company's properties are subject to liens to secure
these borrowings. The Company currently projects that cash flows from its
operating properties will be sufficient to meet capital and working capital
needs of these properties and to repay its indebtedness owed to banks. However,
these projections are based on a number of assumptions including, for example,
assumptions regarding gold prices, estimated production and future production
costs, which are inherently uncertain. If these assumptions prove not to be
correct, this could have a material adverse affect on the Company's ability to
meet its cash needs. The Company currently anticipates that repayment of the
Cyprus Amax demand loan could be funded through additional external funding,
including proceeds from the sale of Securities offered hereby. If Cyprus Amax
elects to require cash repayment of the demand loan before external financing
can be arranged, the Company would not have cash from operations to pay the
obligations that then would come due.
HISTORY OF NET LOSSES
The Company has incurred losses of $34.2 million, $23.9 million and
$35.5 million in the fiscal years ending December 31, 1996, 1995 and 1994,
respectively. The loss in 1996 includes a $35.5 million pre-tax write-down, and
the loss in 1994 includes a $21.1 million pre-tax write-down. The Company's
ability to operate profitably will depend on the future success of projects in
their early stages of operation or final stages of development. There can be no
assurance that such projects will enable the Company to become profitable.
DEVELOPMENT AND OPERATING RISKS
The Company's business operations are subject to risks and hazards
inherent in the mining industry, including but not limited to unanticipated
grade and other geological problems, water conditions, surface or underground
conditions, metallurgical and other processing problems, mechanical equipment
performance problems, the unavailability of materials and equipment, accidents,
labor force and force majeure factors, unanticipated transportation costs and
weather conditions, and potential political instabilities of foreign
governments, any of which can materially and adversely affect, among other
things, the development of properties, production quantities and rates, costs
and expenditures and production commencement dates.
The Company's long-term prospects will depend on its ability to
develop new large-scale projects in a cost-effective manner. The Company
currently has no new development projects of the scope of Refugio, Fort Knox and
Kubaka. Over the past two years, the Company completed development of Refugio
and Fort Knox and managed development of Kubaka; however, each of these projects
experienced costly construction delays, and Fort Knox and Kubaka experienced
unanticipated and substantial increases in development costs. There can be no
assurance that the Company will be successful at identifying and developing
major new gold projects in the future.
Early stage operation of a mine presents challenges that differ from
both that of a development project and of a mature operating mine. As a project
moves from development stage to an operating mine, the complexity of technical,
geological, regulatory, political and management issues increases, any of which
could affect the ability to conduct profitable mining. Accordingly,
expenditures on any and all projects, actual production quantities and rates,
and cash operating costs may be materially and adversely affected and may differ
materially from anticipated expenditures,
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<PAGE>
production quantities, rates and costs. In addition, the Kubaka project faces
substantial uncertainties related to its remote location in Russia and the
uncertain Russian regulatory environment. It is not unusual in new mining
operations to experience unexpected problems during the start-up phase. For
example, the Company experienced such problems at its Refugio mine in 1996 and
at its Hayden Hill mine in 1993 which resulted in significant delays in
production. Any future similar events could materially and adversely affect the
Company's business, financial condition, results of operations and cash flows.
GOLD PRICE VOLATILITY
The profitability of the Company's operations can be significantly
affected by changes in the market price of gold. The market price of gold has
fluctuated widely and is affected by numerous factors beyond the Company's
control, including international economic trends, currency exchange
fluctuations, expectations for inflation, speculative activities, consumption
patterns (such as purchases of gold jewelry and the development of gold coin
programs), purchases and sales of gold bullion holdings by central banks or
other large gold bullion holders or dealers and global or regional political
events, particularly in major gold-producing countries such as South Africa and
some of the countries that formerly comprised the Soviet Union. Gold market
prices are also affected by worldwide production levels, which have increased in
recent years. The aggregate effect of these factors, all of which are beyond the
Company's control, is impossible for the Company to predict. In addition, the
market price of gold has on occasion been subject to rapid short-term changes
because of market speculation. The following table sets forth for the years
indicated the high and low selling prices of gold, first position, as provided
by the Commodity Exchange, Inc. ("COMEX") in New York:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997* 1996 1995 1994 1993 1992 1991 1990 1989
----- ---- ---- ---- ---- ---- ---- ---- ----
High.......... $369 $415 $395 $398 $407 $359 $403 $422 $419
Low........... $338 $368 $372 $371 $326 $330 $344 $347 $358
</TABLE>
- -------------------
*Through February 25, 1997
If the gold price is below the Company's cash production costs and
remains below such level for any sustained period, the Company could experience
additional losses and could determine that it is not economically feasible to
continue production at some or all of its operations or to continue the
development of some or all of its projects.
The Company has historically used hedging techniques successfully to
reduce the Company's exposure to gold price volatility. The gold price has
declined recently, and if it remains low for a significant period of time, the
Company's ability to achieve a similar premium over the average COMEX gold price
in the future could be affected adversely. In addition, the Company does not
expect initially to hedge Kubaka production, which will decrease the percentage
of the Company's total production being hedged during the period that Kubaka is
in production. There can be no assurance that the Company will be able to
achieve in the future realized prices for the Company's production in excess of
average COMEX prices as a result of its hedging activities.
RESERVE ESTIMATES
The ore reserve estimates presented in this Prospectus or incorporated
herein by reference are necessarily imprecise and depend to some extent on
statistical inferences drawn from limited drilling, which may, on occasion,
prove unreliable. Should the Company encounter mineralization or formations at
any of its mines or projects different from those predicted by drilling,
sampling and similar examinations, reserve estimates may be adjusted and mining
plans may be altered in a way that might adversely affect the Company's
operations. Moreover, short-term operating factors relating to the ore reserves,
such as the need for sequential development of ore bodies and the processing of
new or different ore grades, may adversely affect the Company's profitability in
any particular accounting period.
Proven and probable reserves at the Company's mines and development
projects were calculated at December 31, 1995 based upon varying gold prices
ranging from $375 to $400 per ounce of gold. Recently, gold prices have been
significantly below these levels with recent prices of less than $350 per ounce.
Prolonged declines in the market price of gold may render ore reserves
containing relatively lower grades of gold mineralization, such as those
currently identified at Fort Knox, Refugio and Hayden Hill uneconomic to exploit
(unless the utilization of forward sales or other hedging techniques is
sufficient to offset such declines) and could reduce materially the
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Company's reserves. Should such reductions occur, material write-downs of the
Company's investment in mining properties might be required, and there could be
material delays in the development of new projects, increased net losses and
reduced cash flow.
The Company, from time to time, has been required to write down its
assets as a result of mining experience and reevaluation of geologic data, which
also required reductions in proven and probable reserves at the affected
property. For example, in 1993, reserves at the Hayden Hill property were
reduced by over 400,000 ounces of gold when the mine was reconfigured as a heap
leach operation, and the Company recognized a pre-tax write-down of $64.1
million. The Company also experienced additional write-downs in 1994 and 1996.
There can be no assurance that operational experience at the Company's projects
over time will not result in future write-downs of asset values.
FOREIGN OPERATIONS
Following the consummation of the Kubaka acquisition, a significant
portion of the Company's mining operations will be located in Chile and Russia.
Foreign operations and investments are subject to the risks normally associated
with conducting business in foreign countries, including foreign exchange
controls and currency fluctuations, limitations on repatriation of earnings,
foreign taxation, uncertainty in the legal system and policies of particular
countries, including renegotiation or nullification of existing licenses or
other contracts, labor disputes and uncertain political and economic
environments as well as risks of war and civil disturbances or other risks which
could cause production difficulties or stoppages, restrict the movement of funds
or result in the deprivation or loss of contract rights or the taking of
property by nationalization or expropriation without fair compensation. Foreign
operations could also be impacted by laws and policies of the United States
affecting foreign trade, investment and taxation. Of particular significance in
Russia is the right of Russian authorities to purchase gold produced from
Kubaka, with payment 50 percent in U.S. dollars and 50 percent in roubles at
then current London gold prices. The amount to be paid in roubles is intended
to be roughly equivalent to the Kubaka mine rouble expenses, which if expenses
denominated in roubles are less than payments in roubles, could expose the
Company to currency exchange risks and the risk that viable and adequate
currency exchange mechanisms may not be available. Any gold that the Russian
authorities elect not to purchase may be exported from Russia and sold to third
parties.
Certain risks of foreign operations can be offset by insurance
coverage. The Company has obtained political risk insurance coverage for its
equity investment in Chile, and at the closing of the Kubaka acquisition will
obtain political risk insurance coverage for 90 percent of its equity investment
in the Kubaka mine. The Kubaka senior lenders have assumed the political risk
relating to such debt.
MINING RISKS AND INSURANCE
The business of gold mining generally is subject to a number of risks
and hazards, including environmental hazards, industrial accidents and rock
falls, labor disputes, flooding, earthquakes, interruptions due to inclement or
hazardous weather conditions and other acts of God. Such risks could result in
damage to, or destruction of, mineral properties or production facilities,
personal injury, environmental damage, process and production delays, monetary
losses and possible legal liability. While the Company maintains through Cyprus
Amax, and intends to continue to maintain, insurance consistent with industry
practice, no assurance can be given that such insurance will continue to be
available, be available at economically acceptable premiums or be adequate to
cover any resulting liability.
ENVIRONMENTAL RISKS
Mining is subject to potential risks and liabilities associated with
pollution of the environment and the disposal of waste products occurring as a
result of mineral exploration and production. Environmental liability may result
from mining activities conducted by others prior to the Company's ownership of a
property. To the extent the Company is subject to uninsured environmental
liabilities, the payment of such liabilities would reduce funds otherwise
available to the Company and could have a material adverse effect on the
Company. Should the Company be unable to fund fully the cost of remedying an
environmental problem, the Company might be required to suspend operations or
enter into interim compliance measures pending completion of the required
remedy. The potential exposure may be significant and could have a material
adverse effect on the Company.
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<PAGE>
In the context of environmental permitting, including the approval of
reclamation plans, the Company must comply with standards, laws and regulations
which may entail greater or lesser costs 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 compliance with such laws, regulations and permits could become such that
the Company would not proceed with the development of a project or the operation
or further development of a mine. Laws and regulations involving the protection
and remediation of the environment are constantly changing and are generally
becoming more restrictive. The Company has made, and expects to make in the
future, significant expenditures to comply with such laws and regulations.
Pending and anticipated bills which affect environmental laws
applicable to mining in the United States may alter substantially the Clean
Water Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, and the Endangered
Species Act. Adverse developments and operating requirements in these acts
could impair the ability of the Company as well as others to develop mineral
resources. Revisions to current versions of these bills could occur prior to
passage. In addition, the EPA continues to reevaluate its authority for
regulation of mining operations, most recently in its Draft Hardrock Mining
Framework (the "Draft Framework"), under which the EPA would regulate more
aggressively mining operations through the use of existing statutory authority.
Operations at the Company's Guanaco and Refugio mines are subject to
regulation under the laws of Chile. In March 1994, the country's first
comprehensive environmental framework law became effective. Among other things,
this law provides for a comprehensive permit program and environmental impact
analysis for future exploration and mining activities, creates a liability
scheme for forms of environmental damage, and contemplates the issuance of
regulations imposing operating standards. Until regulations are promulgated,
the full impact of the new law on the mining industry in Chile will be unclear.
Environmental law in Russia is continuing to develop. Many
environmental laws have been passed since 1991, but regulatory procedures are
not well established. While the Kubaka mine has received federal permission to
operate, additional regulations may be adopted in the future that could result
in higher costs and project delays.
OTHER GOVERNMENTAL REGULATIONS
The Company's mining operations and exploration activities are subject
to extensive federal, state, local and foreign laws and regulations governing
prospecting, development, production, exports, taxes, labor standards,
occupational health, mine safety and other matters. The Company believes that it
is in substantial compliance with all such material laws and regulations. New
laws and regulations, amendments to existing laws and regulations, or more
stringent implementation of existing laws and regulations could have a material
adverse impact on the Company, prohibit, reduce or delay production at operating
mines or prevent the development of new mining properties.
PROPOSED FEDERAL MINING LEGISLATION
The Company expects that the U.S. Congress will consider in its
current session a major revision of the General Mining Law, which governs mining
claims and related activities on federal public lands. Similar legislation has
been introduced in earlier sessions of Congress, but final legislation has not
been enacted. The Company expects that any new legislation would impose a
royalty upon production of minerals from federal lands and could contain
additional requirements for mined land reclamation and environmental control and
reclamation measures. If enacted, such legislation could impair the Company's
ability to develop future mineral prospects on unpatented mining claims.
Currently, only Hayden Hill would be affected by federal mining legislation.
EXPLORATION RISKS
Mineral exploration, particularly for gold, is highly speculative in
nature, involves many risks and frequently is nonproductive. There can be no
assurance that the Company's mineral exploration efforts will be successful.
Once mineralization is discovered, it usually takes a number of years from the
initial phases of exploration 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 metal from the ore and, in the case of new properties,
to construct mining and processing facilities. As a result of these
uncertainties,
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<PAGE>
no assurance can be given that the Company's exploration programs will result in
the expansion or replacement of existing reserves, some of which are being
depleted by current production.
The Company has entered into an Exploration Joint Venture Agreement
(the "Exploration JV") with Cyprus Amax effective January 1, 1994, under which
the Company and Cyprus Amax pool their efforts for the principal purpose of
discovering and developing future gold prospects, with Cyprus Amax providing 75
percent and the Company providing 25 percent of the initial exploration funding
for such prospects. The Exploration JV is intended to broaden the geographic
reach of the Company's gold exploration program and reduce its cost by sharing
key personnel and spreading the high risks associated with exploration.
Nevertheless, the Company initially will have only a 25 percent interest in any
prospects discovered through the Exploration JV. Amax Gold may purchase Cyprus
Amax's 75 percent interest in gold prospects developed through the Exploration
JV prior to a decision to place such prospects in production, but only at the
then fair market value for such interest (which may be determined by mutual
agreement). This ultimately could increase the Company's cost of acquiring such
prospects.
TITLE TO PROPERTIES
The validity of unpatented mining claims, which constitute a
significant portion of the Company's property holdings in the United States, is
often uncertain and may be contested. A portion of the Hayden Hill mine is
located on unpatented federal lode and placer mining claims. Unpatented mining
claims generally are considered subject to greater title risk than patented
mining claims and real property interests owned in fee simple. Substantially
all of the Fort Knox property is located on State of Alaska mining claims or
mining leases that are subject to certain title risks similar to those affecting
federal unpatented mining claims. The State of Alaska mining claims and mining
leases included in the Fort Knox property cannot be patented under Alaska law.
In addition, the State of Alaska lands included within the Fort Knox
property on which actual production and milling operations are occurring have
been designated as Alaska Mental Health Trust Lands. While this designation was
made subject to all encumbrances or interests of record (including the Fort Knox
upland mining lease and millsite permit) applications for future permits or
rights (or applications for material modifications to existing permits or
rights), if any, involving interests in Mental Health Trust Lands would be
analyzed in light of what is determined to be in the best interests of the
Alaska Mental Health Trust rather than what is determined to be in the best
interests of the State of Alaska generally. There is no prohibition on the
Alaska Mental Health Trust seeking an increase on the amount of royalties
payable on minerals produced from Mental Health Trust Lands.
Mining operations in Chile and Russia are conducted under concessions,
mining leases or licenses issued by the government pursuant to applicable laws.
Such leases and licenses contain various requirements regarding operations of
the property. The license applicable to the Kubaka mine also includes
requirements regarding recovery rates and other related matters. The legal
regime applicable to the mining of gold in Russia is in a period of development
and transition.
RELATIONSHIP WITH CYPRUS AMAX
As of December 31, 1996, Cyprus Amax held approximately 52.5 percent
of the outstanding shares of the Company's Common Stock, which would increase to
59.1 percent in the Kubaka acquisition, excluding any issuance of contingent
shares. Under various agreements, Cyprus Amax's ownership of the Company's
Common Stock potentially could increase to approximately 73.0 percent prior to
any sale of Securities hereunder, assuming the issuance of the maximum number of
shares of Common Stock to Cyprus Amax under such agreements. Directors and
officers of Cyprus Amax comprise three of the six members of the Company's Board
of Directors.
The Company has been substantially dependent on Cyprus Amax to fund
recent construction cost increases. In addition, the Company has entered into a
number of relationships with Cyprus Amax providing for financial support, the
acquisition of properties and the provision of services which, if not available
from Cyprus Amax, would have to be obtained from third parties or provided
internally. Assuming start-up and operations at the Company's mines proceed as
expected, the Company does not anticipate requiring significant additional
funding from Cyprus Amax for the remainder of 1997. The Company expects that
Cyprus Amax would make such funding available if necessary. There can be no
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<PAGE>
assurance, however, that Cyprus Amax will not call the demand loan or will
provide additional funding. See "--Risk of Substantial Leverage" and
"Relationship with Cyprus Amax."
USE OF PROCEEDS
Unless a Prospectus Supplement indicates otherwise, the Company
intends to use the net proceeds to be received from the sale of the Securities
for repayment of indebtedness, to finance the Company's operations, for the
continued development of its gold projects and for other general corporate
purposes.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The consolidated ratio of earnings to fixed charges and preferred
stock dividends for the Company was as follows for the years ended December 31,
1996, 1995, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996* 1995* 1994* 1993* 1992
----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to fixed
charges and preferred stock dividends
(unaudited)........................... -- -- -- -- 3.06x
- -------------
</TABLE>
* For the years ended December 31, 1996, 1995, 1994 and 1993, earnings were
inadequate to cover fixed charges and preferred stock dividends by $73.7
million, $36.7 million, $52.7 million and $121.8 million, respectively, due
primarily to operating losses in each of these years and asset write-downs
in 1996, 1994 and 1993 of $35.5 million, $21.1 million and $87.7 million,
respectively.
For purposes of the ratio of earnings to fixed charges, "earnings" consist
of income before income taxes, before the cumulative effect of accounting
changes and the 10 percent minority interest in the losses of Compania Minera
Amax Guanaco, and excluding amortization of capitalized interest and fixed
charges. "Fixed charges" consist of total interest and bank fees, whether
expensed or capitalized, and one-third of rents, which management believes is a
reasonable approximation of an interest factor.
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<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Amax Gold Inc. ("Amax Gold" or the "Company") and its subsidiaries are
engaged in the mining and processing of gold and silver ore and in the
exploration for, and acquisition and development of, gold-bearing properties,
principally in the Americas, Russia, Australia and Africa.
The Company owns a 100 percent interest in the Fort Knox mine near
Fairbanks, Alaska, which is nearing completion of construction and commencement
of commercial production. The Company's operating properties consist of a 50
percent interest in the Refugio mine in Chile; a 100 percent interest in the
Hayden Hill mine in Lassen County, California; and a 90 percent interest in the
Guanaco mine in Chile. The Company has agreed to acquire, subject to certain
conditions, from Cyprus Amax a 50 percent interest in the Kubaka gold mine in
the Russian Federation. Cyprus Amax's share of reserves in the Kubaka mine at
December 31, 1996 was 2.47 million tons of ore reserves, with an average grade
of 0.540 ounces of gold per ton and 1.33 million contained ounces. The first
gold was poured at Kubaka in late February 1997, and the Company expects to
complete the acquisition of Kubaka in early 1997. The Company also owns a 62.5
percent joint venture interest in the Haile property in Lancaster County, South
Carolina, as well as a 100 percent interest in the Sleeper mine in Humboldt
County, Nevada and in the Wind Mountain mine in Washoe County, Nevada. The
Sleeper and Wind Mountain mines are in reclamation.
The Company's share of production from its operating properties in the
United States and Chile totaled 268,331 and 238,255 ounces during 1996 and 1995,
respectively. The Company's cost of sales declined to $257 per ounce for 1996
compared to $329 for 1995, and the Company's average price realized for 1996 was
$412 per ounce, compared to $406 per ounce for 1995. The Company's share of
reserves in all its properties as of December 31, 1995 totaled approximately 242
million tons of ore reserves with an average grade of 0.029 ounces of gold per
ton, with 7.0 million contained ounces of gold.
RESERVES
See "The Company--Proven and Probable Gold Ore Reserves" for a summary
of the Company's gold ore reserves.
PRINCIPAL MINES
Set forth below is a description of the status and operations of each
of the Company's principal mines. Production data is presented in "The
Company--Gold Production and Production Costs."
FORT KNOX MINE
The Fort Knox mine is located in the Fairbanks Mining District, 15
miles northeast of Fairbanks, Alaska. Construction of the Fort Knox project
began in the first quarter of 1995. Fort Knox reached mechanical completion in
November 1996, produced its first gold bars in December 1996 and is expected to
achieve commercial production in early 1997.
Fort Knox includes an open pit mine and a conventional 36,000 tons per
day (13.1 million tons per year) process plant, a tailings storage facility and
a reservoir to supply process water. The process facilities are designed as a
zero discharge system. The mine and plant are designed to operate year round
and to produce approximately 300,000 to 350,000 ounces of gold per year with the
higher rates expected during the early years. Cash costs are expected to
average $215 per ounce for the first five years.
In 1995 and 1996, the Company encountered significant construction
cost overruns at Fort Knox, which increased its estimated total cost to $396
million, including approximately $26 million of capitalized interest. As of
February 15, 1997, approximately $360 million had been spent on construction.
Construction has been substantially completed, and the capital costs incurred
have been within revised budgeted amounts.
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<PAGE>
REFUGIO MINE
The Company owns a 50 percent interest in the Refugio Mine located in
the Maricunga Mining District in central Chile, approximately 75 miles east of
Copiapo. The property, situated between 13,800 feet and 14,800 feet above sea
level, is held by CompaZia Minera Maricunga, a Chilean contractual mining
company indirectly owned 50 percent by the Company and 50 percent by Bema Gold
Corporation, a publicly traded company based in Vancouver, British Columbia.
Construction of the Refugio mine was substantially completed in early
1996 with the development of an open pit mine and a three stage crushing and
heap leach operation capable of processing 33,000 tons of ore per day, or 11.9
million tons per year. The mine and plant are designed to produce an estimated
200,000 to 250,000 ounces of gold per year, of which the Company's share is 50
percent. Production commenced in April 1996; however, start-up was delayed due
to mechanical problems with the secondary and tertiary crushers and the collapse
of fill underlying the fine ore storage bin. These problems were resolved in
the third quarter of 1996 and commercial production commenced on October 1,
1996. Placement of ore on the pads, leaching and gold production have continued
through this period.
HAYDEN HILL MINE
The Hayden Hill mine is located in Lassen County, California,
approximately 120 miles northwest of Reno, Nevada. The Hayden Hill operation is
an open pit mine with two pits, heap leach pads and tailings disposal
facilities. The mine began production in June 1992. Milling operations were
discontinued in 1993 due to the lack of an adequate supply of high-grade mill
ore and the mine was reconfigured as a heap leach only operation. From 1992
through 1996, mining at Hayden Hill produced 331,171 ounces of gold, making it
one of the Company's most productive mines. Mining is expected to be completed
at the end of 1997, with some residual leaching in 1998.
GUANACO MINE
The Company owns a 90 percent interest in and operates the Guanaco
mine, located in the Guanaco Mining District in northern Chile approximately 145
miles southeast of Antofagasta, Chile. Guanaco is an open pit mine with heap
leach facilities capable of processing up to 2.4 million tons of ore per year.
The facility includes three stages of crushing, permanent pad heap leaching and
Merrill Crowe zinc precipitation of gold. Under existing shareholder
arrangements, the Company expects to receive 100 percent of production through
completion of mining; accordingly, 100 percent of Guanaco's reserves have been
included in the Company's reserves.
The Guanaco mine began production in April 1993, hampered by ordinary
start-up delays and initial crusher throughput problems and by process water
shortages which were resolved in the fourth quarter of 1994. During 1995,
despite continued problems with crusher throughput, production at Guanaco
increased primarily due to higher grades and recoveries. Based on a detailed
study of continuity of ore, costs and production rates at Guanaco, the Company
recorded a $35.5 million writedown on the project in the fourth quarter of 1996.
The Company expects to complete mining at Guanaco during mid-1997, with residual
leaching continuing into 1998.
SLEEPER MINE
The Sleeper mine is located in Humboldt County, Nevada, approximately
28 miles north of Winnemucca. Mining was completed as planned in the first
quarter of 1996. Milling was completed in August of 1996 and operations were
completed at the end of the third quarter. Residual leaching is expected to
continue into 1997, and reclamation has commenced at the Sleeper mine.
KUBAKA MINE (ACQUISITION PENDING)
During January 1996, Amax Gold entered into an agreement to acquire
Cyprus Amax's 50 percent interest in the Kubaka mine, which agreement was
amended in October 1996 to take into account certain additional financing
relating to the Kubaka mine. The acquisition is expected to close in early
1997.
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<PAGE>
The Kubaka mine is an open pit, mill recovery, gold mine located in
the Magadan Region of the Russian Far East, approximately 200 miles south of the
Arctic Circle and 600 miles northeast of the major port city of Magadan. The
Company's share of proven and probable reserves, calculated at December 31,
1996, would be approximately 2.47 million tons with an average grade of 0.540
ounces of gold per ton with approximately 1.33 million contained ounces. Gold
production commenced at Kubaka in February 1997.
The property is held under a license from the Russian government that
requires development of the Kubaka mine and exploration and development of a
neighboring property. The Kubaka license is for a period of 18 years and limits
the ownership by a foreign party (i.e., the Company) to a maximum of 50 percent.
The Kubaka license establishes certain production requirements for Kubaka.
The total capital costs of the Kubaka mine are estimated to be
approximately $228 million. The project shareholders have contributed a total
of $86 million (with each of Cyprus Amax and the other 50 percent shareholders
contributing $43 million) of the required capital. As of the end of February
1997, the project has borrowed $144 million and is seeking a working capital
line of credit.
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<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIP WITH CYPRUS AMAX
Cyprus Amax currently owns approximately 52.5 percent of the
outstanding shares of Common Stock of the Company. Upon consummation of the
Kubaka acquisition, Cyprus Amax will become the owner of approximately 59.1
percent of the Company's outstanding Common Stock (taking into account all
shares required to be issued in connection with the Kubaka acquisition, but
excluding any issuance of contingent shares). Cyprus Amax's ownership interest
is subject to increase pursuant to certain agreements discussed below.
Directors and officers of Cyprus Amax comprise three of the six
members of the Company's board of directors. Milton H. Ward, Chairman of the
Board and Chief Executive Officer of the Company, is Chairman of the Board of
Directors, President and Chief Executive Officer of Cyprus Amax; Gerald J.
Malys, a director of the Company, is Senior Vice President and Chief Financial
Officer of Cyprus Amax; and Allen Born, a director of the Company, is also a
director of Cyprus Amax.
Cyprus Amax is party to a number of contracts with the Company, which
are described below.
Fort Knox Financing Arrangement. The Company entered into a financing
arrangement with Cyprus Amax (the "Fort Knox Financing Arrangement") under which
Cyprus Amax has guaranteed (the "Cyprus Amax Guaranty") the Company's $250
million secured financing (the "Fort Knox Loan") until economic completion of
the Fort Knox Project and has provided the Company with a $250 million demand
loan facility (the "Demand Loan Facility"), in exchange for which the Company
(i) paid Cyprus Amax a financing and guaranty fee of $10 million (the "Financing
and Guaranty Fee"), (ii) pays Cyprus Amax 1.75 percent annually on amounts
outstanding under the Fort Knox Loan ("Interest Differential Payments"), (iii)
reimburses Cyprus Amax for any payments made or costs incurred under the Cyprus
Amax Guaranty, (iv) has agreed to make no additional borrowings under DOCLOC I
(defined below) without the prior consent of Cyprus Amax, and (v) has granted
Cyprus Amax a first priority security interest in the collateral for the Fort
Knox Loan, and if required, security interests in certain additional assets to
the extent available. All of the Company's obligations to Cyprus Amax are
payable in cash or, at the election of Cyprus Amax, in shares of Common Stock,
valued at the time of issuance of the shares.
On November 1, 1996, Cyprus Amax elected to receive payment in shares
of Common Stock of an aggregate of $15,171,767 for the Financing and Guaranty
Fee, all accrued interest on the Demand Loan Facility and Interest Differential
Payments due through October 31, 1996. On November 12, 1996, the Company issued
2,771,098 shares of Common Stock to Cyprus Amax as payment for such obligations.
As of February 15, 1997, the Company had borrowed approximately $140
million under the Demand Loan Facility. If Cyprus Amax elected to receive
payment for all remaining obligations in shares of Common Stock, Cyprus Amax
would be entitled to receive (as of December 31, 1996) an additional 21,864,505
shares of Common Stock under the Fort Knox financing arrangements.
Revolving Credit Agreements. Under the Revolving Loan Agreement dated
April 15, 1994 between the Company and Cyprus Amax ("DOCLOC I"), the Company can
borrow up to $100 million and repay any indebtedness with up to 2,000,000 shares
of the Company's $2.25 Series A Convertible Preferred Stock, par value $1.00 per
share ("Series A Preferred Stock"). Such shares of Series A Preferred Stock may
be redeemed by the Company for 12,099,213 shares of Common Stock at a price
equal to the greater of $5.854 per share or the average closing price per share
over a period prior to redemption. Cyprus Amax may acquire at any time up to
12,099,213 shares of Common Stock at a price of $8.265 per share, in which event
DOCLOC I would be terminated and any outstanding principal and interest would be
deemed repaid. Under the Fort Knox financing arrangement, the Company may not
borrow under DOCLOC I without the prior consent of Cyprus Amax.
In March 1995, the Company and Cyprus Amax entered into a convertible
line of credit ("DOCLOC II"), under which the Company borrowed the entire $80
million available. During 1995 Cyprus Amax acquired 14,919,806 shares of Common
Stock at $5.362 per share pursuant to DOCLOC II, DOCLOC II was terminated and
the outstanding indebtedness was deemed repaid.
Stock Issuance Agreement. In September 1995, the Company and Cyprus
Amax entered into an Agreement Regarding Stock Issuance pursuant to which, with
the agreement of both parties, obligations owing from the Company to
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Cyprus Amax from time to time may be paid in shares of Common Stock, valued at
the most recent 30-day average closing price. Of the 879,500 shares issuable,
128,042 shares were issued to Cyprus Amax in 1995 as payment for $835,473 due
Cyprus Amax under DOCLOC II.
Exploration Joint Venture Agreement. The Company entered into an
Exploration Joint Venture Agreement with Cyprus Amax effective January 1, 1994.
Under the Exploration Agreement, the Company and Cyprus Amax have agreed to pool
their efforts for the principal purpose of discovering and developing future
gold prospects, with Cyprus Amax providing 75 percent and the Company providing
25 percent of the initial exploration funding for such prospects. A subsidiary
of Cyprus Amax manages exploration activities, with equal participation by the
Company in decisions affecting property acquisitions and divestitures. Either
party may withdraw upon giving 60 days' notice to the other party. The Company
has the first right to acquire any gold property owned by the joint venture, and
Cyprus Amax has the first right to acquire properties containing deposits of
minerals or precious metals other than gold or silver. The agreement will
terminate on December 31, 1997, unless extended by mutual agreement.
Kubaka Acquisition Agreement. Pursuant to the Amended and Restated
Agreement and Plan of Reorganization, dated October 9, 1996 (the "Kubaka
Acquisition Agreement"), the Company will acquire, subject to the satisfaction
of certain conditions, Cyprus Amax's 50 percent ownership interest in Omolon
Gold Mining Company, a Russian closed joint stock company ("Omolon") which holds
a license to mine the Kubaka project located in the Magadan Region of the
Russian Federation for a purchase price payable in shares of Common Stock as
follows: (i) approximately 11.8 million shares of Common Stock to be paid upon
closing the Kubaka acquisition; (ii) approximately 4.2 million shares of Common
Stock to be paid within ten days of commencement of commercial production of the
Kubaka gold property; and (iii) a contingent payment in shares of Common Stock
(a) equal to $10 per gold equivalent ounce (up to a maximum of $45 million) of
the Company's pro rata share of proven and probable reserves which the Company
acquires the right to mine in the Russian Federation (excluding properties
covered by the Kubaka license or properties acquired under the Exploration Joint
Venture Agreement) on or before June 30, 2004, and (b) valued at the then
current 10-day average stock price.
Cyprus Amax has agreed to guarantee Omolon's obligations under $130
million of secured borrowing from financial institutions and $14 million of
subordinated debt. Cyprus Amax also is obligated to fund additional cost
overruns at the Kubaka project and to indemnify the senior lenders against
certain specified liabilities, including environmental liabilities.
Services Agreement. Pursuant to the Services Agreement, the Company
and Cyprus Amax provide a variety of managerial and other services to each other
on a full cost reimbursement basis. The Company paid Cyprus Amax approximately
$3.4 million for 1996 services, including insurance coverage, and Cyprus Amax
paid the Company approximately $2.0 million, including reimbursement for
services at the Kubaka project.
Employee Transfer Agreement. Pursuant to the Employee Transfer
Agreement, the Company and Cyprus Amax have amended their respective benefit
plans to allow employees to transfer from the Company to Cyprus Amax or from
Cyprus Amax to the Company with minimal effect on an employee's benefits.
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DESCRIPTION OF DEBT SECURITIES
The following is a summary of certain provisions of the Debt
Securities to which a Prospectus Supplement may relate. The particular terms of
any Debt Securities and the extent, if any, to which such general provisions may
apply will be described in the Prospectus Supplement relating to such Debt
Securities.
The Debt Securities will be general unsecured obligations of the
Company. The Debt Securities will be issued in one or more series under an
Indenture (the "Indenture") to be entered into between the Company and the
trustee named in the Indenture. A copy of the form of the Indenture is filed as
an exhibit to the Registration Statement of which this Prospectus is a part. The
trustee under the Indenture (and any successor thereto under the Indenture) is
referred to herein as the "Trustee." The statements herein relating to the
Debt Securities and the Indenture are summaries only and do not purport to be
complete. Such summaries make use of terms defined in the Indenture. Wherever
such terms are used herein or particular provisions of the Indenture are
referred to, such terms or provisions, as the case may be, are incorporated by
reference as part of the statements made herein, and such statements are
qualified in their entirety by such reference. Certain defined terms in the
Indenture are capitalized herein.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities which can be issued thereunder and provides that Debt Securities may
be issued from time to time thereunder in one or more series, each in an
aggregate principal amount authorized by Amax Gold prior to issuance. The Debt
Securities may be issued at various times with different maturity dates and
different principal repayment provisions, may bear interest at different rates,
may be payable in currencies other than United States dollars, in composite
currencies or in amounts determined by reference to the price, rate or value of
one or more specified commodities, currencies or indices, and may otherwise
vary, all as provided in the Indenture. Debt Securities of a series may be
issued in registered form without coupons ("Registered Debt Securities"), in
bearer form with or without coupons attached ("Bearer Debt Securities") or in
the form of one or more global securities in registered or bearer form (each a
"Global Security"). Bearer Securities, if any, will be offered only to non-
United States persons and to offices located outside the United States of
certain United States financial institutions.
Unless otherwise indicated in a Prospectus Supplement, the Debt
Securities will not benefit from any covenant or other provision that would
afford holders of such Debt Securities protection in the event of a highly
leveraged transaction involving Amax Gold.
Reference is made to the applicable Prospectus Supplement for the
following terms of the Debt Securities: (i) the title and aggregate principal
amount of the Debt Securities; (ii) the date or dates on which the Debt
Securities will mature; (iii) the rate or rates (which may be fixed or variable)
per annum, if any, at which the Debt Securities will bear interest or the method
of determining such rate or rates; (iv) the date or dates from which such
interest, if any, will accrue and the date or dates at which such interest, if
any, will be payable; (v) the terms for redemption or early payment, if any,
including any mandatory or optional sinking fund or analogous provision; (vi)
the terms for conversion or exchange, if any, of the Debt Securities; (vii)
whether such Debt Securities will be issued as Registered Debt Securities,
Bearer Debt Securities or any combination thereof, and any limitations on
issuance of such Bearer Debt Securities and any provisions regarding the
transfer or exchange of such Bearer Debt Securities (including exchange for
registered Debt Securities of the same series); (viii) whether such Debt
Securities will be issued in the form of one or more global securities and
whether such global securities are to be issued in temporary global form or
permanent global form; (ix) information with respect to book-entry procedures,
if any; (x) the currency, currencies or currency unit or units in which such
Debt Securities will be denominated and in which the principal of, and premium
and interest, if any, on such Debt Securities will be payable; (xi) whether, and
the terms and conditions on which, Amax Gold or a holder may elect that, or the
other circumstances under which, payment of principal of (or premium, if any) or
interest, if any, on such Debt Securities is to be made in a currency or
currencies or currency unit or units other than that in which such Debt
Securities are denominated; (xii) each office or agency where the Debt
Securities may be presented for registration of transfer or exchange, if
applicable; (xiii) the place or places where the principal of (and premium, if
any) or interest, if any, on the Debt Securities will be payable; (xiv) any
additional covenants or events of default not currently set forth in the
Indenture that may be included in the terms of the Debt Securities; (xv) whether
such Debt Securities are subordinate in right of payment to any Senior
Indebtedness of the Company and, if so, the terms and conditions of such
subordination and the aggregate principal amount of such Senior Indebtedness
outstanding as of a recent date; (xvi) any index or formula to be used to
determine the amount of payments of principal of (and premium, if any) or
interest, if any, on such
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Debt Securities, and any commodities, currencies, currency units or indices, or
value, rate or price, relevant to such determination; and (xvii) any other
specific terms of the Debt Securities.Reference is also made to the applicable
Prospectus Supplement for information with respect to the price (expressed as a
percentage of the aggregate principal amount of the Debt Securities) at which
the Debt Securities will be issued, if other than 100 percent.
No service charge will be made for any registration of transfer or
exchange of the Debt Securities, but Amax Gold may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 3.5)
The Company has from time to time entered into, and will in the future
enter into, credit agreements to fund its operations. Such credit agreements may
be secured by the assets of the Company, secured by the assets of the Company's
subsidiaries and/or guaranteed by the Company or the Company's subsidiaries. To
the extent that such credit agreements are so secured or guaranteed, the lenders
under such credit agreements will have priority over the holders of the Debt
Securities with respect to the assets of the Company or its subsidiaries which
secure such credit agreements and guarantees.
Debt Securities may be sold at a discount (which may be substantial)
below their stated principal amount bearing no interest or interest at a rate
which at the time of issuance is below market rates. Any material United States
federal income tax consequences and other special considerations applicable to
any Debt Securities will be described in the Prospectus Supplement relating to
any such Debt Securities.
If any of the Debt Securities are sold for any foreign currency or
currency unit or if the principal of (or premium, if any) or interest, if any,
on any series of the Debt Securities is payable in any foreign currency or
currency unit, the restrictions, elections, tax consequences, specific terms and
other information with respect to such issue of Debt Securities and such foreign
currency or currency unit will be set forth in the Prospectus Supplement
relating thereto.
SUBORDINATION
The Debt Securities will constitute either indebtedness designated as
Senior Indebtedness ("Senior Debt Securities"), Senior Subordinated Indebtedness
("Senior Subordinated Debt Securities") or Subordinated Indebtedness
("Subordinated Debt Securities"). Senior Debt Securities, Senior Subordinated
Debt Securities and Subordinated Debt Securities will each be issued under a
separate indenture (individually an "Indenture" and collectively the
"Indentures") to be entered into prior to the issuance of such Debt Securities.
The Indentures will be substantially identical, except for provisions relating
to subordination. There will be a separate Trustee (individually a "Trustee"
and collectively the "Trustees") under each Indenture. Information regarding
the Trustee under an Indenture will be included in any Prospectus Supplement
relating to the Debt Securities issued thereunder.
The Senior Debt Securities will rank pari passu with all other
unsecured and unsubordinated debt of the Company and senior to the Senior
Subordinated Debt Securities and Subordinated Debt Securities. The payment of
the principal of (and premium, if any) and interest, if any, on Senior
Subordinated Debt Securities and Subordinated Debt Securities will, to the
extent set forth in the respective Indentures governing such Senior Subordinated
Debt Securities and Subordinated Debt Securities, be subordinated in right of
payment to the prior payment in full of all Senior Indebtedness of the Company.
The terms of such subordination will be set forth in the Prospectus Supplement
relating to the Debt Securities issued thereunder.
The Company currently conducts substantial operations through
subsidiaries, and the holders of Debt Securities will have a junior position to
any claims of creditors and any preferred stockholders of the Company's
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors, taxing authorities and creditors holding
guarantees, and claims of holders of any such preferred stock will generally
have priority as to the assets of such subsidiaries over the claims and equity
interest of the Company and, thereby indirectly, the holders of indebtedness of
the Company, including the Debt Securities.
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CONVERSION OR EXCHANGE OF SUBORDINATED DEBT SECURITIES
If so indicated in the applicable Prospectus Supplement with respect
to a particular series of Debt Securities, such series will be convertible or
exchangeable into Securities, Common Stock of the Company or other securities or
other property on the terms and conditions set forth therein. (Article 14)
COVENANTS
The Indenture requires the Company to covenant, among other things,
with respect to each series of Debt Securities: (i) to duly and punctually pay
the principal of (and premium, if any) and interest, if any, on such series of
Debt Securities; (ii) to maintain an office or agency in each Place of Payment
where Debt Securities may be presented or surrendered for payment, transferred
or exchanged and where notices to the Company may be served; (iii) if the
Company shall act as its own Paying Agent for any series of Debt Securities, to
segregate and hold in trust for the benefit of the persons entitled thereto a
sum sufficient to pay the principal (and premium, if any) or interest, if any,
so becoming due; (iv) to deliver to the Trustee, within 120 days after the end
of each fiscal year, a written statement to the effect that the Company has
fulfilled all its obligations under the Indenture throughout such year; (v) to
preserve its corporate existence; (vi) to maintain its properties; and (vii) to
pay its taxes and other claims, in each case, as required by the Indenture. In
addition, the Prospectus Supplement with respect to any series of Debt
Securities may describe additional covenants applicable to such series which are
not currently set forth in the Indenture. (Article 10)
EVENTS OF DEFAULT
Unless otherwise provided in the Prospectus Supplement with respect to
any series of Debt Securities, the following are Events of Default under the
Indenture with respect to the Debt Securities of such series issued under the
Indenture: (a) failure to pay principal of (or premium, if any, on) any Debt
Security of such series when due; (b) failure to pay interest, if any, on any
Debt Security of such series when due, which failure continues for 30 days; (c)
failure to deposit any mandatory sinking fund payment, when due, in respect of
the Debt Securities of such series; (d) failure to perform any other covenant of
the Company in the Indenture (other than a covenant included in the Indenture
for the benefit of a series of Debt Securities other than such series), which
failure continues for 60 days after written notice as provided in the Indenture;
(e) certain events of bankruptcy, insolvency or reorganization; and (f) any
other Event of Default as may be established with respect to Debt Securities of
such series (including, without limitation, any Event of Default arising out of
a default which results in the acceleration of certain indebtedness or a default
in the payment of any amounts due on certain indebtedness). (Sections 3.1 and
5.1) If an Event of Default in clause (a), (b), (c), (d) or (f) above with
respect to any outstanding series of Debt Securities occurs and is continuing,
either the Trustee or the holders of at least 25 percent in principal amount of
all outstanding Debt Securities of such series (or of all outstanding Debt
Securities under the Indenture) may declare the principal amount of all the Debt
Securities of the applicable series to be due and payable immediately. If an
Event of Default described in clause (e) shall occur, the principal amount of
the Debt Securities of all series ipso facto shall become and be immediately due
and payable without any declaration or other act on the part of the Trustee, any
holder or any other person. At any time after a declaration of acceleration has
been made, but before a judgment has been obtained, the holders of a majority in
principal amount of the outstanding Debt Securities of such series (or of all
outstanding Debt Securities under the Indenture, as the case may be) may, under
certain circumstances, rescind and annul such acceleration. In addition, the
Prospectus Supplement with respect to any series of Debt Securities may describe
additional Events of Default applicable to such series which are not currently
set forth in the Indenture. (Section 5.2)
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default in respect of any series of Debt Securities known to the
Trustee, give to the holders of the Debt Securities of such series notice of all
uncured and unwaived defaults known to it; provided, however, that, except in
the case of a default in the payment of the principal of (or premium, if any) or
any interest on, or any sinking fund installment with respect to, any Debt
Securities of such series, the Trustee will be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interest of the holders of the Debt Securities of such series; and provided,
further, that such notice shall not be given until at least 30 days after the
occurrence of a default in the performance, or breach, of any covenant or
warranty of the Company under the Indenture, other than for the payment of the
principal of (or premium, if any) or any interest on, or any sinking fund
installment with respect to, any Debt Securities of such series. For the purpose
of this provision, "default" with respect to Debt Securities of any series
means any event which is, or after notice or lapse of time, or both, would
become, an Event of Default with respect to the Debt Securities of such series.
(Section 6.2)
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The holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, of all outstanding Debt
Securities under the Indenture) have the right, subject to certain limitations,
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Debt Securities of such series (or of all
outstanding Debt Securities under the Indenture, as the case may be). (Section
5.12) Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
of the holders of the Debt Securities unless they shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request.
(Section 6.3)
The holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, of all outstanding Debt
Securities under the Indenture) may on behalf of the holders of all Debt
Securities of such series (or of all outstanding Debt Securities under the
Indenture, as the case may be) waive any past default under the Indenture,
except a default in the payment of the principal of (or premium, if any) or
interest on any Debt Security or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each outstanding Debt Security affected. (Section 5.13) The holders of a
majority in principal amount of the outstanding Debt Securities affected thereby
may, on behalf of the holders of all such Debt Securities, waive compliance by
Amax Gold with certain restrictive provisions of the Indenture. (Section 10.9)
The Company is required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 10.4)
MODIFICATION
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the holders of a majority in
principal amount of each series of outstanding Debt Securities affected thereby;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Debt Security affected thereby, (a)
change the stated maturity date of the principal of, or any installment of
interest on, any Debt Security, (b) reduce the principal amount of, or the
premium (if any) or interest on, any Debt Security, (c) change the Place of
Payment or currency, currencies, or currency unit or units of payment of
principal of, or premium (if any) or interest on, any Debt Security, (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Debt Security or (e) reduce the percentage in principal amount of
outstanding Debt Securities the consent of whose holders is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults. (Section
9.2)
The Indenture provides that the Company and the Trustee may, without
the consent of any holders of Debt Securities, enter into supplemental
indentures for the purposes, among other things, of adding to the Company's
covenants, securing the Debt Securities, adding additional Events of Default or
curing ambiguities or inconsistencies in the Indenture, provided any such action
to cure ambiguities or inconsistencies shall not adversely affect the interests
of the holders of the Debt Securities or any related coupons in any material
respect. (Section 9.1)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Amax Gold, without the consent of any holders of outstanding Debt
Securities, may consolidate with or merge into, or convey, transfer or lease its
assets substantially as an entirety to, any person, provided that the person
formed by such consolidation or into which the Company is merged or which
acquires or leases the assets of Amax Gold substantially as an entirety is a
corporation, partnership or trust organized under the laws of any United States
jurisdiction and assumes by supplemental indenture the Company's obligations on
the Securities and under the Indenture, that after giving effect to the
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing, and that certain other conditions are met. (Section 8.1) Upon
compliance with these provisions by a successor person, the Company will be
relieved of its obligations under the Indenture and the Debt Securities.
(Section 8.2)
DISCHARGE AND DEFEASANCE
Unless the Prospectus Supplement in respect of any series of Debt
Securities shall state otherwise, Amax Gold may terminate its obligations under
the Indenture with respect to Debt Securities of any series, other than its
obligation
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to pay the principal of (and premium, if any) and interest on such
Debt Securities and certain other obligations, if (i) Amax Gold irrevocably
deposits or causes to be irrevocably deposited with the Trustee as trust funds
money or Government Obligations maturing as to principal and interest sufficient
to pay the principal of, any interest on, and any mandatory sinking funds in
respect of, all outstanding Debt Securities of such series on the stated
maturity of such payments or on any redemption date, (ii) Amax Gold has
delivered to the Trustee an opinion of counsel to the effect that the holders of
Debt Securities of such series will not recognize income, gain or loss for
United States federal income tax purposes as a result of such discharge and will
be subject to United States federal income tax on the same amount and in the
same manner and at the same time as would have been the case if such discharge
had not occurred, (iii) Amax Gold complies with any additional conditions
specified to be applicable with respect to the covenant defeasance of Debt
Securities of such series, and (iv) no default or Event of Default with respect
to the Debt Securities of such issue shall have occurred and be continuing on
the date of such deposit or, in so far as they relate to certain events of
bankruptcy or insolvency, at any time in the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period).
The terms of any series of Debt Securities may also provide for legal
defeasance pursuant to the Indenture. In such case, if Amax Gold (i) irrevocably
deposits or causes to be irrevocably deposited money or Government Obligations
as described above and complies with the other provisions described above
(except that the opinion referred to in clause (ii) above must be based on a
ruling by the Internal Revenue Service or other change under applicable federal
income tax law), (ii) makes a request to the Trustee to be discharged from its
obligations on the Debt Securities of such series and (iii) complies with any
additional conditions specified to be applicable with respect to legal
defeasance of Securities of such series, then the Company shall be deemed to
have paid and discharged the entire indebtedness on all the outstanding Debt
Securities of such series and the obligations of Amax Gold under the Indenture
and the Debt Securities of such series to pay the principal of (and premium, if
any) and interest on the Debt Securities of such series shall cease, terminate
and be completely discharged, and the holders thereof shall thereafter be
entitled only to payment out of the money or Government Obligations deposited
with the Trustee as aforesaid, unless Amax Gold's obligations are revived and
reinstated because the Trustee is unable to apply such trust fund by reason of
any legal proceeding, order or judgment. (Articles 4 and 13)
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Debt Securities are issuable in definitive form as Registered Debt
Securities, as Bearer Debt Securities or both. Unless otherwise indicated in an
applicable Prospectus Supplement, Bearer Debt Securities will have interest
coupons attached. Debt Securities are also issuable in temporary or permanent
global form. (Section 3.1)
Registered Debt Securities of any series will be exchangeable for
other Registered Debt Securities of the same series and of a like aggregate
principal amount and tenor of different authorized denominations. In addition,
with respect to any series of Bearer Debt Securities, at the option of the
holder, subject to the terms of the Indenture, such Bearer Debt Securities (with
all unmatured coupons, except as provided below, and all matured coupons in
default) will be exchangeable into Registered Debt Securities of the same series
of any authorized denominations and of a like aggregate principal amount and
tenor. Bearer Debt Securities surrendered in exchange for Registered Debt
Securities between a Regular Record Date or a Special Record Date and the
relevant date for payment of interest shall be surrendered without the coupon
relating to such date for payment of interest, and interest accrued as of such
date will not be payable in respect of the Registered Debt Security issued in
exchange for such Bearer Debt Security, but will be payable only to the holder
of such coupon when due in accordance with the terms of the Indenture. (Section
3.5)
In connection with its sale during the restricted period (as defined
below), no Bearer Debt Security (including a Debt Security in permanent global
form that is either a Bearer Debt Security or exchangeable for Bearer Debt
Securities) shall be mailed or otherwise delivered to any location in the United
States (as defined under "--Limitations on Issuance of Bearer Debt Securities")
and a Bearer Debt Security may be delivered outside the United States in
definitive form in connection with its original issuance only if prior to
delivery the person entitled to receive such Bearer Debt Security furnishes
written certification, in the form required by the Indenture, to the effect that
such Bearer Debt Security is owned by: (a) a person (purchasing for its own
account) who is not a United States person (as defined under "--Limitations on
Issuance of Bearer Debt Securities"); (b) a United States person who (i) is a
foreign branch of a United States financial institution purchasing for its own
account or for resale or (ii) acquired such Bearer Debt Security through the
foreign branch of a United States financial institution and who for purposes of
the certification holds such Bearer Debt Security through such financial
institution on the date of certification and, in either case, such United States
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financial institution certifies to Amax Gold or the distributor selling the
Bearer Debt Security within a reasonable time stating that it agrees to comply
with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder, or (c) a United States or foreign financial institution for purposes
of resale within the "restricted period" as defined in United States Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(7). A financial institution described in
clause (c) of the preceding sentence (whether or not also described in clauses
(a) and (b)) must certify that it has not acquired the Bearer Debt Security for
purpose of resale, directly or indirectly, to a United States person or to a
person within the United States or its possessions. In the case of a Bearer Debt
Security in permanent global form, such certification must be given in
connection with notation of a beneficial owner's interest therein in connection
with the original issuance of such Debt Security or upon exchange of a portion
of a temporary global Debt Security. (Section 3.3)
Debt Securities may be presented for exchange as provided above, and
Registered Debt Securities may be presented for registration of transfer (with
the form of transfer endorsed thereon duly executed), at the office of the
Security Registrar or at the office of any transfer agent designated by Amax
Gold for such purpose with respect to any series of Debt Securities and referred
to in the applicable Prospectus Supplement, without a service charge and upon
payment of any taxes and other governmental charges as described in the
Indenture. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. Amax Gold may
appoint the Trustee as Security Registrar. (Section 3.5) If a Prospectus
Supplement refers to any transfer agents (in addition to the Security Registrar)
initially designated by the Company with respect to any series of Debt
Securities, Amax Gold may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that, if Debt Securities of a series are issued
solely as Registered Debt Securities, Amax Gold will be required to maintain a
transfer agent in each Place of Payment for such series and, if Debt Securities
of a series are issued as Bearer Debt Securities, the Company will be required
to maintain (in addition to the Security Registrar) a transfer agent in a Place
of Payment located outside the United States for Bearer Securities of such
series. Amax Gold may at any time designate additional transfer agents with
respect to any series of Debt Securities. (Section 10.2)
In the event of any redemption in part, the Company shall not be
required to (i) issue, register the transfer of or exchange Debt Securities of
any series during a period beginning at the opening of business 15 days prior to
the day of mailing or first publication, as the case may be, of the relevant
notice of redemption of Debt Securities of that series for redemption and ending
on the close of business on (A) if Debt Securities of the series are issued only
as Registered Debt Securities, the day of mailing of the relevant notice of
redemption and (B) if Debt Securities of the series are issued as Bearer Debt
Securities, the day of the first publication of the relevant notice of
redemption except that, if Securities of the series are also issued as
Registered Debt Securities and there is no publication, the day of mailing of
the relevant notice of redemption; (ii) register the transfer of or exchange any
Registered Debt Security, or portion thereof, called for redemption, except the
unredeemed portion of any Registered Debt Security being redeemed in part; or
(iii) exchange any Bearer Debt Security called for redemption, except to
exchange such Bearer Debt Security for a Registered Debt Security of that series
and like tenor which is simultaneously surrendered for redemption. (Section 3.5)
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
payment of principal of (and any premium) and interest on Bearer Debt Securities
will be payable, subject to any applicable laws and regulations in the
designated currency or currency unit, at the offices of such Paying Agents
outside the United States as Amax Gold may designate from time to time, at the
option of the Company, by check or by transfer to an account maintained by the
payee with a bank located outside the United States; provided, however, that the
written certification described above under "--Form, Exchange, Registration and
Transfer" has been delivered prior to the first actual payment of interest.
(Section 3.7) Unless otherwise indicated in the applicable Prospectus
Supplement, payment of interest on Bearer Debt Securities on any Interest
Payment Date will be made only against surrender to the Paying Agent of the
coupon relating to such Interest Payment Date. (Section 10.1) No payment with
respect to any Bearer Debt Security will be made at any office or agency of Amax
Gold in the United States or by check mailed to any address in the United States
or by transfer to any account maintained with a bank located in the United
States, nor shall any payments be made in respect of Bearer Debt Securities upon
presentation to Amax Gold or its designated Paying Agents within the United
States. Notwithstanding the foregoing, payments of principal of (and any
premium) and interest on Bearer Debt Securities denominated and payable in U.S.
dollars will be made at the office of the Company's Paying Agent in the United
States, if (but only if)
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payment of the full amount thereof in U.S. dollars at all offices or agencies
outside the United States is illegal or effectively precluded by exchange
controls or other similar restrictions. (Section 10.2)
Unless otherwise indicated in the applicable Prospectus Supplement,
payment of principal of (and any premium) and interest on Registered Debt
Securities will be made in the designated currency or currency unit at the
office of such Paying Agent or Paying Agents as the Company may designate from
time to time, except that at the Company's option, payment of any interest may
be made by check mailed to the address of the person entitled thereto as such
address shall appear in the Security Register. Unless otherwise indicated in an
applicable Prospectus Supplement, payment of any installment of interest on
Registered Debt Securities will be made to the person in whose name such
Registered Debt Security is registered at the close of business on the Regular
Record Date for such interest. (Section 3.7)
Unless otherwise indicated in the applicable Prospectus Supplement,
the Corporate Trust Office of the Trustee will be designated as a Paying Agent
for the Company for payments with respect to Debt Securities which are issuable
solely as Registered Debt Securities, and Amax Gold will maintain a Paying Agent
outside the United States for payments with respect to Debt Securities (subject
to limitations described above in the case of Bearer Debt Securities) which are
issued solely as Bearer Debt Securities, or as both Registered Debt Securities
and Bearer Debt Securities. Any Paying Agents outside the United States and any
other Paying Agents in the United States initially designated by Amax Gold for
the Debt Securities will be named in an applicable Prospectus Supplement. Amax
Gold may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent or approve a change in the office through which
any Paying Agent acts, except that, if Debt Securities of a series are issued
solely as Registered Debt Securities, Amax Gold will be required to maintain a
Paying Agent in each Place of Payment for such series and, if Debt Securities of
a series are issued as Bearer Securities, Amax Gold will be required to maintain
(i) a Paying Agent in the United States for principal payments with respect to
any Registered Debt Securities of the series (and for payments with respect to
Bearer Debt Securities of the series in the circumstances described above, but
not otherwise), and (ii) a Paying Agent in a Place of Payment located outside
the United States where Securities of such series and any coupons appertaining
thereto may be presented and surrendered for payment. (Section 10.2)
All moneys paid by Amax Gold to a Paying Agent for the payment of
principal of and any premium or interest on any Debt Security which remain
unclaimed at the end of three years after such principal, premium or interest
shall have become due and payable will (subject to applicable escheat laws) be
repaid to the Company and the holder of such Debt Security or any coupon will
thereafter look only to the Company for payment thereof. (Section 10.3)
TEMPORARY GLOBAL SECURITIES
If so specified in the applicable Prospectus Supplement, all or any
portion of the Debt Securities of a series which are issuable as Bearer Debt
Securities will initially be represented by one or more temporary global Debt
Securities, to be deposited with a common depository in London for the Euroclear
System ("Euroclear") and CEDEL S.A. ("CEDEL") for credit to the designated
accounts. Not later than the date determined as provided in any such temporary
global Debt Security and described in the applicable Prospectus Supplement, each
such temporary global Debt Security will be exchangeable for definitive Bearer
Debt Securities, definitive Registered Debt Securities or all or a portion of a
permanent global security, or any combination thereof, as specified in the
applicable Prospectus Supplement, but, unless otherwise specified in the
applicable Prospectus Supplement, only upon receipt of written certification in
the form and to the effect described under "--Form, Exchange, Registration and
Transfer." No Bearer Debt Security delivered in exchange for a portion of a
temporary global Debt Security will be mailed or otherwise delivered to any
location in the United States in connection with such exchange. (Section 3.4)
Unless otherwise specified in the applicable Prospectus Supplement,
interest in respect of any portion of a temporary global Debt Security payable
in respect of an Interest Payment Date occurring prior to the issuance of
definitive Debt Securities or a permanent global Debt Security will be paid to
each of Euroclear and CEDEL with respect to the portion of the temporary global
Debt Security held for its account. Each of Euroclear and CEDEL will undertake
in such circumstances to credit such interest received by it in respect of a
temporary global Debt Security to the respective accounts for which it holds
such temporary global Debt Security only upon receipt in each case of written
certification in the form and to the effect described above under "--Form,
Exchange, Registration and Transfer" as of the relevant Interest Payment Date
regarding the portion of such temporary global Debt Security on which interest
is to be so credited. (Section 3.4)
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PERMANENT GLOBAL SECURITIES
If any Debt Securities of a series are issuable in permanent global
form, the applicable Prospectus Supplement will describe the circumstances, if
any, under which beneficial owners of interests in any such permanent global
Debt Securities may exchange such interests for Debt Securities of such series
and of like tenor and principal amount in any authorized form and denomination.
No Bearer Debt Security delivered in exchange for a portion of a permanent
global Debt Security shall be mailed or otherwise delivered to any location in
the United States in connection with such exchange. A person having a beneficial
interest in a permanent global Debt Security, will, except with respect to
payment of principal of and any premium and interest on such permanent global
Debt Security, be treated as a holder of such principal amount of Outstanding
Debt Securities represented by such permanent global Debt Security as shall be
specified in a written statement of the holder of such permanent global Debt
Security or, in the case of a permanent global Debt Security in bearer form, of
the operator of Euroclear or CEDEL which is provided to the Trustee by such
person. Principal of and any premium and interest on a permanent global Debt
Security will be payable in the manner described in the applicable Prospectus
Supplement. (Section 2.5)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued, in whole or in part, in
the form of one or more global Debt Securities that would be deposited with a
depository or its nominee identified in the applicable Prospectus Supplement.
The specific terms of any depository arrangement with respect to any portion of
a series of Debt Securities and the rights of, and limitations on, owners of
beneficial interests in any such global Debt Security representing all or a
portion of a series of Debt Securities will be described in the applicable
Prospectus Supplement. (Section 2.6)
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES
In compliance with United States federal tax laws and regulations,
Bearer Debt Securities (including securities in permanent global form that are
either Bearer Debt Securities or exchangeable for Bearer Debt Securities) will
not be offered or sold during the restricted period (as defined in United States
Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)) (generally, the first 40
days after the closing date, and, with respect to unsold allotments, until sold)
within the United States or to United States persons (each as defined below)
other than to an office located outside the United States of a United States
financial institution (as defined in Section 1.165-12(c)(1)(v) of the United
States Treasury Regulations), purchasing for its own account or for resale or
for the account of certain customers, that provides a certificate stating that
it agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Code and the United States Treasury Regulations thereunder, or to certain
other persons described in Section 1.163-5(c)(2)(i)(D)(1)(iii)(B) of the United
States Treasury Regulations. Moreover, such Bearer Debt Securities will not be
delivered in connection with their sale during the restricted period within the
United States. Any underwriters and dealers participating in the offering of
Bearer Debt Securities must covenant that they will not offer or sell during the
restricted period any Bearer Debt Securities within the United States or to
United States persons (other than the persons described above) or deliver in
connection with the sale of Bearer Debt Securities during the restricted period
any Bearer Debt Securities within the United States and that they have in effect
procedures reasonably designed to ensure that their employees and agents who are
directly engaged in selling the Bearer Debt Securities are aware of the
restrictions described above. No Bearer Debt Security (other than a temporary
global Bearer Debt Security) will be delivered in connection with its original
issuance nor will interest be paid on any Bearer Debt Security until receipt by
Amax Gold of the written certification described above under "--Form, Exchange,
Registration and Transfer." Each Bearer Debt Security, other than a temporary
global Bearer Debt Security, will bear a legend to the following effect: "Any
United States person who holds this obligation will be subject to limitations
under the United States income tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code."
As used herein, "United States person" means any citizen or resident
of the United States, any corporation, partnership or other entity created or
organized in or under the laws of the United States and any estate or trust the
income of which is subject to United States federal income taxation regardless
of its source, and "United States" means the United States of America
(including the states and the District of Columbia) and its possessions.
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MEETINGS
The Indenture contains provisions for convening meetings of the
holders of Debt Securities of a series. A meeting may be called at any time by
the Trustee, and also, upon request, by Amax Gold or the holders of at least 10
percent in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as described under "-Notices" below. Except
for any consent that must be given by the holder of each Outstanding Debt
Security affected thereby, as described under "-Modification" above, any
resolution presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except for any consent that must be given by the holder of each
Outstanding Debt Security affected thereby, as described under "-Modification"
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders of a specified percentage, which is less than a majority in
principal amount of the Outstanding Debt Securities of a series, may be adopted
at a meeting or adjourned meeting duly reconvened at which a quorum is present
by the affirmative vote of the holders of such specified percentage in principal
amount of the Outstanding Debt Securities of that series. Except for any consent
that must be given by the holder of each Outstanding Debt Security affected
thereby, as described under "--Modification" above, any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all holders of Debt
Securities of that series and any related coupons. The quorum at any meeting
called to adopt a resolution, and at any reconvened meeting, will be persons
holding or representing a majority in principal amount of the Outstanding Debt
Securities of a series. (Article 16)
NOTICES
Except as otherwise provided in the Indenture, notices to holders of
Bearer Debt Securities will be given by publication at least twice in a daily
newspaper in the City of New York and London or other capital city in Western
Europe and in such other city or cities as may be specified in such Securities.
Notices to holders of Registered Debt Securities will be given by mail to the
addresses of such holders as they appear in the Security Register. (Section 1.6)
THE TRUSTEE
The Indenture contains certain limitations on the right of the
Trustee, to the extent it is a creditor of Amax Gold, to obtain payment of
claims in certain cases and to realize on certain property received with respect
to any such claims, as security or otherwise. (Section 6.13) The Trustee is
permitted to engage in other transactions, except that, if it acquires any
conflicting interest within the meaning of the Trust Indenture Act of 1939, it
must eliminate such conflict or resign. (Section 6.8)
DESCRIPTION OF PREFERRED STOCK
The Company's Certificate of Incorporation currently authorizes the
issuance of 10,000,000 shares of Preferred Stock, par value $1.00 per share,
issuable in series. The Board of Directors of the Company is authorized to
approve the issuance of one or more series of Preferred Stock without further
authorization of the stockholders of Amax Gold and to fix the number of shares,
the designations, the relative rights and preferences and the limitations of any
such series.
In August 1994, the Company issued 1,840,000 shares of $3.75 Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), all of which are
currently outstanding. In addition, Amax Gold has reserved for issuance
2,000,000 shares of Series A Preferred Stock, issuable in repayment of
outstanding indebtedness under the DOCLOC I. See "Description of Capital
Stock--Series A Preferred Stock" and "--Series B Preferred Stock."
The applicable Prospectus Supplement will set forth the number of
shares, particular designation, relative rights and preferences and the
limitations of any series of Preferred Stock in respect of which this Prospectus
is delivered. The terms of the Company's currently authorized Series A
Preferred Stock and Series B Preferred Stock do not limit the issuance of other
series of Preferred Stock ranking as to dividends and payments upon liquidation
on a parity with or junior to such existing Preferred Stock. Similarly, the
Series A Preferred Stock and Series B Preferred Stock do not require that a
series of Preferred Stock be issued on a parity with the Series A Preferred
Stock and the Series B Preferred Stock. The particular terms of any such series
will include the following:
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(i) The maximum number of shares to constitute the series and the
designation thereof;
(ii) The annual dividend rate, if any, on shares of the series,
whether such rate is fixed or variable or both, the date or dates from which
dividends will begin to accrue or accumulate, whether dividends will be
cumulative and whether such dividends shall be paid in cash, Common Stock or
otherwise;
(iii) Whether the shares of the series will be redeemable and, if so,
the price at and the terms and conditions on which the shares of the series may
be redeemed, including the time during which shares of the series may be
redeemed and any accumulated dividends thereon that the holders of shares of the
series shall be entitled to receive upon the redemption thereof;
(iv) The liquidation preference, if any, applicable to shares of the
series;
(v) Whether the shares of the series will be subject to operation of a
retirement or sinking fund and, if so, the extent and manner in which any such
fund shall be applied to the purchase or redemption of the shares of the series
for retirement or for other corporate purposes, and the terms and provisions
relating to the operation of such fund;
(vi) The terms and conditions, if any, on which the shares of the
series shall be convertible into, or exchangeable for, shares of any other class
or classes of capital stock of Amax Gold or another corporation or any series of
any other class or classes, or of any other series of the same class, including
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same;
(vii) The voting rights, if any, of the shares of the series;
(viii) The currency or units based on or relating to currencies in
which such series is denominated and/or in which payments will or may be
payable;
(ix) The methods by which amounts payable in respect of such series
may be calculated and any commodities, currencies or indices, or price, rate or
value, relevant to such calculation;
(x) Any listing of the shares of the series on a securities exchange;
and
(xi) Any other preferences and relative, participating, optional or
other rights or qualifications, limitations or restrictions thereof.
Any material United States federal income tax consequences and other
special considerations to any offered Preferred Stock will be described in the
Prospectus Supplement relating to the offering and sale of such Preferred Stock.
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DESCRIPTION OF WARRANTS
The Company may issue Warrants to purchase shares of Common Stock,
shares of Preferred Stock or Debt Securities. Warrants may be issued, subject
to regulatory approvals, independently or together with any Common Stock,
Preferred Stock or Debt Securities, as the case may be, and may be attached to
or separate from such Common Stock, Preferred Stock or Debt Securities. Each
series of Warrants will be issued under a separate warrant agreement (each a
"Warrant Agreement") to be entered into between the Company and a warrant agent
(the "Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants
and the applicable Warrant Agreement will be set forth in the applicable
Prospectus Supplement.
The applicable Prospectus Supplement will describe the following terms
of any Warrants in respect of which this Prospectus is delivered: (i) the title
of such Warrants; (ii) a description of the securities (which may include shares
of Common Stock, shares of Preferred Stock or Debt Securities) for which such
Warrants are exercisable; (iii) the price or prices at which such Warrants will
be issued; (iv) the periods during which the Warrants are exercisable; (v) the
number of shares of Common Stock or Preferred Stock or the amount of Debt
Securities for which each Warrant is exercisable; (vi) the exercise price for
such Warrants, including any changes to or adjustments in the exercise price;
(vii) the currency or currencies, including composite currencies, in which the
exercise price of such Warrants may be payable; (viii) if applicable, the
designation and terms of the shares of Preferred Stock with which such Warrants
are issued; (ix) if applicable, the terms of the Debt Securities with which such
Warrants are issued; (x) if applicable, the number of Warrants issued with each
share of Common Stock or Preferred Stock or Debt Security; (xi) if applicable,
the date on and after which such Warrants and the related shares of Common Stock
or Preferred Stock or Debt Securities will be separately transferable; (xii) if
applicable, a discussion of certain United States federal income tax
considerations; (xiii) any listing of the Warrants on a securities exchange; and
(xiv) any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The Company is authorized by its Certificate of Incorporation to issue
200.0 million shares of Common Stock and 10.0 million shares of Preferred Stock.
As of December 31, 1996, there were 99,308,979 shares of Common Stock issued and
outstanding and 1,840,000 shares of the Series B Preferred Stock issued and
outstanding. In addition, 2,000,000 shares of the Series A Preferred Stock have
been authorized by the Board for issuance. All of the shares of Series A
Preferred Stock are reserved for issuance under DOCLOC I. See "- Preferred
Stock - Series A Preferred Stock."
COMMON STOCK
A summary of the terms and provisions of the Common Stock is set forth
below.
Dividends. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board out of funds legally available
therefor, provided that if any shares of Series A Preferred Stock, Series B
Preferred Stock, any Preferred Stock issued under this Prospectus and any
accompanying Prospectus Supplement, or any other shares of preferred stock are
at the time outstanding, the payment of dividends on Common Stock or other
distributions (including Company repurchases of Common Stock) will be subject to
the declaration and payment of all cumulative dividends on outstanding shares of
the Series A Preferred Stock, Series B Preferred Stock, any Preferred Stock
issued under this Prospectus and any accompanying Prospectus Supplement and any
other shares of preferred stock which are then outstanding.
Liquidation. In the event of the dissolution, liquidation or winding
up of the Company, holders of Common Stock are entitled to share ratably in any
assets remaining after the satisfaction in full of the prior rights of
creditors, including holders of the Company's indebtedness, and the payment of
the aggregate liquidation preference of the Series A Preferred Stock, the Series
B Preferred Stock, any Preferred Stock issued under this Prospectus and any
accompanying Prospectus Supplement and any other shares of preferred stock then
outstanding.
Voting. The Company's stockholders are entitled to one vote for each
share on all matters voted on by stockholders, including election of directors.
Shares of Common Stock held by the Company or any entity controlled by the
Company do not have voting rights and are not counted in determining the
presence of a quorum. Directors are elected annually. Holders of Common Stock
have no cumulative voting rights.
No Other Rights. The holders of Common Stock do not have any
conversion, redemption or preemptive rights.
Transfer Agent. The transfer agents for the Common Stock are Bank of
New York, 101 Barclay Street, 12 West, New York, New York 10286 and Montreal
Trust Company, 151 Front Street West, 8th Floor, Toronto, Ontario, Canada MJ5
2N1.
Listing. Shares of the Company's outstanding Common Stock are listed
on the NYSE and the TSE.
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or
more series. The Company's Board of Directors is authorized, without
stockholder approval, to fix the voting rights, dividend rights and terms, any
conversion rights, rights and terms of redemption (including sinking fund
provisions), liquidation preferences and any other rights, preferences and
restrictions of any series of Preferred Stock and the number of shares
constituting such series and designation thereof. The terms of such Preferred
Stock may affect adversely the voting power and other rights of the holders of
Common Stock and may make it more difficult for a third party to gain control of
the Company.
SERIES A PREFERRED STOCK. The Series A Preferred Stock was designated
as a series of preferred stock in connection with DOCLOC I. The Series A
Preferred Stock consists of 2.0 million shares. A summary of the terms and
provisions of the Series A Preferred Stock is set forth below.
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Dividends. The holders of shares of Series A Preferred Stock are
entitled to receive dividends at an annual rate of $2.25 per share, which is
cumulative, accrues without interest and is payable in cash in equal semi-annual
installments. The Company may elect to pay any dividend due and payable in
shares of Common Stock in lieu of a dividend payment in cash, unless the holder
of Series A Preferred Stock delivers written notice stating that such holder
elects to receive cash. The Series A Preferred Stock ranks, as to dividends, on
a parity with the Series B Preferred Stock and no dividends may be made on the
Series A Preferred Stock for any period unless full cumulative dividends have
been paid, are paid contemporaneously or are set apart for payment on the Series
B Preferred Stock.
Liquidation Preference. Upon the liquidation, dissolution or winding
up of the Company, the holders of Series A Preferred Stock are entitled to
receive from the assets of the Company an amount equal to the dividends accrued
and unpaid thereon to the date of final distribution to such holders, whether or
not declared, without interest, and a sum equal to $50.00 per share, and no
more. Payment to the holders of shares of Series A Preferred Stock will be made
before any payment is made or any assets distributed to holders of Common Stock
or any other class or series of the Company's capital stock ranking junior as to
liquidation rights to the Series A Preferred Stock. The Series A Preferred
Stock ranks, as to liquidation rights, on a parity with the Series B Preferred
Stock.
Redemption at the Option of the Company. The Company, at its option,
may at any time redeem the Series A Preferred Stock in whole or, from time to
time, in part, for that number of shares of Common Stock obtained by dividing
$50.00 by the lesser of (i) the call price (defined below) and (ii) the
conversion price (defined below), plus accrued and unpaid dividends, whether or
not declared or due, to the date fixed for redemption. The Company may issue up
to a maximum of 12,099,213 shares of Common Stock upon redemption and conversion
of and the payment of dividends on the Series A Preferred Stock, subject to
adjustment of the conversion price. In the case of the redemption of shares of
Series A Preferred Stock that would result in the issuance of more than
12,099,213 shares of Common Stock, the Company would pay an amount in cash in
lieu of such shares equal to the lesser of the call price or the conversion
price multiplied by the number of shares in excess of 12,099,213. Such cash
payment will be made in 12 consecutive substantially equal quarterly payments.
The call price with respect to a redemption of Series A Preferred
Stock is equal to the greater of (i) $5.854 (subject to adjustment of the
conversion price) and (ii) the average closing price per share of Common Stock
as calculated for a ten day trading period ending on the fifth trading day prior
to the date the notice of redemption is mailed.
Conversion. The holder of any shares of Series A Preferred Stock will
have the right, at the holder's option, to convert any or all shares of Series A
Preferred Stock held by such holder into Common Stock at any time. Each share
of Series A Preferred Stock is convertible into that number of shares of Common
Stock obtained by dividing $50.00 by the conversion price in effect at the time.
The conversion price is $8.265 and is subject to adjustment upon payment by the
Company of a dividend or the making by the Company of a distribution on Common
Stock in shares of Common Stock, upon the subdivision, combination or issuance
by reclassification of Common Stock, or upon the issuance of rights, options or
warrants to purchase shares of Common Stock at a price per share less than the
then current market price. The maximum number of shares of Common Stock that
the Company may issue upon redemption and conversion of and the payment of
dividends on the Series A Preferred Stock is 12,099,213 shares, subject to
adjustment of the conversion price. No fractional shares of Common Stock will
be issued upon conversion but, in lieu thereof, an appropriate amount will be
paid in cash. No adjustment will be made to the conversion price unless such
adjustment would require an increase or decrease of at least one percent of such
price.
Voting Rights. The holders of Series A Preferred Stock are not
entitled to vote except as described below or as required by law. Shares of
Series A Preferred Stock held by the Company or any entity controlled by the
Company do not have voting rights and are not counted in determining the
presence of a quorum. If dividends on the Series A Preferred Stock are in
arrears in an amount equal to at least three semi-annual dividend payments
(whether or not consecutive), the number of members of the Board will be
increased by two and the holders of Series A Preferred Stock, voting separately
as a class, will have the right to vote for and elect two additional directors
of the Company during the period that such dividends remain in arrears.
The affirmative vote or consent of the holders of at least 66b percent
of all outstanding shares of Series A Preferred Stock is required for the
Company (i) to amend, alter or repeal any provision of the Restated Certificate
of Incorporation or the Bylaws of the Company so as to affect adversely the
relative rights, preferences, qualifications, limitations or restrictions of the
Series A Preferred Stock, (ii) to authorize, issue or increase the authorized
amount of
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any additional class or series of stock, or any security convertible into stock
of such class or series ranking senior to the Series A Preferred Stock as to the
payment of dividends or upon liquidation, dissolution or winding up of the
Company or (iii) to effect any reclassification of the Series A Preferred Stock.
No Preemptive Rights. The Series A Preferred Stock does not have any
preemptive or subscription rights in respect of any securities of the Company.
Cyprus Amax, however, does have the right to convert from time to time all or a
portion of DOCLOC I and any outstanding indebtedness and/or Series A Preferred
Stock into up to 12,099,213 shares of Common Stock at a conversion price of
$8.265 per share (or $100 million if all 12,099,213 shares of Common Stock are
converted).
SERIES B CONVERTIBLE PREFERRED STOCK. There are 1,840,000 shares of
Series B Preferred Stock currently outstanding. A summary of the terms and
provisions of the Series B Preferred Stock is set forth below.
Dividends. The holders of shares of Series B Preferred Stock are
entitled to receive dividends at an annual rate of $3.75 per share, which is
cumulative, accrues without interest and is payable in cash in equal quarterly
installments. The Series B Preferred Stock ranks, as to dividends, on a parity
with the Series A Preferred Stock and no dividends may be made on the Series B
Preferred Stock for any period unless full cumulative dividends have been paid,
are paid contemporaneously or are set apart for payment on any Series A
Preferred Stock outstanding.
Liquidation Preference. Upon the liquidation, dissolution or winding
up of the Company, the holders of Series B Preferred Stock are entitled to
receive from the assets of the Company an amount equal to the dividends accrued
and unpaid thereon to the date of final distribution to such holders, whether or
not declared, without interest, and a sum equal to $50.00 per share, and no
more. Payment to the holders of shares of Series B Preferred Stock will be made
before any payment is made or any assets distributed to holders of Common Stock
or any other class or series of the Company's capital stock ranking junior as to
liquidation rights to the Series B Preferred Stock. The Series B Preferred
Stock ranks, as to liquidation rights, on a parity with the Series A Preferred
Stock.
Redemption at Option of the Company. Shares of Series B Preferred
Stock are not redeemable prior to August 15, 1997. On and after such date, the
Series B Preferred Stock will be redeemable at the option of the Company, in
whole or, from time to time, in part, at the following redemption prices per
share, if redeemed during the 12-month period commencing on August 15 of the
year indicated:
Years Price per Share
1997 $52.625
1998 52.250
1999 51.875
2000 51.500
2001 51.125
2002 50.750
2003 50.375
2004 and thereafter 50.000
plus in each case accrued and unpaid dividends to, but excluding, the date of
redemption.
Conversion. The holder of any shares of Series B Preferred Stock will have
the right, at the option of the holder, to convert any and all shares of Series
B Preferred Stock held by such holder into shares of Common Stock at any time.
Each share of Series B Preferred Stock is convertible into that number of shares
of Common Stock obtained by dividing $50.00 by the conversion price in effect at
the time. The conversion price is $8.25 and is subject to adjustment upon
certain events, including (i) the issuance of Common Stock as a dividend or
distribution on the Common Stock; (ii) a combination, subdivision or
reclassification of the Common Stock; (iii) the issuance to all holders of
Common Stock of rights, options or warrants entitling them to subscribe for or
to purchase Common Stock at a price per share less than the then current market
price; and (iv) the distribution to all holders of Common Stock of capital stock
(other than Common Stock), evidences of indebtedness of the Company, assets
(excluding regular periodic cash dividends), or rights, options or warrants to
subscribe for or to purchase securities of the Company. No adjustment will be
made to the conversion price unless such adjustment would require an increase or
decrease of at least one percent of such price.
-33-
<PAGE>
Voting Rights. The holders of Series B Preferred Stock are not entitled to
vote except as described below or as required by law. Shares of Series B
Preferred Stock held by the Company or any entity controlled by the Company do
not have voting rights and are not counted in determining the presence of a
quorum. If dividends on the Series B Preferred Stock are in arrears in an
amount equal to at least six quarterly dividend payments (whether or not
consecutive), the number of members of the Board will be increased by two and
the holders of Series B Preferred Stock, voting separately as a class, will have
the right to elect two additional directors to the Company's Board of Directors
during that period that such dividends remain in arrears.
The affirmative vote or consent of the holders of at least 66/2///3//
percent of all outstanding shares of Series B Preferred Stock is required for
the Company (i) to amend, alter or repeal any provision of the Certificate of
Incorporation or By-laws of the Company so as to affect adversely the relative
rights, preferences, qualifications, limitations or restrictions of the Series B
Preferred Stock, (ii) to authorize, issue or increase the authorized amount of
any additional class or series of stock, or any security convertible into stock
of such class or series, ranking senior to the Series B Preferred Stock as to
the payment of dividends or upon liquidation, dissolution or winding up of the
Company or (iii) to effect any reclassification of the Series B Preferred Stock.
No Preemptive Rights. The Series B Preferred Stock does not have any
preemptive or subscription rights in respect of any securities of the Company.
-34-
<PAGE>
PLAN OF DISTRIBUTION
The Company may offer Securities to or through underwriters, through
agents or directly to other purchasers. Such underwriters may include Salomon
Brothers Inc.
The distribution of the Securities may be effected from time to time
in one or more transactions at a fixed price or prices (which may be changed
from time to time), at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Each
Prospectus Supplement will describe the method of distribution of the Securities
offered therein.
The Company may sell Securities directly, through agents designated
from time to time, through underwriting syndicates led by one or more managing
underwriters or through one or more underwriters acting alone. Each Prospectus
Supplement will set forth the terms of the Securities to which such Prospectus
Supplement relates, including the name or names of any underwriters or agents
with whom the Company has entered into arrangements with respect to the sale of
such Securities, the public offering or purchase price of such Securities and
the net proceeds to the Company from such sale, any underwriting discounts and
other items constituting underwriters' compensation, any discounts and
commissions allowed or paid to dealers, if any, any commissions allowed or paid
to agents, and the securities exchange or exchanges, if any, on which such
Securities will be listed. Dealer trading may take place in certain of the
Securities, including Securities not listed on any securities exchange.
Securities may be purchased to be reoffered to the public through
underwriting syndicates led by one or more managing underwriters, or through one
or more underwriters acting alone. The underwriter or underwriters with respect
to each underwritten offering of Securities will be named in the Prospectus
Supplement relating to such offering and, if an underwriting syndicate is used,
the managing underwriter or underwriters will be set forth on the cover page of
such Prospectus Supplement. Unless otherwise set forth in the applicable
Prospectus Supplement, the obligations of the underwriters to purchase the
Securities will be subject to certain conditions precedent and each of the
underwriters with respect to a sale of Securities will be obligated to purchase
all of its Securities if any are purchased. Any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
Securities may be offered and sold by the Company through agents
designated by the Company from time to time. Any agent involved in the offer and
sale of any Securities will be named, and any commissions payable by the Company
to such agent will be set forth, in the Prospectus Supplement relating to such
offering. Unless otherwise indicated in such Prospectus Supplement, any such
agent will be acting on a best efforts basis for the period of its appointment.
Offers to purchase Securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional investors
or others who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
The Company may also issue contracts under which the counterparty may
be required to purchase Securities. Such contracts would be issued for
Securities in amounts, at prices and on terms to be set forth in a Prospectus
Supplement.
The anticipated place and time of delivery of Securities will be set
forth in the applicable Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize underwriters or agents to solicit offers by certain institutions
to purchase Securities from the Company pursuant to delayed delivery contracts
providing for payment and delivery at a future date. Institutions with which
such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Company. Unless otherwise set forth in the applicable Prospectus Supplement,
the obligations of any purchaser under any such contract will not be subject to
any conditions except that (i) the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject, and (ii) if the Securities are also being sold to
underwriters acting as principals for their own account, the underwriters shall
have purchased such Securities not sold for delayed delivery. The underwriters
and such other persons will not have any responsibility in respect of the
validity or performance of such contracts.
-35-
<PAGE>
Any underwriter or agent participating in the distribution of the
Securities may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the Securities so offered and sold and any discounts or
commissions received by them from the Company and any profit realized by them on
the sale or resale of the Securities may be deemed to be underwriting discounts
and commissions under the Securities Act.
Underwriters and agents may be entitled, under agreements entered into
with the Company, to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such underwriters or agents may be required to
make in respect thereof. Certain of such underwriters and agents, including
their associates, may be customers of, engage in transactions with and perform
services for, the Company and its subsidiaries in the ordinary course of
business.
LEGAL MATTERS
The validity of the Securities offered will be passed upon for the
Company by Davis, Graham & Stubbs LLP, Denver, Colorado.
EXPERTS
The consolidated financial statements as of December 31, 1995 and 1994
and for each of the years ended December 31, 1995 and 1994, incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting. The consolidated financial
statements and the related financial statement schedules for the year ended
December 31, 1993, incorporated by reference in this Prospectus from the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, have
been incorporated herein in reliance on the report of Coopers & Lybrand,
independent accountants, which includes an explanatory paragraph regarding a
change in the method of accounting for exploration expenditures and
postemployment benefits in 1993, given on the authority of that firm as experts
in accounting and auditing.
The Company's ore reserves at the Haile project set forth in the table
under the heading "Proven and Probable Gold Ore Reserves" have been verified
by DMBW, Inc. (Derry, Michener, Booth & Wahl), and such information has been
included herein in reliance upon the authority of such firm as experts in
mining, geology and ore reserve determination.
The Company's ore reserves at Fort Knox and Refugio set forth in the
table under the heading "Proven and Probable Gold Ore Reserves" have been
independently verified by Mineral Resources Development, Inc., and such
information has been included herein in reliance upon the authority of such firm
as experts in mining, geology and ore reserve determination.
-36-
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER OR DEALER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND
PROSPECTUS, OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATES HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-----------------------------
TABLE OF CONTENTS
PAGE
------
PROSPECTUS
Available Information............................................... 3
Incorporation of Certain Documents by Reference..................... 3
Special Note Regarding Forward-looking Statements................... 4
The Company......................................................... 5
Risk Factors........................................................ 9
Use of Proceeds..................................................... 14
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.... 14
Business and Properties............................................. 15
Certain Transactions and Relationship with Cyprus Amax.............. 18
Description of Debt Securities...................................... 20
Description of Preferred Stock...................................... 28
Description of Warrants............................................. 30
Description of Capital Stock of the Company......................... 31
Plan of Distribution................................................ 35
Legal Matters....................................................... 36
Experts............................................................. 36
AMAX GOLD INC.
Dated ____________, 1997
-37-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth expenses, other than underwriting fees and commissions,
expected to be borne by the Registration, in connection with the distribution of
the Securities being registered:
Securities and Exchange Commission registration fee.............. $31,724
NASD filing fee.................................................. *
Blue Sky fees and expenses....................................... *
Stock exchange listing fees...................................... *
Rating agency fees............................................... *
Transfer agent fees.............................................. *
Trustee fees..................................................... *
Legal............................................................ *
Printing......................................................... *
Accounting....................................................... *
Miscellaneous.................................................... *
-------
TOTAL...................................................... $ *
- -------
*To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 8 of the Company's Certificate of Incorporation and Article VI of the
Company's Bylaws (collectively the "Governance Documents") confers on the
Company's officers and directors indemnification rights.
Section 102 of the Delaware General Corporation Law (the "DGCL") allows a
corporation to eliminate the personal liability of a director of a corporation
to the corporation or to any of its stockholders for monetary damage for a
breach of his fiduciary duty as a director, except in the case where the
director breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper persona benefit. Article 8 of the Company's Certificate
of Incorporate eliminates directors' personal liability in accordance with such
Section 102 of the DGCL.
Section 145 of the Delaware Law authorizes corporations to indemnify directors
and officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement reasonably incurred in connection with civil,
criminal, administrative, or investigative actions, suits or proceedings to
which such persons are parties or threatened to be made a party by reason of
their corporate position (other than actions by or in the right of the
corporation to procure a judgment in its favor--so called "derivative suits") if
such persons acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. With respect to derivative suits, Section 145 prescribes
a similar standard of care but limits the available indemnification to expenses
(including attorneys' fees) reasonably incurred in connection with the defense
or settlement of such action or suit and further provides that if the derivative
suit results in a judgment that the person seeking indemnification is liable to
the corporation, no such indemnification is to be made without court approval.
Section 145(f) of the DGCL also specifically permits corporations to provide
their officers, directors, employees and agents with indemnification and
advancement of expenses in addition to those specifically required and/or
permitted to be provided pursuant to other provisions of such Section 145.
II-1
<PAGE>
Under the provisions of the Governance Documents, each person who was or is
made a party to, or is threatened to be made a party to or is involved in, any
action, suit or other legal proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that such person is or was a director or
officer of the Company, or is or was performing services at the Company's
request for another entity, including service with respect to employee benefit
plans, shall be indemnified to the full extent permitted by DGCL as in effect or
as it may be amended, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) actually and reasonably
incurred by such person in connection with such proceeding. The rights to
indemnification conferred pursuant to the Governance Documents are contract
rights and include the right to receive payment for expenses of defending a
proceeding as to which there may be a right to indemnification prior to its
final disposition, provided that if the DGCL requires (and it currently does),
such advance payment shall be made only upon receipt by the Company of an
undertaking to the effect that all amounts so advanced will be repaid if it is
ultimately found that the party who received such amounts is not entitled to be
indemnified. The effect of providing that the indemnification rights are
contract rights is to permit indemnified individuals to enforce such provisions
directly against the Company. In addition, the Governance Documents authorize
the Company to provide other permissible indemnification. Finally, the
Governance Documents provide that the Company may (and it does) maintain
insurance to protect itself and any of its officers, directors, employees or
agents, to the limit of such coverage, against any expense, liability or loss,
even if the Company would not have the power itself to indemnify such person
against such expense, liability or loss under the DGCL.
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement--Equity*
1.2 Form of Underwriting Agreement--Debt*
4.1 Certificate of Incorporation, dated April 13, 1995 and filed with the
Secretary of State of the State of Delaware on April 26, 1995, filed as
Appendix F to the Company's Proxy Statement for the 1995 Annual Meeting
of Stockholders, dated April 27, 1995, and incorporated herein by
reference.
4.2 By-Laws, adopted on April 26, 1995, as amended and restated effective
June 21, 1995, filed as Exhibit 3(ii) to the Company's Registration
Statement on Form 8-B, filed June 21, 1995, and incorporated herein by
reference.
4.3 Certificate of Designations for the $2.25 Series A Convertible Preferred
Stock, filed as Exhibit 4.1 to the Company's Registration Statement on
Form 8-B, filed June 21, 1995, and incorporated herein by reference.
4.4 Certificate of Designations for the $3.75 Series B Convertible Preferred
Stock, filed as Exhibit 4.2 to the Company's Form 8-B, filed June 21,
1995, and incorporated herein by reference.
4.5 Form of Indenture for Subordinated Debt Securities*
4.6 Form of Debt Security (included in Exhibit 4.3)*
4.7 Form of Common Stock Warrant Agreement*
4.8 Form of Common Stock Warrant Certificate (included in Exhibit 4.7)
4.9 Form of Preferred Stock Warrant Agreement*
4.10 Form of Preferred Stock Warrant Agreement (included in Exhibit 4.9)
4.11 Form of Debt Securities Warrant Agreement*
II-2
<PAGE>
4.12 Form of Debt Securities Warrant Agreement (included in Exhibit 4.11)
5.1 Opinion of Davis, Graham & Stubbs LLP*
12.1 Statement re: Computation of Ratios
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Derry, Michner, Booth & Wahl
23.4 Consent of Mineral Resources Development, Inc.
23.5 Consent of Davis, Graham & Stubbs (see Exhibit 5.1)
24 Powers of Attorney (included on signature pages)
25 Form T-1 C Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939*
99.1 Consent Solicitation Statement, dated August 19, 1996, regarding the
Fort Knox financing arrangement
99.2 Consent Solicitation Statement, dated November 29, 1996, regarding
acquisition of Kubaka
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes that, for the purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
i. to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of the prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
II-3
<PAGE>
iii. to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, that are incorporated by reference in the
Registration Statement.
b. That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of a Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registration pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
c. That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
d. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the Trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Englewood, Colorado on the 28th day of February 1997.
AMAX GOLD INC.
By: /s/ S. SCOTT SHELLHAAS
-----------------------------------
S. Scott Shellhaas
President and Chief Operating Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby constitutes and appoints Deborah J. Friedman, S. Scott Shellhaas
and David L. Mueller, and each of them, his or her true and lawful agent, proxy
and attorney-in-fact, each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to (i) act on, sign and file with the Securities and
Exchange Commission any and all amendments (including post-effective amendments)
to this registration statement together with all schedules and exhibits thereto
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, together with all schedules and exhibits
thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith,
(iii) act on and file any supplement to any prospectus included in this
registration statement or any such amendment or any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and (iv) take any and all actions which may be necessary or appropriate
in connection therewith, granting unto such agents, proxies and attorneys-in-
fact, and each of them, full power and authority to do and perform each and
every act and thing necessary or appropriate to be done, as fully for all
intents and purposes as he or she might or could do in person, hereby approving,
ratifying and confirming all that such agents, proxies and attorneys-in-fact,
any of them or any of his or her or their substitutes may lawfully do or cause
to be done by virtue thereof.
Signatures Title Date
---------- ----- ----
/s/ MILTON H. WARD Chairman of the Board, February 28, 1997
- --------------------- Chief Executive Officer and
Milton H. Ward (principal executive officer)
/s/ DAVID L. MUELLER Vice President, Controller and February 28, 1997
- --------------------- Assistant Secretary (principal
David L. Mueller financial and accounting officer)
/s/ RICHARD H. BLOCK Director February 28, 1997
- ---------------------
Richard H. Block
II-5
<PAGE>
/s/ ALLEN BORN Director February 28, 1997
--------------------------
Allen Born
/s/ GERALD J. MALYS Director February 28, 1997
--------------------------
Gerald J. Malys
/s/ VERNON F. TAYLOR, JR. Director February 28, 1997
-------------------------
Vernon F. Taylor, Jr.
/s/ RUSSELL L. WOOD Director February 28, 1997
-------------------------
Russell L. Wood
II-6
<PAGE>
EXHIBIT 12.1
AMAX GOLD INC.
COMPUTATION OF RATIO OR EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Income (loss) before cumulative
effect of accounting changes
and discontinued operations $ (44,200) $ (23,900) $ (49,600) $ (122,800) $ 18,000
Interest expense(1) 6,900 7,400 8,900 8,500 2,300
Interest portion of rental expense 400 200 500 600 200
Amortization of capitalized interest 200 0 0 2,600 0
Minority interest 0 0 (1,100) (1,100) 0
Equity income (loss) 0 0 0 0 0
Pre-tax minority interest income (loss) 0 0 0 0 0
--------- --------- --------- ---------- ---------
Total income (loss) $ (36,700) $ (16,300) $ (41,300) $ (112,200) $ 20,500
========= ========= ========= ========== =========
Fixed charges
Interest (2) $ 29,700 $ 13,300 $ 9,100 $ 9,000 $ 6,500
Interest portion of rental expense 400 200 500 600 200
--------- --------- --------- ---------- ---------
Total fixed charges $ 30,100 $ 13,500 $ 9,600 $ 9,600 $ 6,700
========= ========= ========= ========== =========
Preferred stock dividend
(tax effected) $ 6,900 $ 6,900 $ 1,800 $ 0 $ 0
--------- --------- --------- ---------- ---------
Combined fixed charges &
preferred stock dividends $ 37,000 $ 20,400 $ 11,400 $ 9,600 $ 6,700
========= ========= ========= ========== =========
Ratio of earnings to fixed charges (3) (3) (3) (3) 3.06
========= ========= ========= ========== =========
</TABLE>
(1) Includes both capitalized interest and amortization of debt expenses.
(2) Excludes capitalized interest.
(3) Earnings for the years ended December 31, 1996, 1995, 1994 and 1993 were
inadequate to cover fixed charges by $73,700, $36,700, $52,700 and
$121,800, respectively.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 14, 1996, except as to Note 15, which is as of March 19, 1996,
appearing on page 25 of Amax Gold Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
February 27, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Amax Gold Inc. on Form S-3 of our report dated February 4, 1994, except for Note
8 for which the date is March 18, 1994, on our audits of the consolidated
financial statements and financial statement schedules of Amax Gold Inc. for
the year ended December 31, 1993, which is included in Amax Gold Inc.'s Annual
Report of Form 10-K for the year ended December 31, 1995.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Denver, Colorado
February 27, 1997
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF DMBW, INC. APPEARS HERE]
February 26, 1997
Amax Gold Inc.
9100 East Mineral Circle
Englewood, CO 80112
RE: Haile Project Reserve Study
Ladies and Gentlemen:
We hereby authorize the reference to the following described report prepared by
DMBW, Inc. (Derry, Michener, Booth & Wahl)("DMBW") in a Registration Statement
on Form S-3 to be filed by Amax Gold Inc. ("AGI")(File No. 1-9620), with the
Securities and Exchange Commission ("SEC"):
1. Audit of April 1, 1994 Ore Reserves at the Haile Mine, dated April 22, 1994,
prepared for Amax Gold, Inc.
We also confirm that we have read the description of the Haile Project ore
reserves as contained in the Annual Report and have no reason to believe that
there is any misrepresentation in the information contained on a Registration
Statement on Form S-3, which is derived from our report, or known to us as a
result of services we performed in connection with the preparation of such
report.
Sincerely,
DMBW, Inc.
[Derry, Michener, Booth & Wahl]
/s/ I.S. Parrish [SEAL APPEARS HERE]
- -------------------------------
By: I.S. Parrish
Title: President/Economic Geologist
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF MINERAL RESOURCES DEVELOPMENT, INC. APPEARS HERE]
February 28, 1997
Amax Gold Inc.
9100 East Mineral Circle
Englewood, CO 80112
RE: Refugio Gold Project Reserve Study
Ladies and Gentlemen:
We hereby authorize the reference to the Refugio Gold Project, Maricunga Mining
District, Chile, 1996 Reserve Update, dated February 26, 1997, prepared for Amax
Gold, Inc., by Mineral Resources Development, Inc., in the Registration
Statement on Form S-3 of Amax Gold, Inc. (File No. 1-9620), to be filed with the
United States Securities and Exchange Commission.
We also confirm that we have read the descriptions of the Refugio Project ore
reserves as contained in the Registration Statement on Form S-3 and have no
reason to believe that there is any misrepresentation in the information
contained herein that is derived from our reports or known to us as a result of
services we performed in connection with the preparation of such reports.
Sincerely,
MINERAL RESOURCES DEVELOPMENT, INC.
/s/ F.P. Howald
- -----------------------------------
By: Frank P. Howald
Title: Vice President, Project Management
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF MINERAL RESOURCES DEVELOPMENT, INC. APPEARS HERE]
February 28, 1997
Amax Gold Inc.
9100 East Mineral Circle
Englewood, CO 80112
RE: Fort Knox Gold Project Reserve Study
Ladies and Gentlemen:
We hereby authorize the reference to the Fort Knox Gold Project, Fairbanks,
Alaska, 1996 Reserve Update, dated February 26, 1997, prepared for Fairbanks
Gold Mining, Inc., by Mineral Resources Development, Inc., in the Registration
Statement on Form S-3 of Amax Gold, Inc. (File No. 1-9620), to be filed with the
United States Securities and Exchange Commission.
We also confirm that we have read the descriptions of the Fort Knox Project ore
reserves as contained in the Registration Statement on Form S-3 and have no
reason to believe that there is any misrepresentation in the information
contained herein that is derived from our reports or known to us as a result of
services we performed in connection with the preparation of such reports.
Sincerely,
MINERAL RESOURCES DEVELOPMENT, INC.
/s/ F.P. Howald
- -----------------------------------
By: Frank P. Howald
Title: Vice President, Project Management
<PAGE>
[LOGO OF AMAX GOLD INC. APPEARS HERE]
CONSENT SOLICITATION STATEMENT
DATED AUGUST 19, 1996
This Consent Solicitation Statement is being furnished to the stockholders
of Amax Gold Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of consents by the Company's Board of Directors (the "Board")
from holders of outstanding shares of the Company's common stock, par value
$.01 per share ("Common Stock"), on August 15, 1996 (the "Record Date").
This Consent Solicitation Statement and the form of Consent enclosed
herewith are being mailed to the stockholders of the Company on or about
August 19, 1996.
Stockholders are being asked to approve a financing arrangement with Cyprus
Amax Minerals Company, a Delaware corporation ("Cyprus Amax"), and a
stockholder owning 51.2 percent of the outstanding shares of Common Stock of
the Company, under which Cyprus Amax has guaranteed (the "Cyprus Amax
Guaranty") the Company's $250 million secured financing (the "Loan") until
economic completion of the Company's Fort Knox project and has provided the
Company with a $250 million demand loan facility (the "Demand Loan Facility"),
in exchange for which the Company will (i) pay Cyprus Amax a financing and
guaranty fee of $10 million (the "Financing and Guaranty Fee"), (ii) pay
Cyprus Amax 1.75 percent on amounts outstanding under the Loan (the "Interest
Differential Payments"), (iii) reimburse Cyprus Amax for any payments made or
costs incurred under the Cyprus Amax Guaranty (the "Reimbursement Payments"),
(iv) make no additional borrowings under the Company's existing $100 million
convertible line of credit with Cyprus Amax ("DOCLOC I") without the prior
consent of Cyprus Amax, and (v) grant Cyprus Amax a first priority security
interest in the collateral for the Loan, and if requested, security interests
in certain additional assets to the extent available; all of the Company's
obligations to Cyprus Amax are payable in cash or, at the election of Cyprus
Amax, in shares of Common Stock, valued at the time of issuance of the shares.
Stockholder approval shall include, but not be limited to, approval of the
authorization and issuance of shares of Common Stock to Cyprus Amax under the
foregoing arrangement (the "Financing Arrangement" or the "Proposal").
Cyprus Amax has the right to request that the Company pay amounts due under
the Financing Arrangement in cash or shares of Common Stock. The Company would
issue to Cyprus Amax between approximately 30.2 million and 48.3 million
shares (based on an assumed price per share of Common Stock of $6.125, the
closing sale price of the Common Stock on the Record Date) under the
transactions contemplated by the Proposal, assuming that Cyprus Amax elects to
receive all payments in shares of Common Stock, that the Cyprus Amax Guaranty
is not called and that between $150 million and $250 million is borrowed under
the Demand Loan Facility (with interest accruing over the period from April 1,
1996 through December 31, 1997). If Cyprus Amax elects to receive all payments
in cash, no shares of Common Stock would be issued under the Financing
Arrangement. See "CAPITALIZATION," "THE PROPOSAL--Background" and "THE
PROPOSAL--Effects of the Proposal Upon the Rights of Existing Holders of
Common Stock."
Pursuant to the General Corporation Law of the State of Delaware ("Delaware
Law"), approval of the Proposal requires the consent of at least a majority of
the shares of Common Stock outstanding as of the Record Date. Abstentions and
broker non-votes will have the effect of withholding consent. Cyprus Amax
holds approximately 51.2 percent of the outstanding shares of Common Stock.
The consent of Cyprus Amax will be sufficient to approve the Proposal without
the consent of any other stockholder. See "THE PROPOSAL--Effects Upon Rights
of Existing Holders of Common Stock." Cyprus Amax has agreed to consent to the
Proposal and has advised the Company that Cyprus Amax will give its consent to
the Proposal at 5:00 p.m., Mountain Time, on September 19, 1996 (the
"Expiration Time"). Upon receipt of the written consent of Cyprus Amax, the
Proposal will be adopted. Prior to the Expiration Time, consents may be
revoked. Subsequent to the Expiration Time, the Company will not consider any
additional consents, and consents previously delivered may not be revoked.
<PAGE>
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THIS CONSENT SOLICITATION
STATEMENT, THE COMPANY WILL ACCEPT ALL WRITTEN CONSENTS FROM HOLDERS OF RECORD
ON THE RECORD DATE RECEIVED ON OR PRIOR TO THE EXPIRATION TIME (5:00 P.M.,
MOUNTAIN TIME, ON SEPTEMBER 19, 1996).
The Proposal is being submitted to stockholders for their consent to satisfy
a rule of the New York Stock Exchange (the "NYSE"), which requires the
approval of a majority of the consents received on the Proposal (provided that
the total consents received on the Proposal represent over 50 percent of the
shares of Common Stock outstanding on the Record Date) as a prerequisite to
the listing of the Common Stock to be issued to Cyprus Amax in connection with
the Financing Arrangement, on the basis that the Proposal contemplates that a
"tangible or intangible asset" is to be acquired directly or indirectly from a
substantial security holder of the Company (a holder of five percent or more
of the Company's outstanding shares of Common Stock) and the number of shares
of Common Stock to be issued in such transaction may exceed one percent of the
number of shares of Common Stock outstanding before such issuance. The Common
Stock also is listed on The Toronto Stock Exchange (the "TSE"), and rules of
the TSE also require stockholder approval in certain circumstances.
The Company is engaged in the mining and processing of gold and silver ore
and in the exploration for and acquisition and development of gold-bearing
properties principally in North and South America and Russia. The Company was
incorporated in Delaware in April 1987 and is the surviving corporation
following a reincorporation merger effective June 1995. The Company's
principal offices are located at 9100 East Mineral Circle, Englewood, Colorado
80112, and its telephone number is (303) 643-5500.
For additional information regarding the business of the Company, see
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY CONCERNING THE PROPOSAL IF NOT
CONTAINED IN THIS CONSENT SOLICITATION STATEMENT, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS CONSENT SOLICITATION STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A CONSENT BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION. DELIVERY OF THIS CONSENT SOLICITATION STATEMENT SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR THEREIN SINCE THE DATE OF THIS CONSENT
SOLICITATION STATEMENT.
The date of this Consent Solicitation Statement is August 19, 1996.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 4
The Proposal............................................................ 4
The Company............................................................. 4
Cyprus Amax............................................................. 4
Relationship Between the Company and Cyprus Amax........................ 4
Background of and Reasons for the Financing Arrangement................. 5
Recommendation of the Special Committee................................. 6
Consent Solicitation.................................................... 6
Effects of the Proposal Upon Rights of Existing Holders of Common
Stock.................................................................. 7
STOCKHOLDER ACTION BY WRITTEN CONSENT..................................... 8
Recommendation of the Special Committee................................. 8
Record Date............................................................. 8
Consent Procedures; Revocation of Consents.............................. 8
Consents Required....................................................... 8
Cost of Solicitation.................................................... 9
MARKET PRICES OF THE COMPANY'S STOCK...................................... 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................... 10
CERTAIN TRANSACTIONS-RELATIONSHIP WITH CYPRUS AMAX........................ 11
Agreements with Cyprus Amax............................................. 11
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS.............................. 13
THE PROPOSAL.............................................................. 14
Background.............................................................. 14
Reasons for the Financing Arrangement; Recommendation of the Special
Committee.............................................................. 16
Material Terms of the Cyprus Amax Guaranty.............................. 17
Material Terms of the Demand Loan Facility.............................. 18
Fee and Support Agreements.............................................. 19
Consent of Cyprus Amax; Intention of the Directors and Executive
Officers............................................................... 20
Effects of the Proposal Upon Rights of Existing Holders of Common
Stock.................................................................. 20
CAPITALIZATION............................................................ 22
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............................... 23
Common Stock............................................................ 23
Preferred Stock......................................................... 23
PROPOSALS FOR 1997 ANNUAL MEETING......................................... 26
AVAILABLE INFORMATION..................................................... 26
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 27
</TABLE>
APPENDIX A--Cyprus Amax Guaranty
APPENDIX B--Demand Loan Facility
APPENDIX C--Fee and Support Agreements
3
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in all
respects by the more detailed information included in this Consent Solicitation
Statement, the Appendices hereto and the documents incorporated herein by
reference. Stockholders are urged to read carefully, in their entirety, this
Consent Solicitation Statement, the Appendices hereto and the documents
incorporated herein by reference.
THE PROPOSAL
Stockholders are being asked to approve the Financing Arrangement under which
Cyprus Amax has provided the Cyprus Amax Guaranty for the Loan until economic
completion of the Fort Knox project and has provided the Company with the
Demand Loan Facility, in exchange for which the Company will (i) pay Cyprus
Amax the Financing and Guaranty Fee, (ii) pay Cyprus Amax Interest Differential
Payments, (iii) make Reimbursement Payments to Cyprus Amax for any payments
made or costs incurred under the Cyprus Amax Guaranty, (iv) make no additional
borrowings under DOCLOC I without the prior consent of Cyprus Amax, and (v)
grant Cyprus Amax a first priority security interest in the collateral for the
Loan, and if requested, security interests in certain additional assets to the
extent available; all of the Company's obligations to Cyprus Amax are payable
in cash or, at the election of Cyprus Amax, in shares of Common Stock, valued
at the average closing price per share for the five-day period ending on the
business day prior to the date payment is requested. Stockholder approval shall
include, but not be limited to, approval of the authorization and issuance of
shares of Common Stock to Cyprus Amax under the foregoing arrangement.
The number of shares of Common Stock that will be issued to Cyprus Amax
pursuant to the Financing Arrangement will depend on a number of factors
described in this Consent Solicitation Statement. Cyprus Amax has the right to
request that the Company pay amounts due under the Financing Arrangement in
cash or shares of Common Stock. The Company would issue to Cyprus Amax between
approximately 30.2 million and 48.3 million shares (based on an assumed price
per share of Common Stock of $6.125) under the transactions contemplated by the
Proposal, assuming that Cyprus Amax elects to receive all payments in shares of
Common Stock, that the Cyprus Amax Guaranty is not called and that between $150
million and $250 million is borrowed under the Demand Loan Facility (with
interest accruing over the period from April 1, 1996 through December 31,
1997). If Cyprus elects to receive all payments in cash, no shares of Common
Stock would be issued under the Financing Arrangement. See "CAPITALIZATION,"
"THE PROPOSAL--Background" and "THE PROPOSAL--Effects of the Proposal Upon the
Rights of Existing Holders of Common Stock."
THE COMPANY
The Company is engaged in the mining and processing of gold and silver ore
and in the exploration for and acquisition and development of gold-bearing
properties principally in North and South America and Russia.
CYPRUS AMAX
Cyprus Amax is a diversified mining company engaged in the exploration for
and the extraction, processing and marketing of mineral resources, primarily
copper, molybdenum, coal, lithium and gold.
RELATIONSHIP BETWEEN THE COMPANY AND CYPRUS AMAX
Cyprus Amax currently owns 49,361,557 shares or approximately 51.2 percent of
the outstanding shares of Common Stock of the Company. Directors and officers
of Cyprus Amax comprise four of the seven members of the Company's Board.
Milton H. Ward, Chairman of the Board of Directors and Chief Executive Officer
of the Company, is Chairman of the Board of Directors, President and Chief
Executive Officer of Cyprus Amax; Gerald J. Malys, a director of the Company,
is Senior Vice President and Chief Financial Officer of Cyprus Amax; and Allen
Born and Rockwell A. Schnabel, both directors of the Company, are directors of
Cyprus Amax.
4
<PAGE>
Cyprus Amax is party to a number of contracts with the Company, including
DOCLOC I, a Stock Issuance Agreement, the Kubaka Acquisition Agreement, an
Exploration Joint Venture Agreement, a Services Agreement, an Employee Transfer
Agreement and a Net Operating Loss Agreement. See "CERTAIN TRANSACTIONS--
RELATIONSHIP WITH CYPRUS AMAX."
BACKGROUND OF AND REASONS FOR THE FINANCING ARRANGEMENT
In January 1992, the Company acquired the Fort Knox gold project located in
the Fairbanks Mining District, approximately 15 miles northeast of Fairbanks,
Alaska. Construction of the Fort Knox project began in the first quarter of
1995 and start-up is anticipated around the end of 1996. The Fort Knox project
has proven and probable gold ore reserves of approximately 162 million tons,
with an average grade of 0.025 ounces of gold per ton and 4.1 million contained
ounces of gold.
The Company originally estimated that its total capital requirements to
construct and develop the Fort Knox project would be approximately $256
million. In the second and third quarters of 1995, the Company borrowed $80
million from Cyprus Amax under DOCLOC II to fund initial construction at the
Fort Knox project and to repay approximately $18 million in outstanding
indebtedness. During the fourth quarter of 1995, the Company secured an
additional $250 million of financing pursuant to the Loan Agreement, dated
October 31, 1995 (the "Loan Agreement"), among the Company, certain of its
subsidiaries and a group of banks (the "Lenders"). In the second half of 1995,
the Company encountered unexpected geotechnical conditions in the underlying
bedrock at the Fort Knox project, which increased excavation and design
foundation requirements. The Company also was required to make design changes
to comply with more stringent fire code requirements and to accommodate the
difficult seismic conditions. As a result, at the end of February 1996, the
Company increased its estimate of the cost to complete the Fort Knox project to
at least $330 million, subject to further increases once final cost estimates
were available. Subsequently, on April 30, 1996 the Company announced
anticipated total project capital costs to be approximately $370 million,
excluding approximately $26 million of capitalized interest.
From mid-February through mid-March 1996, management of the Company and
Cyprus Amax negotiated with the Lenders regarding the status of the Fort Knox
project, the estimated costs to complete the project and a restructuring of the
Loan. Over the course of the negotiations, the Lenders agreed to waive any
noncompliance with the Loan Agreement and to eliminate all financial and most
other covenants under the Loan Agreement until economic completion of the Fort
Knox project if Cyprus Amax would agree to guarantee the Loan until economic
completion.
A special meeting of the Company's Board was held on March 1, 1996 to inform
the Board of the status of the Fort Knox project, including costs overruns, and
the need for additional financing. The Special Committee of the Board
(consisting of Messrs. Taylor and Wood, two members of the Board who are
neither affiliates of Cyprus Amax nor officers or employees of the Company) met
on March 17, 1996 to discuss the status of the Fort Knox project and the
alternatives available to finance the project. On March 18, 1996, the Board
confirmed the delegation to the Special Committee of authority to evaluate the
proposed Financing Arrangement and to approve or reject the Financing
Arrangement on behalf of the Company. The Special Committee, with its financial
advisors and legal counsel, met with the Company's management on March 18,
1996. The Special Committee considered the range of the potential costs
associated with the completion of the Fort Knox project, as well as the
Lenders' views of those costs. The Special Committee also considered the
relative costs to the Company of the proposed financing and alternative
financings, the nature of Cyprus Amax's commitment to the Company and Cyprus
Amax's expressed intention to make additional needed financing available to the
Company. The Special Committee, with the advice of its financial advisors,
determined that it was in the best interests of the Company to proceed with the
Financing Arrangement and authorized the Company's officers to negotiate and
sign definitive agreements on behalf of the Company. See "THE PROPOSAL--Reasons
for the Financing Arrangement; Recommendation of the Special Committee."
5
<PAGE>
During the first quarter of 1996, the Company borrowed the remaining $50
million available under the Loan to fund construction of the Fort Knox project
and for general corporate purposes. Through the date of this Consent
Solicitation Statement, the Company had borrowed a total of $75 million under
the Demand Loan Facility. The Company intends to seek third party financing, if
available on terms acceptable to the Company, to fund a portion of the costs
associated with the completion of the Fort Knox project. If third party
financing is obtained, the amounts that may be required to be borrowed from
Cyprus Amax under the Demand Loan Facility (and, correspondingly, the number of
shares of Common Stock obtainable by Cyprus Amax in satisfaction of borrowings
under such loan) would be reduced. There can be no assurance that third party
financing will be available on terms acceptable to the Company.
For further information on the background of the transaction and the factors
considered by the Special Committee, see "THE PROPOSAL--Background" and "THE
PROPOSAL--Reasons for the Financing Arrangement; Recommendation of the Special
Committee."
RECOMMENDATION OF THE SPECIAL COMMITTEE
The Special Committee, acting on behalf of the Board, believes that the
Proposal is fair to and in the best interests of all stockholders and
recommends that stockholders consent to the Proposal. See "THE PROPOSAL--
Background" and "THE PROPOSAL--Reasons for the Financing Arrangement;
Recommendation of the Special Committee."
CONSENT SOLICITATION
This Consent Solicitation Statement is being furnished to stockholders in
connection with the solicitation of written consents by the Board from holders
of outstanding shares of Common Stock. The Board has set August 15, 1996 as the
Record Date for determining the stockholders of record whose written consent is
to be solicited. Only stockholders of record at the close of business as of the
Record Date will be entitled to consent to the Financing Arrangement. Approval
of the Proposal requires the consent of at least a majority of the shares of
Common Stock outstanding as of the Record Date. Abstentions and broker non-
votes will have the effect of withholding consent.
Cyprus Amax owns approximately 51.2 percent of the outstanding shares of
Common Stock of the Company. The consent of Cyprus Amax will be sufficient to
approve the Proposal without the consent of any other stockholder. Cyprus Amax
has agreed to consent to the Proposal and has advised the Company that Cyprus
Amax will deliver its written consent at the Expiration Time (5:00 p.m.,
Mountain Time, on September 19, 1996). Upon receipt of the written consent of
Cyprus Amax, the Proposal will be adopted. Prior to the Expiration Time,
consents may be revoked. Subsequent to the Expiration Time, the Company will
not consider any additional consents and consents previously delivered may not
be revoked.
The directors and executive officers of the Company (with four of the seven
directors and one of the seven executive officers being directors and/or
executive officers of Cyprus Amax), holding in the aggregate less than one
percent of the shares of Common Stock as of the Record Date, have advised the
Company that they intend to give their written consent to the Proposal.
Written consents must be signed, dated and received by the Company prior to
the Expiration Time. If a stockholder submits a consent form which fails to
indicate whether the stockholder does or does not consent to the Proposal, the
stockholder shall be deemed to have consented to the Proposal. A stockholder
who signs and returns the enclosed consent may revoke it by a written
revocation delivered to Georgeson & Company Inc. ("Georgeson") any time before
the Expiration Time. Consents will be tabulated by Georgeson. THERE WILL BE NO
MEETING AT WHICH STOCKHOLDERS MAY VOTE IN PERSON.
6
<PAGE>
EFFECTS OF THE PROPOSAL UPON RIGHTS OF EXISTING HOLDERS OF COMMON STOCK
The percentage of the Company's voting securities owned of record by existing
holders of shares of Common Stock, other than Cyprus Amax, may be reduced
significantly if the Financing Arrangement is approved by the Company's
stockholders. The number of shares of Common Stock that may be issued to Cyprus
Amax will depend on the actual amount borrowed under the Demand Loan Facility,
Cyprus Amax's decision to satisfy borrowings under the Demand Loan Facility
and/or related interest and fee obligations with shares of Common Stock,
whether the Cyprus Amax Guaranty is called and the price per share of Common
Stock at the time payments are requested. Accordingly, the Company can not
predict with certainty the number of additional shares of Common Stock that
will be issued to Cyprus Amax under the Financing Arrangement. Assuming that
Cyprus Amax elects to receive all payments in shares of Common Stock, that the
Cyprus Amax Guaranty is not called and that between $150 million and $250
million is borrowed under the Demand Loan Facility, the Financing Arrangement
would reduce the interest of existing holders of outstanding shares of Common
Stock, other than Cyprus Amax, from approximately 48.8 percent to between
approximately 32.6 percent and 37.2 percent and increase Cyprus Amax's record
ownership from approximately 51.2 percent to between approximately 62.8 percent
and 67.4 percent of the outstanding shares of Common Stock. If Cyprus Amax
elects to receive all payments in cash, no shares of Common Stock would be
issued under the Financing Arrangement.
There are other agreements pursuant to which Cyprus Amax could acquire
additional shares of Common Stock. See "CERTAIN TRANSACTIONS--RELATIONSHIP WITH
CYPRUS AMAX" and "THE PROPOSAL--Effects of the Proposal Upon Rights of Existing
Holders of Common Stock."
Cyprus Amax, as the holder of greater than 50 percent of the outstanding
shares of Common Stock, will continue to be able to elect all the directors of
the Company and to direct corporate policy.
7
<PAGE>
STOCKHOLDER ACTION BY WRITTEN CONSENT
RECOMMENDATION OF THE SPECIAL COMMITTEE
On March 18, 1996, the Special Committee (consisting of Messrs. Wood and
Taylor, two directors who are neither affiliates of Cyprus Amax nor officers
or employees of the Company), acting on behalf of the Board, determined that
the Proposal is fair to and in the best interests of all stockholders and
recommends that stockholders consent to the Proposal. See "THE PROPOSAL--
Background" and "THE PROPOSAL--Reasons for the Financing Arrangement;
Recommendation of the Special Committee."
RECORD DATE
The close of business on August 15, 1996 shall be the Record Date for the
determination of the holders of Common Stock entitled to receive this Consent
Solicitation Statement and to give or withhold their written consent.
CONSENT PROCEDURES; REVOCATION OF CONSENTS
Cyprus Amax owns approximately 51.2 percent of the outstanding shares of
Common Stock. The consent of Cyprus Amax will be sufficient to approve the
Proposal without the consent of any other stockholder. Cyprus Amax has agreed
to consent to the Proposal and has advised the Company that Cyprus Amax will
deliver its written consent at the Expiration Time (5:00 p.m., Mountain Time,
on September 19, 1996). Upon receipt of the written consent of Cyprus Amax,
the Proposal will be adopted. Prior to the Expiration Time, consents may be
revoked. Subsequent to the Expiration Time, the Company will not consider any
additional consents and consents previously delivered may not be revoked.
To be effective, consents must be signed and dated and mailed or delivered
to Georgeson prior to 5:00 p.m., Mountain Time, on September 19, 1996, the
Expiration Time. Any consent form mailed or delivered to the Company that
fails to indicate whether the stockholder does or does not consent to the
Proposal shall be deemed to be a consent to the Proposal. Any consent given
pursuant to this solicitation may be revoked by the person giving it at any
time before the Expiration Time by a written revocation mailed or delivered to
Georgeson. There will not be a meeting at which stockholders may vote in
person. Consents will be tabulated by Georgeson.
If a stockholder consents to the Proposal, such consent may limit the right
of the stockholder to challenge the Financing Arrangement in the future.
CONSENTS REQUIRED
The Proposal is being submitted to stockholders for their consent to satisfy
a rule of the NYSE which requires the approval of stockholders as a
prerequisite to the listing of the Common Stock to be issued to Cyprus Amax in
connection with the Financing Arrangement on the basis that the Proposal
contemplates that a "tangible or intangible asset" is to be acquired directly
or indirectly from a substantial security holder of the Company (a holder of
five percent or more of the Company's outstanding shares of Common Stock) and
the number of shares of Common Stock to be issued in such transaction may
exceed one percent of the number of shares of Common Stock outstanding before
such issuance. The Common Stock also is listed on the TSE, and rules of the
TSE also require stockholder approval in certain circumstances.
Under Section 228 of Delaware Law and the Company's By-Laws, any action that
could be taken by stockholders at a meeting may be taken without a meeting if
consents in writing, setting forth the actions so taken, are signed by the
holders of a majority of the outstanding shares of Common Stock. Under this
provision of Delaware Law, no written consent shall be effective to take the
corporate action referred to therein unless, within 60 days of the earliest
dated consent delivered in accordance with Delaware Law to the corporation,
written consents signed by a sufficient number of holders (here, holders of a
majority of the outstanding shares of Common Stock on the Record Date) to take
such action are so delivered.
8
<PAGE>
As of the Record Date, there were 96,500,960 shares of Common Stock
outstanding. Common Stock is the only outstanding class of voting securities
of the Company. Each share of Common Stock outstanding on the Record Date is
entitled to one vote on the Proposal. Abstentions and broker non-votes will
have the effect of withholding consent.
As of the Record Date, Cyprus Amax had an indirect record ownership of
49,361,557 shares of Common Stock or approximately 51.2 percent of the shares
of Common Stock outstanding on such date. Cyprus Amax has agreed to consent to
the Proposal. The consent of Cyprus Amax will be sufficient to approve the
Proposal without the consent of any other stockholder. As of the Record Date,
directors and executive officers of the Company (with four of the seven
directors and one of the seven executive officers of the Company being
directors and/or executive officers of Cyprus Amax) owned beneficially less
than one percent of the shares of Common Stock (including shares which may be
acquired within 60 days upon exercise of employee stock options) outstanding
on such date. The directors and executive officers of the Company have advised
the Company that they intend to consent to the Proposal.
COST OF SOLICITATION
The Company will bear the cost of solicitation of consents. In addition to
the use of mails, consents may be solicited by officers and regular employees
of the Company, personally or by telephone or telegraph, and the Company may
reimburse persons holding shares in their names or those of their nominees for
their expenses in sending solicitation material to their principals.
Additional solicitation of consents of brokers, banks, nominees and
institutional investors will be made by Georgeson at a cost to the Company of
approximately $5,000 plus out-of-pocket expenses.
9
<PAGE>
MARKET PRICES OF THE COMPANY'S STOCK
The Common Stock is listed on the NYSE under the symbol "AU" and on the TSE
under the symbol "AXG." The Company's $3.75 Series B Convertible Preferred
Stock, par value $1.00 per share (the "Series B Preferred Stock"), is listed
on the NYSE under the symbol "AUPrB." The following table sets forth the
quarterly high and low sales prices of the Common Stock and the Series B
Preferred Stock for the fiscal quarters indicated as reported on the NYSE
Composite Transactions Tape and the dividends paid on such stocks. On March
19, 1996 (the date prior to the public announcement of the Financing
Arrangement), the last sale prices of the Common Stock and the Series B
Preferred Stock reported on the NYSE were $6 3/4 and $58 7/8, respectively.
The approximate number of holders of shares of Common Stock and the Series B
Preferred Stock as of August 15, 1996 was 8,600 and 60, respectively.
<TABLE>
<CAPTION>
COMMON STOCK SERIES B PREFERRED STOCK
----------------------- ------------------------
FISCAL YEAR HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ----------- ------- ------ -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
Third Quarter
(through August 15, 1996).... $ 6 1/8 $5 1/4 $ -- $52 1/8 $49 3/4 $ --
Second Quarter............... 7 1/8 5 3/8 -- 57 3/8 51 1/8 .9375
First Quarter................ 9 5/8 6 3/8 -- 66 5/8 54 3/8 .9375
1995
Fourth Quarter............... 7 5/8 5 5/8 -- 55 7/8 47 .9375
Third Quarter................ 6 7/8 5 1/2 -- 52 1/2 47 7/8 .9375
Second Quarter............... 6 1/4 5 -- 49 1/2 46 1/2 .9375
First Quarter................ 6 1/8 4 1/2 -- 49 42 3/4 .9375
1994
Fourth Quarter............... 7 5/8 5 5/8 -- 56 1/4 47 7/8 .9791
Third Quarter................ 7 7/8 6 1/8 -- 55 5/8 50 --
Second Quarter............... 8 1/4 6 5/8 -- -- -- --
First Quarter................ 8 1/4 6 1/4 -- -- -- --
1993
Fourth Quarter............... 8 6 .02 -- -- --
Third Quarter................ 10 1/2 6 3/4 .02 -- -- --
Second Quarter............... 9 1/2 6 7/8 .02 -- -- --
First Quarter................ 9 3/8 7 3/4 .02 -- -- --
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of December 31, 1995, the following is, to the knowledge of the Company,
the only person (including any "group" as that term is used in Section
13(d)(3) of the Exchange Act) who is a beneficial owner of more than five
percent of the Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------ ----------------------------------------- ----------------
<S> <C> <C>
Cyprus Amax............. 62,212,228 shares(1) 56.9%
9100 East Mineral Cir-
cle
Englewood, Colorado
80112
</TABLE>
- --------
(1) Includes 12,850,671 shares of Common Stock that Cyprus Amax has the right
to acquire within 60 days pursuant to DOCLOC I and the Stock Issuance
Agreement (defined below). Does not include 16,000,000 shares of Common
Stock that Cyprus Amax has the right to acquire in connection with the
Kubaka Acquisition Agreement or any shares that may be issued to Cyprus
Amax under the Financing Arrangement.
10
<PAGE>
CERTAIN TRANSACTIONS--RELATIONSHIP WITH CYPRUS AMAX
Cyprus Amax is a diversified mining company engaged in the exploration for
and the extraction, processing and marketing of mineral resources, primarily
copper, molybdenum, coal, lithium and gold. Cyprus Amax was incorporated in
Delaware in 1969 and operates primarily in the United States. Cyprus Amax's
principal executive offices are located at 9100 East Mineral Circle,
Englewood, Colorado 80112, and its telephone number is (303) 643-5000.
Cyprus Amax currently owns 49,361,557 shares or approximately 51.2 percent
of the outstanding shares of Common Stock of the Company. Cyprus Amax holds
these shares of Common Stock as a result of the following events: (i) the
acquisition of approximately 40 percent of the outstanding shares of Common
Stock of the Company pursuant to the merger on November 15, 1993 of AMAX Inc.,
a New York corporation ("AMAX"), which owned approximately 68 percent of the
outstanding shares of Common Stock, with and into Cyprus Minerals Company
(renamed Cyprus Amax Minerals Company), (ii) the acquisition in July 1994 by
Cyprus Amax of 3,000,000 shares of Common Stock under a Stock Purchase
Agreement for the purpose of retiring debt owed by the Company to Cyprus Amax,
(iii) the issuance of 6,601,133 and 8,318,673 shares of Common Stock to Cyprus
Amax in July 1995 and September 1995, respectively, as payment for interest
and principal due Cyprus Amax under DOCLOC II (defined below), and (iv) the
purchase of 128,042 shares of Common Stock by Cyprus Amax on September 29,
1995 under the Stock Issuance Agreement in lieu of the remaining principal
amount owed Cyprus Amax under DOCLOC II. Cyprus Amax is the beneficial owner
of 62,212,228 shares or approximately 56.9 percent of the Common Stock as a
result of Cyprus Amax's rights under existing agreements that permit the
issuance of Common Stock in lieu of outstanding indebtedness and other
obligations. See "THE PROPOSAL--Effects of the Proposal Upon Rights of
Existing Holders of Common Stock."
Directors and officers of Cyprus Amax comprise four of the seven members of
the Company's Board. Milton H. Ward, Chairman of the Board and Chief Executive
Officer of the Company, is Chairman of the Board of Directors, President and
Chief Executive Officer of Cyprus Amax; Gerald J. Malys, a director of the
Company, is Senior Vice President and Chief Financial Officer of Cyprus Amax;
Allen Born and Rockwell A. Schnabel, both directors of the Company, are
directors of Cyprus Amax.
AGREEMENTS WITH CYPRUS AMAX
In addition to the proposed Financing Arrangement, Cyprus Amax is party to a
number of contracts with the Company, which are described below.
Revolving Credit Agreements. Under DOCLOC I, the Company can borrow up to
$100 million and pay any indebtedness with up to two million shares of the
Company's $2.25 Series A Convertible Preferred Stock, par value $1.00 per
share ("Series A Preferred Stock"). Such shares of Series A Preferred Stock
may be redeemed by the Company for 12,099,213 shares of Common Stock at a
price equal to the greater of $5.854 per share or the average closing price
per share over a period prior to redemption. Cyprus Amax may acquire at any
time up to 12,099,213 shares of Common Stock at a price of $8.265 per share,
in which event DOCLOC I would be terminated and any outstanding principal and
interest would be deemed repaid. Under the Proposal, the Company's ability to
borrow under DOCLOC I would become subject to the consent of Cyprus Amax. See
"THE PROPOSAL--Fee and Support Agreements."
In March 1995, the Company and Cyprus Amax entered into a convertible line
of credit ("DOCLOC II"), under which the Company borrowed the entire $80
million available. During 1995 Cyprus Amax acquired 14,919,806 shares of
Common Stock at $5.362 per share pursuant to DOCLOC II, DOCLOC II was
terminated and the outstanding indebtedness was deemed repaid.
Stock Issuance Agreement. In September 1995, the Company and Cyprus Amax
entered into an Agreement Regarding Stock Issuance pursuant to which, with the
agreement of both parties, obligations owing from the Company to Cyprus Amax
under existing or future contractual arrangements may be paid in shares of
11
<PAGE>
Common Stock, valued at the 30-day average closing price per share prior to
the date of payment. Of the 879,500 shares issuable, 128,042 shares were
issued to Cyprus Amax as payment for $835,473 due Cyprus Amax under DOCLOC II.
Exploration Joint Venture Agreement. The Company entered into an Exploration
Joint Venture Agreement with Cyprus Amax effective January 1, 1994. Under the
Exploration Agreement, the Company and Cyprus Amax have agreed to pool their
efforts for the principal purpose of discovering and developing future gold
prospects, with Cyprus Amax providing 75 percent and the Company providing 25
percent of the initial exploration funding for such prospects. Properties held
by the parties prior to January 1, 1994 (including the Kubaka deposit) are
excluded from the joint venture. A subsidiary of Cyprus Amax has been
appointed as Manager to manage, direct and control exploration activities.
Either party may withdraw upon giving 60 days' notice to the other party.
Pursuant to the Exploration Agreement, the Company has the first right to
acquire any gold property covered by the Exploration Agreement, and Cyprus
Amax has the first right to acquire property containing deposits of minerals
or precious metals other than gold. The agreement will terminate on January 1,
1998.
Kubaka Acquisition Agreement. Pursuant to the Kubaka Acquisition Agreement,
the Company has agreed to acquire, subject to the satisfaction of certain
conditions, Cyprus Amax's indirect interest in the Kubaka project located in
the Magadan Region of the Russian Federation for a purchase price payable in
shares of Common Stock as follows: (i) approximately 11.8 million shares of
Common Stock to be paid upon closing the Kubaka Acquisition Agreement; (ii)
approximately 4.2 million shares of Common Stock to be paid within ten days of
commencement of commercial production of the Kubaka project; (iii) a
contingent payment in shares of Common Stock (a) equal to $10 per gold
equivalent ounce (up to a maximum of $45 million) of the Company's pro rata
share of proven and probable reserves that the Company acquires the right to
mine in the Russian Federation (excluding properties covered by the license to
develop Kubaka or properties acquired under the Exploration JV Agreement) on
or before June 30, 2004, and (b) valued at the 10-day average closing price
per share ending two business days prior to the date of payment.
Due to a delay in start-up, higher logistics, freight and labor costs and
higher than anticipated taxes, the total capital construction costs to
complete the Kubaka project have been increased from approximately $182
million to $228 million. Cyprus Amax has informed the Company that Cyprus Amax
is exploring various methods by which the increased costs at the Kubaka
project may be funded. The Company is evaluating the impact of these cost
increases on the project and the acquisition transaction. Subject to
satisfactory resolution of these issues and approval by the Company's
stockholders of the Kubaka Acquisition Agreement, the Company expects to
complete the acquisition during 1996.
Services Agreement. Pursuant to the terms of the Services Agreement, the
Company and Cyprus Amax have agreed to provide a variety of managerial and
other services to each other on a full cost-reimbursement basis. The agreement
is terminable by the Company or by Cyprus Amax as of the end of any month on
180 days' prior written notice. During the first six months of 1996, amounts
charged to the Company by Cyprus Amax pursuant to the Services Agreement were
approximately $1.4 million, including the cost of insurance coverage for the
Company, and amounts charged to Cyprus Amax by the Company pursuant to the
Services Agreement were approximately $.8 million.
Employee Transfer Agreement. Pursuant to the Employee Transfer Agreement,
the Company and Cyprus Amax have amended their respective benefit plans to
allow employees to transfer from the Company to Cyprus Amax or from Cyprus
Amax to the Company with minimal effect on an employee's benefits.
Net Operating Loss Agreement. Pursuant to the Net Operating Loss Agreement,
the Company agreed to allow Cyprus Amax to use the Company's net operating
loss generated in 1993 (the "1993 NOL") which resulted in refunds of taxes
paid by Cyprus Amax in prior years, and Cyprus Amax agreed to reimburse the
Company at such time that the Company would have received the benefit for the
1993 NOL had the Company elected to carry forward the 1993 NOL.
12
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
As of July 31, 1996, the following table sets forth the amount of all equity
securities of the Company and Cyprus Amax that are beneficially owned by each
director of the Company, the chief executive officer and each of the four most
highly compensated executive officers of the Company in 1995, and all
directors and executive officers of the Company as a group. A person is
considered the beneficial owner of any shares (i) over which such person
exercises sole or shared voting or investment power or (ii) of which such
person has the right to acquire beneficial ownership at any time within 60
days (e.g., through the exercise of stock options). Unless otherwise
indicated, each person has sole voting and investment power with respect to
the shares set forth opposite his or her name.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES OF NUMBER OF SHARES
NAME OF OF COMPANY COMPANY SERIES B OF CYPRUS AMAX
BENEFICIAL OWNER COMMON STOCK(1)* PREFERRED STOCK(1) COMMON STOCK
----------------- ----------------- ------------------- ----------------
<S> <C> <C> <C>
Milton H. Ward.......... 20,000 -- 964,005(2)
Richard H. Block(3)..... -- -- --
Allen Born.............. 20,466(4) -- 97,609(2)(5)
Gerald J. Malys......... 12,622(4) -- 187,529(2)(6)
Rockwell A. Schnabel.... 34,620(4) 2,500 18,276(5)
Vernon F. Taylor, Jr. .. 24,660(7) 3,000(7) 24,094(8)
Russell L. Wood......... 13,639(4) -- --
Roger A. Kauffman(9).... 92,315(10) 200 --
Deborah J. Friedman..... 21,252 400 26,864(2)
Mark A. Lettes.......... 61,313(10) -- --
Neil Muncaster(9)....... 57,555(10) 500 1,003
All directors and execu-
tive officers
as a group (17 per-
sons).................. 449,787(11) 7,100 1,355,997
</TABLE>
- --------
*All amounts shown are less than one percent of the class.
(1) Each share of Series B Preferred Stock is convertible into 6.061 shares
of Common Stock. Shares of Common Stock include shares obtainable upon
conversion of the Series B Preferred Stock. Also included in the table
above are shares of Common Stock held pursuant to the Company's Employee
Thrift Plan and shares of restricted stock granted under the Company's
Performance Share Plan.
(2) Includes shares subject to options exercisable within 60 days: 632,294
shares for Mr. Ward; 75,461 shares for Mr. Born; 97,088 shares for Mr.
Malys; and 21,700 shares for Ms. Friedman.
(3) Mr. Block was elected a director of the Company on July 1, 1996.
(4) Includes shares held in the Deferred Compensation Plan for Members of the
Board of Directors: 5,828 shares for Mr. Born; 6,122 shares for Mr.
Malys; 4,968 shares for Mr. Schnabel; and 9,139 shares for Mr. Wood.
(5) Includes shares held in the Cyprus Amax Non-Employee Director Deferred
Compensation Plan.
(6) Includes 10,000 shares held by Mrs. Malys.
(7) Includes 1,227 shares of Common Stock and 3,000 shares of Series B
Preferred Stock owned by trusts in which Mr. Taylor, as trustee, has
investment or voting power.
(8) Includes 12,344 shares of Cyprus Amax common stock obtainable upon
conversion of 6,000 shares of $4.00 Series A Convertible Preferred Stock
of Cyprus Amax.
(9) Mr. Kauffman and Mr. Muncaster resigned their positions with the Company
effective April 1, 1996 and May 1, 1996, respectively.
(10) Includes shares subject to options exercisable within 60 days: 60,000
shares for Mr. Kauffman; 43,000 shares for Mr. Lettes; and 35,000 shares
for Mr. Muncaster.
(11) Includes 187,000 shares subject to options exercisable within 60 days and
1,033 shares owned by executive officers who have joined the Company
since December 31, 1995.
13
<PAGE>
THE PROPOSAL
BACKGROUND
The Fort Knox project is located in the Fairbanks Mining District,
approximately 15 miles northeast of Fairbanks, Alaska. Construction of the
Fort Knox project began in the first quarter of 1995 and start-up is
anticipated around the end of 1996. The Fort Knox operations will include an
open pit mine, a conventional 36,000 tons per day (13.1 million tons per year)
process plant, a tailings storage facility and a reservoir to supply process
water. The Fort Knox project has proven and probable gold ore reserves of
approximately 162 million tons, with an average grade of 0.025 ounces of gold
per ton and 4.1 million contained ounces of gold.
The Company originally estimated that its total capital requirements to
construct and develop the Fort Knox project would be approximately $256
million. In the second and third quarters of 1995, the Company borrowed $80
million from Cyprus Amax under DOCLOC II to fund initial construction at the
Fort Knox project and to repay approximately $18 million in outstanding
indebtedness.
During the fourth quarter of 1995, the Company secured an additional $250
million of financing pursuant to the Loan Agreement among the Company, certain
of its subsidiaries and the Lenders. The original Loan Agreement provides for
an interest rate of LIBOR plus 2.25 percent, a commitment fee of a 2.5
percent, security interests in the Company's assets at the Fort Knox project
and the Hayden Hill mine and a maturity date of December 31, 2001. The Loan
Agreement contains standard financial and other covenants. The Loan Agreement
was amended in December 1995 to clarify certain provisions.
In the second half of 1995, the Company encountered unexpected geotechnical
conditions in the underlying bedrock at the Fort Knox project, which increased
excavation and design foundation requirements for two dams, the primary
crusher and the access road. The Company also was required to make design
changes to comply with more stringent fire code requirements and to
accommodate the difficult seismic conditions.
At a meeting of the Board held on December 13, 1995, the Board discussed the
status of the Fort Knox project and its financing requirements. The Company
had projected that as of December 31, 1995, it would have borrowed $200
million under the Loan Agreement and that additional funding, beyond amounts
remaining available under the Loan Agreement and from operating cash flows,
would be required for capital expenditures and working capital for the Fort
Knox project and debt repayments. To fund completion of the Fort Knox project
on schedule, the Company anticipated borrowing under DOCLOC I or accessing the
public markets. The Board requested that management present a complete
assessment of the Company's financing situation for the Board at its meeting
in February 1996, when updated construction cost estimates were expected to be
available for both the Fort Knox project and the Kubaka project in the Russian
Federation, which the Company has agreed to acquire, subject to certain
conditions, from Cyprus Amax (see "CERTAIN TRANSACTIONS--RELATIONSHIP WITH
CYPRUS AMAX").
At a meeting of the Board held on February 14, 1996, the Company's
management reported to the Board that a recently completed review of the costs
for the Fort Knox project indicated a preliminary cost to complete estimate of
at least $330 million. The Board also reviewed the schedule and costs for the
Kubaka project. Additionally, in late February 1996, the Company requested
assistance from the Cyprus Amax project development group with the final
determination of the required costs to complete the Fort Knox and Kubaka
projects. In light of the significant cost overruns expected at the Fort Knox
project, the Company determined that financing in addition to DOCLOC I would
be needed.
The Company's management began negotiations with the Lenders in mid-February
1996 regarding the status of the Fort Knox project, the estimated costs to
complete the project and a possible restructuring of the Loan. Over the course
of the negotiations, the Lenders agreed to waive any noncompliance with the
Loan Agreement and to eliminate all financial and most other covenants under
the Loan Agreement until economic completion of the Fort Knox project if
Cyprus Amax would agree to guarantee the Loan until economic completion.
14
<PAGE>
At a special meeting of the Board held on March 1, 1996, the Board met with
the Company's management to discuss the projected cost overruns at the Fort
Knox project, the Company's potential violation of its covenants under the
Loan Agreement and the progress of negotiations with the Lenders to
restructure the Loan. The Board also discussed the status of the Kubaka
project. The Board reviewed the Company's immediate cash needs based on
anticipated spending levels. The Board also was informed that Cyprus Amax had
agreed, subject to the approval of its board of directors, to guarantee the
Loan Agreement and to provide additional financing. The Board considered
funding the cash shortfall with equity or other financing; however, concerns
were expressed about the feasibility of completing such financings in time to
meet the Company's needs. The Board discussed the proposed financing
arrangement with Cyprus Amax as an attractive alternative for the Company and
noted that the support thus offered to the Company by Cyprus Amax should be
perceived positively in the market.
During the first weeks of March 1996, management of the Company and of
Cyprus Amax continued negotiations with the Lenders regarding restructuring
the Loan, and the Company continued its review of the estimated cost to
complete the Fort Knox project, which cost had been increased due to difficult
site conditions, expanded excavation work and design enhancements at the Fort
Knox project.
On March 17, 1995, Messrs. Taylor and Wood, two members of the Board who are
neither affiliates of Cyprus Amax nor officers or employees of the Company, as
the Special Committee, met by telephone with the Company's management to
discuss the terms of the proposed Financing Arrangement.
The Company's Board met on March 18, 1996 to review the Financing
Arrangement proposed to be entered into with Cyprus Amax. The Board confirmed
the delegation to the Special Committee (consisting of Messrs. Taylor and
Wood) of authority to evaluate the proposed Financing Arrangement (including
the issuance of shares of Common Stock) and to approve or reject the Financing
Arrangement on behalf of the Company. The Board also confirmed the retention
of Salomon Brothers Inc as financial advisors and Willkie Farr & Gallagher as
legal counsel to the Special Committee.
Later on March 18, 1996, the Special Committee, with its financial advisors
and legal counsel, met with the Company's management. The Special Committee
considered the range of the potential costs associated with the completion of
the Fort Knox project, as well as the Lenders' views of those costs. Mr. Malys
reported to the Special Committee that the Cyprus Amax board had approved the
proposed Financing Arrangement earlier in the day. The Special Committee
considered the possibility of the Company seeking alternative financing
arrangements but determined that any third party debt financing likely would
require the guaranty of Cyprus Amax and that no other source of funding would
be available when the Company needed additional financing. The Special
Committee considered the relative costs to the Company of the proposed
financing and alternative financings, the potential dilution of the percentage
ownership of stockholders other than Cyprus Amax, the nature of Cyprus Amax's
commitment to the Company and Cyprus Amax's expressed intention to make
additional needed financing available to the Company. The Special Committee,
with the advice of its financial advisors, determined that it was in the best
interests of the Company to proceed with the Financing Arrangement and
authorized the Company's officers to negotiate and sign definitive agreements
on behalf of the Company. See "--Reasons for the Financing Arrangement;
Recommendation of the Special Committee."
On March 19, 1996, the Company and the Lenders amended the Loan Agreement
(the "Amended Loan Agreement"), and Cyprus Amax guaranteed the Company's
repayment of the loan. See "--Material Terms of the Cyprus Amax Guaranty."
Cyprus Amax also agreed to provide the Company with the Demand Loan Facility
to be used to support the Company's additional costs to construct the Fort
Knox project, to provide working capital and for general corporate purposes.
Cyprus Amax's right under the Demand Loan Facility to require repayment in
shares of Common Stock could not be exercised, however, until stockholders of
the Company approved the Financing Arrangement. See "--Material Terms of the
Demand Loan Facility."
During the first quarter of 1996, the Company borrowed the remaining $50
million available under the Loan, which amount was required to fund short-term
operating needs of the Company and construction of the Fort
15
<PAGE>
Knox project. In April 1996, the Company borrowed $20 million under the Demand
Loan Facility to fund construction at Fort Knox and for general corporate
purposes.
Also in the first quarter of 1996, the Cyprus Amax project development group
was seconded to the Company to complete both the Fort Knox and the Kubaka
projects. On April 1, 1996, S. Scott Shellhaas was elected to serve as the
Company's President and Chief Operating Officer, replacing the Company's
previous President and Chief Operating Officer who had resigned. Mr. Shellhaas
joined the Company from Cyprus Foote Mineral Company, a wholly owned
subsidiary of Cyprus Amax and the world's largest lithium producer, where he
had served as President since 1993. Following Mr. Shellhaas' appointment, the
Company, with the assistance of the Cyprus Amax project development group,
continued to review and update the estimated costs to complete the Fort Knox
and Kubaka projects.
The Company's Board met on April 30, 1996 to review the final cost estimates
for the Fort Knox and Kubaka projects and to receive the reports of the
Company's management and of the Cyprus Amax project development group. The
members of the Special Committee met separately with the Company's management
to review the cost to complete reports and the Company's proposed press
release. On April 30, 1996, the Company reported that updated reviews of the
Fort Knox project indicated that due to costs associated with the expanded
excavation and design foundation requirements and higher than anticipated
costs in several areas such as labor, freight and engineering, total project
capital costs were expected to be approximately $370 million, in addition to
approximately $26 million of capitalized interest.
The Company also determined that revised estimates for the Kubaka project
indicated that the Kubaka project probably would commence operations later
than expected, and that due to delayed start-up, higher logistics and freight
costs, higher than anticipated labor costs and taxes, and some design changes,
the total capital construction costs for the Kubaka project had increased to
approximately $228 million from an original estimate of approximately $182
million.
From May 1 through August 19, 1996, the Company borrowed an additional $55
million under the Demand Loan Facility and pursued a number of other financing
arrangements. The Company estimates that, with the Demand Loan Facility and
the Cyprus Amax Guaranty, the Company has sufficient financing to complete the
Fort Knox project. The Company intends to seek third party financing, if
available on terms acceptable to the Company, to fund a portion of the costs
associated with the completion of the Fort Knox project. If third party
financing is obtained, the amounts that may be required to be borrowed from
Cyprus Amax under the Demand Loan Facility (and, correspondingly, the number
of shares of Common Stock obtainable by Cyprus Amax in satisfaction of
borrowings under such loan) would be reduced. There can be no assurance that
third party financing will be available on terms acceptable to the Company.
REASONS FOR THE FINANCING ARRANGEMENT; RECOMMENDATION OF THE SPECIAL COMMITTEE
The Special Committee (comprised of Messrs. Taylor and Wood, two directors
who are neither affiliates of Cyprus Amax nor officers or employees of the
Company), with the advice of its financial advisors and legal counsel, on
behalf of the Board determined on March 18, 1996 that the Financing
Arrangement was fair to and in the best interests of the Company and its
stockholders (exclusive of Cyprus Amax). This determination was based on the
following factors (not necessarily in order of importance), among others:
(i) The projected total capital costs to complete the Fort Knox project
had increased significantly from $256 million to a minimum of approximately
$330 million, and the Company faced compliance issues regarding covenants
contained in the Loan Agreement. In addition, the Company would have been
out of cash in the near future, would not have had the capital resources to
fund its projects and operations and effectively would have been precluded
from raising funds in the public markets. Without Cyprus Amax's agreement
to guarantee the Loan Agreement, the Company might not have been able to
avoid a default under the Loan Agreement.
(ii) The Special Committee evaluated various financing alternatives
considered most likely to be available to the Company. The Special
Committee determined that any third party debt financing would
16
<PAGE>
have required the guaranty of Cyprus Amax. The Special Committee considered
the possibility of selling assets and seeking third party investors or
joint venture partners for the Fort Knox project, but determined that these
steps likely could not be completed in the necessary time frame, on
acceptable terms and without detrimental effects on the Company's business.
The Special Committee also concluded that it was not the appropriate time
to complete an equity offering in light of the Company's financial
position. The Special Committee was advised by its financial advisors that
the Financing Arrangement with Cyprus Amax was the best alternative
available.
(iii) The possibility that the Company may issue shares of Common Stock
(subject to Cyprus Amax's election to receive shares instead of cash) for
payment of the Financing and Guaranty Fee, the Interest Differential
Payments, principal and interest due under the Demand Loan Facility and the
Reimbursement Payments under the Cyprus Amax Guaranty is advantageous to
the Company and its stockholders in that payments with equity would permit
the Company to conserve its cash and minimize borrowing requirements.
(iv) The Demand Loan Facility provides the Company with relatively low
interest financing for its working capital and capital expenditure needs.
Under the Demand Loan Facility, the Company may borrow up to $250 million
from time to time, subject to the discretion of Cyprus Amax. Although under
the Demand Loan Facility Cyprus Amax has discretion whether or not to lend,
Cyprus Amax has informed the Company that it intends to make additional
needed financing available to the Company. The Demand Loan Facility does
not impose restrictive covenants. The Demand Loan Facility provides for an
interest rate of LIBOR plus 2.25 percent, currently a rate of approximately
8.0 percent. The Special Committee was advised that third party financing
would not have been available within the required time frame and that such
financing likely would have required higher interest rates and higher
transactions costs.
(v) The margin over LIBOR or the gold lease rate paid as interest by the
Company to the Lenders was reduced in the Amended Loan Agreement from 2.25
percent to 0.50 percent as a result of the Cyprus Amax Guaranty. Although
the Company agreed to pay Cyprus Amax this interest differential of 1.75
percent, the Company was able to maintain the same interest cost as the
original interest rate on the Loan. The Amended Loan Agreement also
eliminated all financial and most other covenants of the Company under the
original Loan Agreement until economic completion of the Fort Knox project.
(vi) Under the Financing Arrangement, the collateral provided by the
Company to its third party lenders remains unchanged, except that Cyprus
Amax receives first priority security interests in the collateral and the
right to require the grant of security interests in the Company's Refugio
and Guanaco mines, subject to previously granted security interests.
(vii) In consideration for the Cyprus Amax Guaranty, the Company agreed
to pay Cyprus Amax a one-time Financing and Guaranty Fee of $10 million,
i.e., 2.5 percent of funding facilitated by Cyprus Amax, which is the same
percentage as the commitment fee charged by the Lenders with respect to the
Loan Agreement. The Special Committee's financial advisors advised that the
fee was lower than the fee that would have been available from a third
party.
(viii) The Financing Arrangement permits the Company to avoid a cross-
default under its financing for its Refugio mine.
MATERIAL TERMS OF THE CYPRUS AMAX GUARANTY
The following is a description of the material terms of the Cyprus Amax
Guaranty, which is attached as Appendix A to this Consent Solicitation
Statement and incorporated herein by reference. All stockholders are urged to
read the Cyprus Amax Guaranty in its entirety. See also "--Background" for a
summary of the principal terms of the Loan Agreement and the Amended Loan
Agreement."
Guaranty. Cyprus Amax agreed to guaranty the Company's payment of up to $250
million of principal and interest at LIBOR plus 0.50 percent due under the
Amended Loan Agreement. The Cyprus Amax Guaranty
17
<PAGE>
terminates on achievement of economic completion at the Fort Knox project as
defined in the Amended Loan Agreement.
Indemnification. The Company has agreed to indemnify Cyprus Amax for any
costs it may incur under the Cyprus Amax Guaranty.
MATERIAL TERMS OF THE DEMAND LOAN FACILITY
The following is a description of the material terms of the Demand Loan
Facility, which is attached as Appendix B to this Consent Solicitation
Statement and incorporated herein by reference. All Stockholders are urged to
read the Demand Loan Facility in its entirety.
Demand Loan. Under the Demand Loan Facility, Cyprus Amax will agree to make
loans (at its discretion) to the Company from time to time until the earlier
of December 31, 2001 or the date on which Cyprus Amax notifies the Company
that loans will no longer be made available under the Demand Loan Facility
(the "Expiration Date") in an aggregate principal amount not to exceed $250
million at any time outstanding. The Company may repay the outstanding
indebtedness either by payment in cash or, at the election of Cyprus Amax and
subject to the approval of the Company's stockholders of the Financing
Arrangement (which is being sought in this Consent Solicitation Statement), by
payment in shares of Common Stock. The amount of the Demand Loan Facility
commitment will be reduced by the amount paid or prepaid in cash or Common
Stock.
Interest Rate. Each loan made by Cyprus Amax to the Company bears interest
at an annual rate equal to the LIBOR for the interest period selected by the
Company at its option (a period of one, three or six months) plus 2.25
percent. The Demand Loan Facility also bears a default interest rate that is
1.0 percent per annum higher than the above rate.
Principal and Interest Payments. All principal and accrued and unpaid
interest on the loans are payable upon demand by Cyprus Amax. The Company may
make prepayments of principal without premium or penalty in integral multiples
of $1,000,000.
Payment with Common Stock. Cyprus Amax may require that the Company pay any
amounts due or being repaid under the Demand Loan Facility by issuing shares
of Common Stock. The number of shares of Common Stock to be issued can be
determined by dividing the amount of the payment under the Demand Loan
Facility to be repaid with shares of Common Stock by the average closing price
of the Common Stock on the NYSE over the five trading day period ending on the
business day prior to the date that payment in shares of Common Stock is
requested (the "Average Market Price"). The Company's obligation to issue
shares of Common Stock is subject to the acceptance by the NYSE of a listing
application for the issuance of shares of Common Stock therefor and approval
by the Company's stockholders of the Financing Arrangement (which is being
sought in this Consent Solicitation Statement).
Covenants. The Demand Loan Facility requires the Company (i) to pay
principal and interest on the loans as required, (ii) to provide reports to
Cyprus Amax, (iii) to list with the NYSE the shares of Common Stock issuable
at Cyprus Amax's election on repayment of the loan, (iv) to permit Cyprus Amax
to inspect its books and records and (v) to enter into appropriate security
agreements providing Cyprus Amax with a security interest in the collateral.
Events of Default. Events of default occur under the Demand Loan Facility in
the event (i) of a failure to pay, for a period of five business days,
principal or interest when due, (ii) of a default for 30 calendar days in the
performance of any other term, covenant or condition in the Demand Loan
Facility, (iii) any representation or warranty made by the Company, pursuant
to the Demand Loan Facility, proves to have been incorrect in any material
respect when made and is not corrected within ten days after discovery by the
Company, or (iv) bankruptcy or insolvency of the Company. If an event of
default occurs, Cyprus Amax may, at its option, terminate the Demand Loan
Facility or declare the principal and interest and any other sums due under
the
18
<PAGE>
Demand Loan Facility immediately due and payable. Upon the occurrence of an
event of default pursuant to subparagraph (iv) above, the Demand Loan Facility
automatically will be terminated and all principal and interest and any other
sums due under the Demand Loan Facility automatically will become due and
payable.
Use of Proceeds. The proceeds of the Demand Loan Facility will be used
primarily to finance increases in actual and projected capital expenditures
necessary to construct and develop the Fort Knox project, to provide working
capital and for general corporate purposes.
Demand Registration Rights. Cyprus Amax may make one or more written
requests (a "Demand") for registration under the Securities Act of 1933 of not
less than 1,000,000 shares of Common Stock per demand of shares issued
pursuant to the Demand Loan Facility. If, at the time of such Demand, Cyprus
Amax directly or indirectly owns less than five percent of the number of
shares of Common Stock outstanding, the Company may, if the Special Committee
of the Board determines that it would be inadvisable to effect a demand
registration, defer such demand registration (for up to three months) until
the earliest practicable time at which such demand registration can be
reasonably effected. All expenses of registration incurred in connection with
the first registration statement to be filed pursuant to Cyprus Amax's demand
registration rights will be paid by the Company. All expenses of registration
associated with each additional registration statement to be filed, if any,
pursuant to Cyprus Amax's registration rights will be paid by Cyprus Amax.
Representations and Warranties. The Company made representations and
warranties to Cyprus Amax concerning corporate existence, corporate power and
authority concerning the Demand Loan Facility, government approvals and
enforceability and to the effect that the shares of Common Stock issued
pursuant to the Demand Loan Facility would be validly issued, fully paid and
nonassessable.
FEE AND SUPPORT AGREEMENTS
The following is a description of the material terms of the Fee Agreement
and the Reimbursement Agreement, both dated March 19, 1996 (the "Fee and
Support Agreements"), between the Company and Cyprus Amax, which are attached
as Appendix C to this Consent Solicitation Statement and incorporated herein
by reference. All stockholders are urged to read the Fee and Support
Agreements in their entirety.
Security. The Cyprus Amax Guaranty and the Demand Loan Facility are secured
by a first priority lien in the collateral for the Amended Loan Agreement,
including the assets at the Fort Knox project and the Hayden Hill mine. At the
request of Cyprus Amax, the Company must grant Cyprus Amax the highest
priority security interest in the assets at the Guanaco and the Refugio mines
permitted after giving effect to all outstanding security interests. The
Company's interest in the Refugio mine has been pledged to a group of banks
that have provided financing for the Refugio mine.
Reimbursement Payments. The Company has agreed to reimburse Cyprus Amax for
all payments made and all reasonable out-of-pocket expenses incurred by Cyprus
Amax under the Cyprus Amax Guaranty. Any reimbursement obligation that arises
will be treated as a demand loan, bearing interest at an annual rate equal to
LIBOR plus 3.25 percent, and will be payable by the Company within five
business days of demand from Cyprus Amax. Payment may be in cash or such other
consideration as may be agreed upon by the Company and Cyprus Amax, including
shares of Common Stock valued at the Average Market Price.
Financing and Guaranty Fee. In consideration for both the Cyprus Amax
Guaranty and the Demand Loan Facility, the Company has agreed to pay Cyprus
Amax the Financing and Guaranty Fee of $10 million. The Financing and Guaranty
Fee is payable in cash, or at the election of Cyprus Amax, in shares of Common
Stock, valued at the Average Market Price. Cyprus Amax has advised the Company
that it will not seek payment of the Financing and Guaranty Fee until the
later of the date the Company's stockholders approve the Financing Arrangement
and December 31, 1996.
Interest Differential Payments. Also in consideration for the Cyprus Amax
Guaranty and the Demand Loan Facility, the Company has agreed to pay Cyprus
Amax Interest Differential Payments equal to 1.75 percent
19
<PAGE>
of the portion of the guaranteed obligations constituting principal under the
Amended Loan Agreement to the extent that accrued interest is due on such
principal amount. Interest Differential Payments are payable in cash, or at
the election of Cyprus Amax and subject to the approval of the Company's
stockholders of the Financing Arrangement (which is being sought in this
Consent Solicitation Statement), in shares of Common Stock valued at the
Average Market Price.
Borrowings Under DOCLOC I. Until economic completion of the Fort Knox
project, the Company has agreed not to borrow under DOCLOC I for purposes
other than repaying the Lenders or the lenders for the Refugio project without
the prior written consent of Cyprus Amax.
CONSENT OF CYPRUS AMAX; INTENTION OF THE DIRECTORS AND EXECUTIVE OFFICERS
Cyprus Amax owns approximately 51.2 percent of the outstanding shares of
Common Stock as of the Record Date. The consent of Cyprus Amax will be
sufficient to approve the Proposal without the consent of any other
stockholder. Cyprus Amax has agreed to consent to the Proposal and has advised
the Company that Cyprus Amax will deliver its written consent on September 19,
1996.
The directors and executive officers of the Company (with four of the seven
directors and one of the seven executive officers being directors and/or
executive officers of Cyprus Amax), holding in the aggregate less than one
percent of the shares of Common Stock as of the Record Date, have advised the
Company that they intend to give their written consent to the Proposal.
EFFECTS OF THE PROPOSAL UPON RIGHTS OF EXISTING HOLDERS OF COMMON STOCK
The percentage of the Company's voting securities owned of record by
existing holders of shares of Common Stock, other than Cyprus Amax, may be
reduced significantly if the Financing Arrangement is approved by the
Company's stockholders. The number of shares of Common Stock that may be
issued to Cyprus Amax will depend on the actual amount borrowed under the
Demand Loan Facility, Cyprus Amax's decision to satisfy borrowings under the
Demand Loan Facility and/or related interest and fee obligations with shares
of Common Stock, whether the Cyprus Amax Guaranty is called and the price per
share of Common Stock at the time payments are requested. The actual amount
borrowed under the Demand Loan Facility will depend on a number of factors,
including, without limitation, the actual cost to complete the Fort Knox
project, the availability of third party debt or equity financing on
attractive terms to fund a portion of such costs and Cyprus Amax's discretion
in making additional funding available under such facility. Accordingly, the
Company can not predict with certainty the number of additional shares of
Common Stock that will be issued to Cyprus Amax under the Financing
Arrangement. If all amounts due in connection with the Financing Arrangement
are repaid in cash, no shares of Common Stock will be issued to Cyprus Amax
and the voting securities owned of record by Cyprus Amax will not change. The
Company would issue to Cyprus Amax between approximately 30.2 million and 48.3
million shares (based on an assumed price per share of Common Stock of $6.125)
under the transactions contemplated by the Proposal, assuming that Cyprus Amax
elects to receive payment in shares of Common Stock, that the Cyprus Amax
Guaranty is not called and that between $150 million and $250 million is
borrowed under the Demand Loan Facility (with interest accruing over the
period from April 1, 1996 to December 31, 1997). The Financing Arrangement, if
approved by stockholders, would reduce the interest of existing holders of
outstanding shares of Common Stock, other than Cyprus Amax, based on the above
assumptions from approximately 48.8 percent to between approximately 32.6
percent and 37.2 percent and increase Cyprus Amax's record ownership from
approximately 51.2 percent to between approximately 62.8 percent and 67.4
percent of the outstanding shares of Common Stock.
As a result of Cyprus Amax's rights under existing agreements that permit
the issuance of Common Stock in lieu of outstanding indebtedness and other
obligations, Cyprus Amax is deemed to be the beneficial owner of 62,212,228
shares or approximately 56.9 percent of the shares of Common Stock, excluding
shares of Common Stock that may be issued under the Kubaka Acquisition
Agreement (defined below). If the Proposal is approved
20
<PAGE>
by stockholders, Cyprus Amax's beneficial ownership could increase to between
approximately 66.2 percent and 70.1 percent of the outstanding shares of
Common Stock.
In addition, the Company and Cyprus Amax have executed an Agreement and Plan
of Merger and Reorganization, dated January 24, 1996 (the "Kubaka Acquisition
Agreement"), which provides for the acquisition by the Company of Cyprus
Amax's interest in the Kubaka gold project in the Russian Federation. In the
event the Kubaka Acquisition Agreement is consummated and approved by the
Company's stockholders, Cyprus Amax's beneficial ownership of shares of Common
Stock would increase by 16 million shares to approximately 62.4 percent,
before the issuance of shares of Common Stock in connection with the Financing
Arrangement. The number of shares issuable to Cyprus Amax under the Kubaka
Acquisition Agreement is subject to further increase if additional shares are
issued to satisfy certain potential obligations under the Kubaka Acquisition
Agreement. See "CERTAIN TRANSACTIONS--RELATIONSHIP WITH CYPRUS AMAX."
Cyprus Amax, as the holder of greater than 50 percent of the outstanding
shares of Common Stock, will continue to be able to elect all the directors of
the Company and to direct corporate policy.
21
<PAGE>
CAPITALIZATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table presents the Company's other current liabilities and
capitalization as of June 30, 1996, as adjusted to give effect to (i) assumed
borrowings by the Company on July 1, 1996 of $250 million under the Demand
Loan Facility and (ii) assumed repayment of all amounts owed pursuant to the
Financing Arrangement with shares of Common Stock.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------------------------------
BORROWING AND AS ADJUSTED
INTEREST WITH
FUNDS AS ADJUSTED FOR CONVERTED TO BORROWINGS
ACTUAL BORROWED BORROWING COMMON STOCK CONVERTED(1)(2)
------ --------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Cyprus Amax Demand
Loan................... 45.0(3) 205.0(3) 250.0 (250.0) --
Current maturities of
long-term debt......... 5.8 -- 5.8 -- 5.8
Accrued and other
current liabilities.... 46.6 38.3(4) 84.9 (40.6) 44.3
------ ------ ------ ------- ------
Total Current
Liabilities............ $ 97.4 $243.3 $340.7 $(290.6) $ 50.1
====== ====== ====== ======= ======
Long-term debt.......... $288.2 $ -- $288.2 $ -- $288.2
Stockholders' Equity:
Preferred stock....... 1.8 -- 1.8 -- 1.8
Common stock.......... 1.0 -- 1.0 0.5 1.5
Paid-in capital....... 340.2 -- 340.2 290.1 630.3
Accumulated deficit... (55.7) (25.5) (81.2) -- (81.2)
------ ------ ------ ------- ------
Total Stockholder's
Equity................. 287.3 (25.5) 261.8 290.6 552.4
------ ------ ------ ------- ------
Total Capitalization.... $575.5 $(25.5) $550.0 $ 290.6 $840.6
====== ====== ====== ======= ======
</TABLE>
- --------
(1) Represents conversion of the maximum available under the Demand Loan
Facility and accrued interest payable to Cyprus Amax into 47.2 million
shares of Common Stock at a conversion price of $6.125 per share, the
closing sale price per share of Common Stock on August 15, 1996. Actual
column includes $2.3 million in accrued interest and fees relating to
these arrangements through June 30, 1996.
(2) Does not include the previously announced purchase of the Kubaka project
from Cyprus Amax (subject to the satisfaction of certain conditions) for
16.0 million shares of Common Stock, valued at $5.935 per share; and $73.0
million of debt funded by the Company's 50 percent share of assumed
outside financing guaranteed by Cyprus Amax until project completion. The
purchase of Kubaka, if consummated, will be recorded at $40.2 million,
plus any capitalized interest. Project financing of $73.0 million will be
recorded using proportionate consolidation and will be repaid from
operations.
(3) Represents an aggregate of $250.0 million maximum borrowing under the
Demand Loan Facility note from Cyprus Amax to be used to fund remaining
capital requirements for the Fort Knox project and for other general
corporate purposes. Amounts will be borrowed under the Demand Loan
Facility as needed to complete the Fort Knox project, to provide working
capital and for general corporate purposes.
(4) The increase in other current liabilities includes accrued interest of
$29.1 million on $250.0 million borrowed under the Demand Loan Facility,
$6.6 million of interest differential payable to Cyprus Amax on amounts
borrowed under the Loan Agreement and $2.6 million representing
amortization of a portion of the $10.0 million Financing and Guaranty Fee
paid to Cyprus Amax. Interest and amortization of the Financing and
Guaranty Fee have been computed as though the maximum amounts were
outstanding for the period from July 1, 1996 through December 31, 1997.
Interest for the period from April 1 through December 31, 1997 will be
capitalized as part of the Fort Knox construction project. Interest in
1997 will be expensed.
22
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The Company is authorized by its Certificate of Incorporation to issue 200
million shares of Common Stock and 10 million shares of preferred stock. As of
March 31, 1996, there were approximately 96.4 million shares of Common Stock
issued and outstanding and 1,840,000 shares of the Series B Preferred Stock
issued and outstanding. In addition, two million shares of the Series A
Preferred Stock have been authorized by the Board for issuance. All of the
shares of Series A Preferred Stock are reserved for issuance under DOCLOC I.
See "--Preferred Stock--Series A Preferred Stock."
COMMON STOCK
The Company's Certificate of Incorporation authorizes the issuance of 200
million shares of Common Stock. A summary of the terms and provisions of the
Common Stock is set forth below.
Dividends. The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board out of funds legally available therefor,
provided that if any shares of Series A Preferred Stock and Series B Preferred
Stock, or any other shares of preferred stock, are at the time outstanding,
the payment of dividends on Common Stock or other distributions (including
Company repurchases of Common Stock) will be subject to the declaration and
payment of all cumulative dividends on outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock, and any other shares of preferred
stock which are then outstanding.
Liquidation. In the event of the dissolution, liquidation or winding up of
the Company, holders of Common Stock are entitled to share ratably in any
assets remaining after the satisfaction in full of the prior rights of
creditors, including holders of the Company's indebtedness, and the payment of
the aggregate liquidation preference of the Series A Preferred Stock, the
Series B Preferred Stock, and any other shares of preferred stock then
outstanding.
Voting. The Company's stockholders are entitled to one vote for each share
on all matters voted on by stockholders, including election of directors.
Shares of Common Stock held by the Company or any entity controlled by the
Company do not have voting rights and are not counted in determining the
presence of a quorum. Directors are elected annually. Holders of Common Stock
have no cumulative voting rights.
No Other Rights. The holders of Common Stock do not have any conversion,
redemption or preemptive rights.
Transfer Agent. The transfer agent for the Common Stock is KeyCorp
Shareholder Services, Inc., 1515 Arapahoe Street, Suite 1505, Denver, Colorado
80202.
Listing. Shares of the Company's outstanding Common Stock are listed on the
NYSE and the TSE.
PREFERRED STOCK
The authorized capital stock of the Company includes 10 million shares of
preferred stock, $1.00 par value per share. As a result of a public offering
in August 1994, 1,840,000 shares of Series B Preferred Stock are currently
outstanding. In addition, two million shares of Series A Preferred Stock are
authorized for issuance pursuant to DOCLOC I.
Shares of the Company's preferred stock may be issued from time to time in
one or more series. The Company's Board is authorized, without stockholder
approval, to fix the voting rights, dividend rights and terms, any conversion
rights, rights and terms of redemption (including sinking fund provisions),
liquidation preferences and any other rights, preferences and restrictions of
any series of preferred stock and the number of shares constituting such
series and designation thereof. The terms of such preferred stock may affect
adversely the voting power and other rights of the holders of Common Stock and
may make it more difficult for a third party to gain control of the Company.
23
<PAGE>
SERIES A PREFERRED STOCK. The Series A Preferred Stock was designated as a
series of preferred stock in connection with DOCLOC I. The Series A Preferred
Stock consists of two million shares. A summary of the terms and provisions of
the Series A Preferred Stock is set forth below.
Dividends. The holders of shares of Series A Preferred Stock are entitled to
receive dividends at an annual rate of $2.25 per share, which is cumulative,
accrues without interest and is payable in cash in equal semi-annual
installments. The Company may elect to pay any dividend due and payable in
shares of Common Stock in lieu of a dividend payment in cash, unless the
holder of Series A Preferred Stock delivers written notice stating that such
holder elects to receive cash. The Series A Preferred Stock ranks, as to
dividends, on a parity with the Series B Preferred Stock and no dividends may
be made on the Series A Preferred Stock for any period unless full cumulative
dividends have been paid, are paid contemporaneously or are set apart for
payment on the Series B Preferred Stock.
Liquidation Preference. Upon the liquidation, dissolution or winding up of
the Company, the holders of Series A Preferred Stock are entitled to receive
from the assets of the Company an amount equal to the dividends accrued and
unpaid thereon to the date of final distribution to such holders, whether or
not declared, without interest, and a sum equal to $50.00 per share, and no
more. Payment to the holders of shares of Series A Preferred Stock will be
made before any payment is made or any assets distributed to holders of Common
Stock or any other class or series of the Company's capital stock ranking
junior as to liquidation rights to the Series A Preferred Stock. The Series A
Preferred Stock ranks, as to liquidation rights, on a parity with the Series B
Preferred Stock.
Redemption at the Option of the Company. The Company, at its option, may at
any time redeem the Series A Preferred Stock in whole or, from time to time,
in part, for that number of shares of Common Stock obtained by dividing $50.00
by the lesser of (i) the call price (defined below) and (ii) the conversion
price (defined below), plus accrued and unpaid dividends, whether or not
declared or due, to the date fixed for redemption. The Company may issue up to
a maximum of 12,099,213 shares of Common Stock upon redemption and conversion
of and the payment of dividends on the Series A Preferred Stock, subject to
adjustment of the conversion price. In the case of the redemption of shares of
Series A Preferred Stock that would result in the issuance of more than
12,099,213 shares of Common Stock, the Company would pay an amount in cash in
lieu of such shares equal to the lesser of the call price or the conversion
price multiplied by the number of shares in excess of 12,099,213. Such cash
payment will be made in 12 consecutive substantially equal quarterly payments.
The call price with respect to a redemption of Series A Preferred Stock is
equal to the greater of (i) $5.854 (subject to adjustment of the conversion
price) and (ii) the average closing price per share of Common Stock as
calculated for a ten day trading period ending on the fifth trading day prior
to the date the notice of redemption is mailed.
Conversion. The holder of any shares of Series A Preferred Stock will have
the right, at the holder's option, to convert any or all shares of Series A
Preferred Stock held by such holder into Common Stock at any time. Each share
of Series A Preferred Stock is convertible into that number of shares of
Common Stock obtained by dividing $50.00 by the conversion price in effect at
the time. The conversion price is $8.265 and is subject to adjustment upon
payment by the Company of a dividend or the making by the Company of a
distribution on Common Stock in shares of Common Stock, upon the subdivision,
combination or issuance by reclassification of Common Stock, or upon the
issuance of rights, options or warrants to purchase shares of Common Stock at
a price per share less than the then current market price. The maximum number
of shares of Common Stock that the Company may issue upon redemption and
conversion of and the payment of dividends on the Series A Preferred Stock is
12,099,213 shares, subject to adjustment of the conversion price. No
fractional shares of Common Stock will be issued upon conversion but, in lieu
thereof, an appropriate amount will be paid in cash. No adjustment will be
made to the conversion price unless such adjustment would require an increase
or decrease of at least one percent of such price.
24
<PAGE>
Voting Rights. The holders of Series A Preferred Stock are not entitled to
vote except as described below or as required by law. Shares of Series A
Preferred Stock held by the Company or any entity controlled by the Company do
not have voting rights and are not counted in determining the presence of a
quorum. If dividends on the Series A Preferred Stock are in arrears in an
amount equal to at least three semi-annual dividend payments (whether or not
consecutive), the number of members of the Board will be increased by two and
the holders of Series A Preferred Stock, voting separately as a class, will
have the right to vote for and elect two additional directors of the Company
during the period that such dividends remain in arrears.
The affirmative vote or consent of the holders of at least 66-2/3 percent of
all outstanding shares of Series A Preferred Stock is required for the Company
(i) to amend, alter or repeal any provision of the Restated Certificate of
Incorporation or the Bylaws of the Company so as to affect adversely the
relative rights, preferences, qualifications, limitations or restrictions of
the Series A Preferred Stock, (ii) to authorize, issue or increase the
authorized amount of, any additional class or series of stock, or any security
convertible into stock of such class or series ranking senior to the Series A
Preferred Stock as to the payment of dividends or upon liquidation,
dissolution or winding up of the Company or (iii) to effect any
reclassification of the Series A Preferred Stock.
No Preemptive Rights. The Series A Preferred Stock does not have any
preemptive or subscription rights in respect of any securities of the Company.
Cyprus Amax, however, does have the right to convert from time to time all or
a portion of DOCLOC I and any outstanding indebtedness and/or Series A
Preferred Stock into up to 12,099,213 shares of Common Stock at a conversion
price of $8.265 per share (or $100 million if all 12,099,213 shares of Common
Stock are converted).
SERIES B CONVERTIBLE PREFERRED STOCK. There are 1,840,000 shares of Series B
Preferred Stock currently outstanding. A summary of the terms and provisions
of the Series B Preferred Stock is set forth below.
Dividends. The holders of shares of Series B Preferred Stock are entitled to
receive dividends at an annual rate of $3.75 per share, which is cumulative,
accrues without interest and is payable in cash in equal quarterly
installments. The Series B Preferred Stock ranks, as to dividends, on a parity
with the Series A Preferred Stock and no dividends may be made on the Series B
Preferred Stock for any period unless full cumulative dividends have been
paid, are paid contemporaneously or are set apart for payment on any Series A
Preferred Stock outstanding.
Liquidation Preference. Upon the liquidation, dissolution or winding up of
the Company, the holders of Series B Preferred Stock are entitled to receive
from the assets of the Company an amount equal to the dividends accrued and
unpaid thereon to the date of final distribution to such holders, whether or
not declared, without interest, and a sum equal to $50.00 per share, and no
more. Payment to the holders of shares of Series B Preferred Stock will be
made before any payment is made or any assets distributed to holders of Common
Stock or any other class or series of the Company's capital stock ranking
junior as to liquidation rights to the Series B Preferred Stock. The Series B
Preferred Stock ranks, as to liquidation rights, on a parity with the Series A
Preferred Stock.
Redemption at Option of the Company. Shares of Series B Preferred Stock are
not redeemable prior to August 15, 1997. On and after such date, the Series B
Preferred Stock will be redeemable at the option of the Company, in whole or,
from time to time, in part, at the following redemption prices per share, if
redeemed during the 12-month period commencing on August 15, of the year
indicated:
<TABLE>
<CAPTION>
YEARS PRICE PER SHARE
----- ---------------
<S> <C>
1997...................................................... $52.625
1998...................................................... 52.250
1999...................................................... 51.875
2000...................................................... 51.500
2001...................................................... 51.125
2002...................................................... 50.750
2003...................................................... 50.375
2004 and thereafter....................................... 50.000
</TABLE>
plus in each case accrued and unpaid dividends to, but excluding, the date of
redemption.
25
<PAGE>
Conversion. The holder of any shares of Series B Preferred Stock will have
the right, at the option of the holder, to convert any and all shares of
Series B Preferred Stock held by such holder into shares of Common Stock at
any time. Each share of Series B Preferred Stock is convertible into that
number of shares of Common Stock obtained by dividing $50.00 by the conversion
price in effect at the time. The conversion price is $8.25 and is subject to
adjustment upon certain events, including (i) the issuance of Common Stock as
a dividend or distribution on the Common Stock; (ii) a combination,
subdivision or reclassification of the Common Stock; (iii) the issuance to all
holders of Common Stock of rights, options or warrants entitling them to
subscribe for or to purchase Common Stock at a price per share less than the
then current market price; and (iv) the distribution to all holders of Common
Stock of capital stock (other than Common Stock), evidences of indebtedness of
the Company, assets (excluding regular periodic cash dividends), or rights,
options or warrants to subscribe for or to purchase securities of the Company.
No adjustment will be made to the conversion price unless such adjustment
would require an increase or decrease of at least one percent of such price.
Voting Rights. The holders of Series B Preferred Stock are not entitled to
vote except as described below or as required by law. Shares of Series B
Preferred Stock held by the Company or any entity controlled by the Company do
not have voting rights and are not counted in determining the presence of a
quorum. If dividends on the Series B Preferred Stock are in arrears in an
amount equal to at least six quarterly dividend payments (whether or not
consecutive), the number of members of the Board will be increased by two and
the holders of Series B Preferred Stock, voting separately as a class, will
have the right to elect two additional directors to the Company's Board during
that period that such dividends remain in arrears.
The affirmative vote or consent of the holders of at least 66 2/3 percent of
all outstanding shares of Series B Preferred Stock is required for the Company
(i) to amend, alter or repeal any provision of the Certificate of
Incorporation or By-laws of the Company so as to affect adversely the relative
rights, preferences, qualifications, limitations or restrictions of the Series
B Preferred Stock, (ii) to authorize, issue or increase the authorized amount
of any additional class or series of stock, or any security convertible into
stock of such class or series, ranking senior to the Series B Preferred Stock
as to the payment of dividends or upon liquidation, dissolution or winding up
of the Company or (iii) to effect any reclassification of the Series B
Preferred Stock.
No Preemptive Rights. The Series B Preferred Stock does not have any
preemptive or subscription rights in respect of any securities of the Company.
PROPOSALS FOR 1997 ANNUAL MEETING
The Company anticipates that the 1997 Annual Meeting of Stockholders will be
held on or about May 6, 1997. The exact date, time and place for such meeting
has yet to be determined. A stockholder who intends to present a proposal at
that Annual Meeting should submit the written text of the proposal to the
Company at its principal executive offices by November 27, 1996, in order for
the proposal to be considered for inclusion in the Company's Proxy Statement
for that meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the Commission's public reference facilities in the
Commission's regional offices located at: 7 World Trade Center, 13th Floor,
New York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60604. Copies of such material can be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company is also subject to the information and
reporting requirements of the
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securities regulatory authorities of certain provinces of Canada and files
similar reports, proxy statements and other information with such authorities.
The Common Stock is listed on the New York and Toronto Stock Exchanges and
certain warrants to purchase Common Stock are listed on the American Stock
Exchange. Such reports, proxy statements and other information can also be
inspected and copied at the respective offices of these exchanges at 20 Broad
Street, New York, New York 10005, 2 First Canadian Place, Toronto, Ontario,
Canada M5X 1J2, and 86 Trinity Place, New York, NY 10006-1881.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Consent Solicitation Statement incorporates by reference documents not
presented herein or delivered herewith. Documents incorporated by reference
herein, excluding exhibits unless specifically incorporated herein, are
available without charge upon request to Secretary, Amax Gold Inc., 9100 East
Mineral Circle, Englewood, Colorado 80112. Telephone requests may be directed
to Investor Relations at (303) 643-5375. In order to ensure timely delivery of
the documents, any request should be made by September 10, 1996.
The following portions of the following documents are incorporated herein by
reference:
(i) "Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 21-24 and "Financial Statements and
Supplementary Data" on pages 25-50 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, filed with the
Commission on March 29, 1996 (File No. 1-9620);
(ii) "Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 8-11 and "Financial Statements and Supplementary
Data" on pages 2-7 of the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed with the Commission on May 15,
1996; and
(iii) "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 8-11 and "Financial Statements and
Supplementary Data" on pages 2-7 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission on August 13, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, as amended, subsequent to the date hereof and prior
to August 19, 1996 shall be deemed to be incorporated herein by reference and
to be a part hereof from the date of such filing. Any statement contained
herein or in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes hereof to
the extent that a statement contained herein or in any other subsequently
filed document which also is, or is deemed to be, incorporated herein by
reference modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part hereof, except
as so modified or superseded.
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INDEX TO APPENDICES
APPENDIX A--Cyprus Amax Guaranty
APPENDIX B--Demand Loan Facility
APPENDIX C--Fee and Support Agreements
<PAGE>
APPENDIX A
CYPRUS AMAX GUARANTY
This Guaranty, dated as of March 19, 1996 (this "Agreement"), by Cyprus Amax
Minerals Company, a Delaware corporation (the "Guarantor"), in favor of N M
Rothschild & Sons Limited, a bank organized under the laws of England
("Rothschild"), in its capacity as the administrative agent for the Lender
Parties (in such capacity, the "Administrative Agent").
W I T N E S S E T H:
Whereas, pursuant to that certain Loan Agreement, dated as of October 31,
1995 and amended as of December 7, 1995 and pursuant to the Second Amendment
Agreement (as so amended, the "Loan Agreement"), among (1) Amax Gold Inc., a
Delaware corporation (the "Borrower"), (2) Fairbanks Gold Mining, Inc., a
Delaware corporation, Guanaco Mining Company, Inc., a Delaware corporation,
Lassen Gold Mining, Inc., a Delaware corporation, Melba Creek Mining, Inc., an
Alaska corporation, and Nevada Gold Mining, Inc., a Delaware corporation
(collectively, the "Principal Subsidiaries"), (3) Merrill Lynch Capital
Corporation, a Delaware corporation ("Merrill Lynch"), ABN AMRO Bank N.V., a
bank organized under the laws of The Netherlands, Rothschild and The Toronto-
Dominion Bank, a bank organized under the federal laws of Canada ("Toronto-
Dominion"), as the Arrangers, (4) the banks and other financial institutions
party thereto (collectively, the "Lenders"), (5) Merrill Lynch, as Syndication
Agent for the Lenders, (6) Toronto-Dominion, as Documentation and Technical
Agent for the Lender Parties, (7) LaSalle National Trust, N.A., a U.S.
national banking association, as Collateral Agent for the Lender Parties, and
(8) Rothschild, as Administrative Agent for the Lender Parties, the Lenders
extended Commitments to make Loans to the Borrower;
Whereas, the parties to the Loan Agreement have entered into the Second
Amendment Agreement thereto, dated as of March 19, 1996 (the "Second Amendment
Agreement");
Whereas, the Guarantor owns as of the date hereof approximately 51.2% of the
issued and outstanding capital stock of the Borrower and the Borrower owns,
either directly or indirectly, all of the outstanding shares of capital stock
of the Principal Subsidiaries;
Whereas, in consideration of the Lender Parties agreeing to the waivers and
other transactions contemplated by the Second Amendment Agreement, the
Guarantor has agreed to enter into this Agreement;
Whereas, the Guarantor will derive substantial direct and indirect benefit
from the waivers and other transactions contemplated by the Second Amendment
Agreement; and
Whereas, this Agreement is the Cyprus Amax Guaranty referred to in the
Second Amendment Agreement, and it is a condition precedent to the
effectiveness of the Second Amendment Agreement that the Guarantor execute and
deliver this Agreement;
Now Therefore, for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged by the Guarantor, the Guarantor undertakes and
agrees, for the rateable benefit of each Lender Party, as follows:
ARTICLE 1.
Definitions; Interpretation
Section 1.1. Loan Agreement Terms; Interpretation. Capitalized terms used
but not defined herein (including in the preamble and recitals) have the
meanings provided in the Second Amendment Agreement. This
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Agreement is a Loan Document, and shall be interpreted and construed in
accordance with the terms and provisions of the Second Amendment Agreement
(including Section 1.1 thereof).
Section 1.2. Defined Terms. In this Agreement (including its preamble and
recitals), the following capitalized terms shall have the following meanings:
"Administrative Agent" is defined in the preamble.
"Agreement" is defined in the preamble.
"AS" is defined in clause (b)(i) of Section 3.3.
"Borrower" is defined in the first recital.
"Guaranteed Obligations" is defined in clause (a) of Section 2.1.
"Guarantor" is defined in the preamble.
"Guaranty" is defined in clause (a) of Section 2.1.
"Insolvency Proceeding" is defined in clause (f)(ii) of Section 2.4.
"Lenders" is defined in the first recital.
"Loan Agreement" is defined in the first recital.
"Merrill Lynch" is defined in the first recital.
"Principal Subsidiaries" is defined in the first recital.
"Rothschild" is defined in the preamble.
"Second Amendment Agreement" is defined in the second recital.
"Toronto-Dominion" is defined in the first recital.
ARTICLE 2.
Guaranty; Obligations With Respect to Sale/Leaseback of Fort Knox Assets
Section 2.1. Guaranty of the Borrower's Obligations.
(a) The Guarantor hereby absolutely, unconditionally and irrevocably
guarantees (the "Guaranty"), for the rateable benefit of the Lender Parties,
the full and punctual payment of principal and interest from time to time
outstanding under the Loan Agreement (as such amounts may be reduced by any
prepayment or repayment made by the Borrower with the proceeds of the 1994
DOCLOC Facility or otherwise, but without prejudice to any right or remedy of
the Lender Parties with respect thereto) in accordance with the stated
maturities thereof (and not by way of acceleration of any Obligation pursuant
to Section 8.2 or 8.3 of the Loan Agreement other than any such acceleration
arising as a result of any Event of Default under Section 8.1.15 of the Loan
Agreement) and all payments in respect of relevant Hedging Agreements and
Interest Rate Protection Agreements (including all such amounts which would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, or the operation of Sections 502(b), 502(d) and 506(b) of
the Bankruptcy Code, and any other similar provisions arising under Applicable
Law; all such amounts and other obligations being hereinafter referred to as
the "Guaranteed Obligations"). The Guarantor hereby further covenants to
indemnify and hold harmless each Lender Party for any and all costs and
expenses (including reasonable attorney's fees and expenses) incurred by such
Lender Party in enforcing any rights under this Section. Notwithstanding the
foregoing, except with respect to any claim made by any Lender Party under the
Guaranty on or prior to the Fort Knox Economic Completion Date and subject to
Section 2.3, the Guaranty shall terminate, and the Guarantor shall be released
from its obligations under the Guaranty and this Agreement on the Fort Knox
Economic Completion Date.
(b) The Guaranty constitutes a guaranty of payment when due and not of
collection, and the Guarantor specifically agrees that it shall not be
necessary or required that any Lender Party exercise any right, assert any
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claim or demand or enforce any remedy whatsoever against any Obligor or any
other Person before or as a condition to the obligations of the Guarantor
under the Guaranty and this Agreement.
(c) The Guarantor agrees that the Guaranteed Obligations will be paid as
contemplated by this Agreement, regardless of any Applicable Law affecting any
of such terms or the rights of any Lender Party with respect thereto.
Section 2.2. Reinstatement. The Guarantor agrees that the Guaranty shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment (in whole or in part) of any of the Guaranteed Obligations is
rescinded or must otherwise be restored by any Lender Party, upon an
Insolvency Default, all as though such payment had not been made to such
Lender Party; provided, however, that for the avoidance of doubt, to the
extent permitted by Applicable Law, if any payment is rescinded or restored as
aforesaid at any time after the Termination Date (as defined in the Priority
Agreement), the arrangements contemplated by the Priority Agreement shall be
reinstated.
Section 2.3. Waiver. In addition to the other waivers provided in this
Agreement, the Guarantor hereby waives each of the following to the fullest
extent permitted by Applicable Law:
(a) all presentments, demands for performance, promptness, diligence,
notices of nonperformance, protests, notices of protest, notices of
dishonor, notices of acceptance of this Agreement, and demands and notices
of every kind with respect to any of the Guaranteed Obligations and the
Guaranty except for any demand or notice expressly provided for in this
Agreement;
(b) subject to the Priority Agreement, any requirement that any Lender
Party protect, secure, perfect or insure any Lien securing any of the
Guaranteed Obligations or the Guarantor's performance of its obligations
hereunder, or any property subject thereto;
(c) all statutes of limitations as a defense to any action or proceeding
brought against the Guarantor by the Lender Parties or any of them, to the
fullest extent permitted by Applicable Law;
(d) any right it may have (whether by contract, in equity or at law) to
require any of the Lender Parties to proceed against, or proceed against or
exhaust any security held from, any Obligor or any other Person (including
any other guarantor or surety of all or any of the Guaranteed Obligations)
or any collateral securing any of the Guaranteed Obligations or the
Guarantor's performance of its obligations hereunder, or to pursue any
other remedy in such Lender Party's power to pursue and which would lighten
the Guarantor's burden;
(e) any defense based on any claim that the Guarantor's obligations
exceed or are more burdensome than those of any Obligor;
(f) any defense based on: (i) any legal disability of the Borrower or any
other Obligor, (ii) any release, discharge, modification, impairment or
limitation of the liability of the Borrower or any other Obligor to any of
the Lender Parties from any cause, whether consented to by the
Administrative Agent or any of the other Lender Parties, or arising by
operation of Applicable Law or from any bankruptcy or other voluntary or
involuntary proceeding, in or out of court, for the adjustment of debtor-
creditor relationships (any such proceeding, an "Insolvency Proceeding")
including any Insolvency Proceeding which results in the delay or
modification of the stated maturity of payments (or the amounts thereof) of
the Loans pursuant to the Loan Agreement, and (iii) any rejection or
disaffirmance of any or all of the Guaranteed Obligations, or any security
held for such Guaranteed Obligations, in any such Insolvency Proceeding;
(g) any defense based on any action taken or omitted by the
Administrative Agent or any of the other Lender Parties in any Insolvency
Proceeding involving the Borrower or any other Obligor, including any
election to have such Lender Party's claim allowed as being secured,
partially secured or unsecured, any extension of credit by any of the
Lender Parties to the Borrower or any other Obligor in any Insolvency
Proceeding, and the taking and holding by any of the Lender Parties of any
security for any such extension of credit;
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(h) any defense based on or arising out of any defense that the Borrower
may have to the payment or performance of the Guaranteed Obligations or any
part of them; and
(i) all other suretyship defenses and rights of every kind or nature
otherwise available under Applicable Law.
Section 2.4. Sale/Leaseback of Fort Knox Assets. Upon the occurrence of any
Event of Default permitting or requiring acceleration of any of the
Obligations pursuant to Section 8.2 or 8.3 of the Loan Agreement, or upon
default by the Borrower (or Fairbanks Gold) in the performance of any of its
obligations pursuant to the Permitted Fort Knox Sale-Leaseback if as a
consequence of any such default by the Borrower (or Fairbanks Gold) the lessor
of any of the relevant equipment shall elect to exercise any of its remedies
as a consequence thereof, the Guarantor will immediately, upon the request of
the Administrative Agent, issue in favor of the lessor under the Permitted
Fort Knox Sale-Leaseback an unconditional and irrevocable guaranty of all of
the obligations of the Borrower (or Fairbanks Gold) in connection therewith in
form and substance reasonably satisfactory to the Administrative Agent (acting
in consultation with the Required Lenders); provided, however, that the
obligations of the Guarantor to the Lender Parties to maintain such guaranty
shall be discontinued in the event that the Guarantor shall have fully
discharged the Borrower's (or Fairbanks Gold's) obligations with respect to
the Permitted Fort Knox Sale-Leaseback or shall have arranged for equipment of
a substantially similar nature to that subject to the Permitted Fort Knox
Sale-Leaseback to be delivered to the Borrower (or Fairbanks Gold) at the Fort
Knox Mine free and clear of all Liens and such equipment shall actually have
been delivered within 180 days after the implementation of such arrangement.
ARTICLE 3.
Provisions of General Application
Section 3.1. Obligations Absolute, etc. Subject to Section 2.3, this
Agreement shall remain in full force and effect until the earlier to occur of
the Fort Knox Economic Completion Date and the payment in full of the
Guaranteed Obligations. The liability of the Guarantor under this Agreement
shall be absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the Loan
Agreement or any other Operative Document;
(b) the failure of any Lender Party:
(i) to assert any claim or demand or to enforce any right or remedy
against any other guarantor or surety of all or any of the Guaranteed
Obligations, the Borrower, any guarantor under any Principal Subsidiary
Guaranty or any other Person under the provisions of the Loan Agreement
or any other document, instrument or agreement related thereto, or
otherwise; or
(ii) to exercise any right or remedy against any other guarantor or
surety of, or collateral (whether pursuant to any Security Document,
any Principal Subsidiary Guaranty or otherwise) securing, the
Guaranteed Obligations;
(c) any change in the time, manner or place of payment or performance of,
or in any other term of, all or any of the Guaranteed Obligations or any
other extension, compromise or renewal of any Guaranteed Obligation;
(d) any reduction, limitation, impairment or termination of any
Guaranteed Obligation for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to
(and the Guarantor hereby waives any right to or claim of) any defense or
setoff, counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of or any other event or occurrence affecting, any
Obligation of any Obligor or otherwise;
(e) any amendment to, rescission, waiver or other modification of, or any
consent to departure from, any of the terms of the Loan Agreement, any
Principal Subsidiary Guaranty or any other Operative Document;
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(f) any addition, enforcement, exchange, change in the priorities
relating to, release, abandonment, liquidation, surrender or non-perfection
of any collateral granted pursuant to any Security Document securing
performance of all or any of the Guaranteed Obligations or the Guaranty or
any other obligations of the Guarantor arising pursuant to this Agreement,
or any amendment to or waiver or release or addition to, or consent to
departure from, any other guaranty held by any Lender Party securing any of
the Guaranteed Obligations; or
(g) any other circumstance which might otherwise constitute a defense
available to, or a legal or equitable discharge of, any Obligor, any
guarantor under any Principal Subsidiary Guaranty, or any other surety or
any guarantor.
The Guarantor agrees that the Guaranty is an "instrument for the payment of
money only" within the meaning of Section 3213 of the New York Civil Practice
Law and Rules.
Section 3.2. Rights of Lender Parties. The Guarantor authorizes each of the
Lender Parties to perform any or all of the actions described or implied in
Section 3.1 and in addition, the following actions at any time, in each case,
in its sole discretion, all without notice to the Guarantor and without
affecting the Guarantor's obligations under this Agreement:
(a) Any Lender Party may, subject to the Priority Agreement, direct the
order and manner of any sale of all or any part of any security now or
later to be held for any of the Guaranteed Obligations or the Guarantor's
obligations under this Agreement, and such Lender Party may also bid and
purchase at any such sale.
(b) Subject to the provisions of Section 4.13 of the Loan Agreement and
the Priority Agreement, any Lender Party may accept and apply any payments
or recoveries from the Borrower, the Guarantor or any other source, and any
proceeds of any security, to the Guaranteed Obligations in such manner,
order and priority as such Lender Party may elect, whether or not those
obligations are guarantied by this Agreement or secured at the time of the
application.
(c) Any Lender Party may substitute, add or release any one or more
guarantors or endorsers.
(d) In addition to the Loans, any one or more of the Lender Parties may
extend any other credit to any Obligor, and may take and hold security for
the credit so extended, all without affecting the Guarantor's liability
under this Agreement or the obligations of any other guarantor under any
Principal Subsidiary Guaranty to which it is a party.
Section 3.3. Waivers of Subrogation and Other Rights.
(a) If any default by the Guarantor under this Agreement shall have occurred
and be continuing, but at all times subject to the Priority Agreement, the
Lender Parties, in their sole discretion, with prior notice to the Guarantor,
may elect to: (i) foreclose either judicially or nonjudicially against any
real or personal property security held for the Guaranteed Obligations, (ii)
accept a transfer of any such security in lieu of foreclosure, (iii)
compromise or adjust any of the Guaranteed Obligations or any part of any
Guaranteed Obligation or any guarantor or surety of any of the Guaranteed
Obligations or (iv) exercise any other remedy against the Guarantor or any
security. Subject to the Priority Agreement, no such action by a Lender Party
shall release or limit the liability of the Guarantor, who shall remain liable
under this Agreement after the action, even if the effect of the action is to
deprive the Guarantor of any subrogation rights, rights of indemnity, or other
rights to collect reimbursement from the Borrower or any Principal Subsidiary
for any sums paid to any of the Lender Parties, whether contractual or arising
by operation of Applicable Law or otherwise. Subject to the Priority
Agreement, the Guarantor expressly agrees that under no circumstances shall it
be deemed to have any right, title, interest or claim in or to any real or
personal property to be held by any of the Lender Parties or any third party
after any foreclosure or transfer in lieu of foreclosure of any security for
the Guaranteed Obligations.
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(b) Regardless of whether the Guarantor may have made any payments to any
Lender Party, the Guarantor waives, subject to the Priority Agreement, until
the prior payment, in full and in cash, of all Guaranteed Obligations:
(i) all rights of subrogation and reimbursement, all rights of indemnity,
and any other rights to collect reimbursement from the Borrower or any
Principal Subsidiary for any sums paid to any Lender Party, whether
contractual or arising by operation of Applicable Law (including under
Alaska Statutes ("AS") 45.03.419, Sections 2847 or 2848 of the California
Civil Code, under any provisions of the United States Bankruptcy Code, or
any successor or similar statutes) or otherwise,
(ii) all rights to enforce any remedy that any Lender Party may have
against the Borrower or any Principal Subsidiary, and
(iii) all rights to participate in any security now or later to be held
by any Lender Party for any of the Guaranteed Obligations. The Guarantor
further agrees that, to the extent the waiver or agreement to withhold the
exercise of its rights of subrogation, reimbursement, indemnification and
contribution as set forth herein is found by a court of competent
jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement, indemnification and contribution the Guarantor
may have against the Borrower or any Principal Subsidiary or against any
collateral or security, shall be junior and subordinate, and to all right,
title and interest any Lender Party may have in any such collateral or
security. If any amount shall be paid to the Guarantor on account of any
such subrogation, reimbursement, indemnification or contribution rights at
any time when all of the Guaranteed Obligations have not been paid or
otherwise performed in full, such amount shall be held in trust for the
Lender Parties and shall forthwith be paid over to the Lender Parties to be
credited and applied against the Guaranteed Obligations, whether matured or
unmatured, in accordance with the terms of the Loan Documents (including
Section 4.13 of the Loan Agreement).
(c) THE GUARANTOR WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION
OF REMEDIES BY ANY OF THE LENDER PARTIES (SUBJECT TO THE PRIORITY AGREEMENT),
EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH
RESPECT TO SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED THE GUARANTOR'S
RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE BORROWER OR ANY PRINCIPAL
SUBSIDIARY BY THE OPERATION OF APPLICABLE LAW, INCLUDING AS 45.03.605 OR
SECTION 580d OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR OTHERWISE.
(d) The Guarantor understands and acknowledges that if the Lender Parties
foreclose, subject to the Priority Agreement, judicially or nonjudicially
against any real property security for any of the Guaranteed Obligations, that
foreclosure could impair or destroy any ability that the Guarantor may have to
seek reimbursement, contribution or indemnification from the Borrower or any
Principal Subsidiary or others based on any right the Guarantor may have of
subrogation, reimbursement, contribution or indemnification for any amounts
paid by the Guarantor under this Agreement. The Guarantor further understands
and acknowledges that in the absence of the waivers by the Guarantor set forth
in this Section, such potential impairment or destruction of the Guarantor's
rights, if any, might entitle such Guarantor to assert a defense to this
Agreement based on AS 45.03.605, Section 580d of the California Code of Civil
Procedure as interpreted in Union Bank v. Gradsky, 265, Cal. App.2d 40 (1968)
or other Applicable Law. With such understanding and without limitation on any
of the foregoing provisions of this Section, by executing this Agreement,
pursuant to AS 45.03.605(h) or other Applicable Law, the Guarantor freely,
irrevocably and unconditionally (but subject to the Priority Agreement):
(i) waives and relinquishes that defense and agrees that the Guarantor
will be fully liable under this Agreement even though the Lender Parties
may foreclose judicially or nonjudicially against any real property
security for the Guaranteed Obligations;
(ii) agrees that the Guarantor will not assert that defense in any action
or proceeding which a Lender Party may commence to enforce this Agreement;
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(iii) acknowledges and agrees that the rights and defenses waived by the
Guarantor in this Agreement include any right or defense that the Guarantor
may have or be entitled to assert based upon or arising out of any one or
more of the circumstances set forth in AS 45.03.605 or Sections 580a, 580b,
580d or 726 of the California Code of Civil Procedure of Section 2848 of
the California Civil Code (including any defense that any exercise by the
Lender Parties of any right or remedy hereunder or under the Loan Documents
violates, or would, in combination with the previous or subsequent exercise
by the Guarantor of any rights of subrogation, reimbursement, contribution
or indemnification against the Borrower or any Principal Subsidiary or any
other Person, directly or indirectly result in, or be deemed to be, a
violation of any of such statutory provisions); and
(iv) acknowledges and agrees that each of the Lender Parties is relying
on this waiver in entering into the Second Amendment Agreement, and that
this waiver is a material part of the consideration which each of the
Lender Parties is entering into the Second Amendment Agreement.
(e) Based on the representations and warranties of the Guarantor set forth
herein, the Guarantor hereby forever and completely waives any right the
Guarantor might otherwise have to assert or claim, as part of a defense
against any action taken by any Lender Party against the Guarantor under this
Agreement after a Lender Party shall have, subject to the Priority Agreement,
completed an action against the Borrower or another Obligor for the
enforcement of any of the Guaranteed Obligations, that such action against the
Guarantor is barred by operation of California Civil Code Section 7260 or any
"one action" or "one form of action" statute (or any similar Applicable Law
limiting a creditor's remedies or the manner in which such remedies may be
enforced) on the theory that this Agreement and the Loan Agreement are part
and parcel with the Guaranteed Obligations as one integrated transaction,
rather than related but separate and distinct transactions, or on the theory
that any Obligor is the alter ego of the Guarantor or the Guarantor is the
alter ego of any Obligor.
(f) Without limitation on any of the other waivers of the Guarantor
hereunder, the Guarantor hereby specifically waives the benefit of (and any
and all rights arising out of) California Civil Code Section 2845, or any
similar statute arising under Applicable Law, which gives a guarantor or
surety the power to require a creditor to proceed against the principal, or to
pursue any other remedy in the creditor's power which the guarantor or surety
can not pursue, and which would lighten the guarantor's or the surety's
burden.
(g) The covenants and waivers of the Guarantor contained in this Section
shall survive termination of this Agreement and are made for the benefit of
each of the Lender Parties, the Borrower, the Principal Subsidiaries and any
other person against whom the Guarantor shall at any time have any rights of
subrogation, reimbursement, contribution or indemnification with respect to
the Guarantor's obligations under this Agreement. The covenants and waivers of
the Guarantor contained in this Section are in all cases subject to the
Priority Agreement.
Section 3.4. Consent of Guarantor. Prior to the Fort Knox Economic
Completion Date, the Administrative Agent shall not enter into any amendment
to, waiver or other modification of, or give any consent to a departure from,
any of the material terms of the Loan Agreement, any Principal Subsidiary
Guaranty or any other Operative Document without the prior written consent of
the Guarantor.
ARTICLE 4.
Representations and Warranties
In order to induce the Lender Parties to enter into the Second Amendment
Agreement and, in the case of the Lenders, to make, maintain, continue and/or
convert Loans, the Guarantor represents and warrants unto the Administrative
Agent (for the rateable benefit of the Lender Parties) as set forth in
Sections 4.01, 4.02, 4.03 and 4.04 of the Competitive Advance Facility
Agreement as in effect on the Amendment Effective Date with the intent that
references therein to "this Agreement", "Loan Documents" and the like shall be
deemed to be references to this Agreement and the Priority Agreement. The
representations and warranties set forth in this Section shall be made upon
the date hereof, the Amendment Effective Date and the delivery of each
Borrowing Request.
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ARTICLE 5.
Covenants
Cyprus Amax agrees with the Administrative Agent (for the rateable benefit
of the Lender Parties) that, at all times on or prior to the Fort Knox
Economic Completion Date, it will perform the obligations set forth in
Sections 7.01 and 7.05 of the Competitive Advance Facility Agreement as in
effect on the Amendment Effective Date with (a) references to this "Agreement"
being deemed to be references to the Loan Agreement and the other Loan
Documents and (b) references to the "Required Lenders" being deemed to be
references to the Required Lenders under the Loan Agreement.
ARTICLE 6.
Miscellaneous
Section 6.1. Waivers, Amendments, etc. The provisions of this Agreement may
from time to time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the Guarantor and the
Administrative Agent (acting with the approval of the Required Lenders or all
the Lenders, as may be required pursuant to the Loan Agreement).
No failure or delay on the part of the Administrative Agent in exercising
any power or right under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Guarantor in any case shall entitle it to any
notice or demand in similar or other circumstances. No waiver or approval by
the Administrative Agent under this Agreement shall, except as may be
otherwise stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
Section 6.2. Notices. All notices and other communications provided to any
party hereto under this Agreement shall be in writing and sent by hand
delivery, courier delivery, first class prepaid post, telex (if the receiving
party shall have telex facilities) or facsimile and addressed or delivered to
it at its address set forth below its signature hereto and designated as its
"Address for notices" or at such other address as may be designated by such
party in a notice to the other parties. Any notice, if mailed and properly
addressed with first class postage prepaid, shall be deemed given when
delivered; any notice, if sent by hand or courier delivery, shall be deemed
given when delivered; and any notice, if transmitted by telex or facsimile,
shall be deemed given when transmitted (answerback received at both the
beginning and the end of the relevant transmission in the case of telexes and
transmission completed and confirmed by the sending facsimile machine in the
case of facsimiles).
Section 6.3. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto (and in the case of the
Administrative Agent, to the rateable benefit of the Lender Parties) and their
respective successors and assigns; provided, however, that:
(a) the Guarantor may not assign, delegate or transfer its rights or
obligations hereunder without the prior written consent of the
Administrative Agent and all the Lenders; and
(b) the rights of sale, assignment and transfer of the Agents and the
Lenders are subject to Article 9 and Section 10.11 of the Loan Agreement.
Section 6.4. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.
Section 6.5. Headings. The various headings of this Agreement are inserted
for convenience only and shall not affect the meaning or interpretation of
this Agreement or any provisions hereof or thereof.
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Section 6.6. Governing Law; Entire Agreement.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) Upon the Amendment Effective Date, except with respect to the Borrower's
obligations to indemnify and pay the costs and expenses of the Underwriters as
set forth in the Commitment Letter, this Agreement, together with the other
Loan Documents, constitutes the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes any prior
agreements, written or oral, with respect thereto (including the Commitment
Letter (except as aforesaid), the Indicative Summary Terms for $250,000,000
Senior Term Loan Facility, dated August 15, 1995, and the Information
Memorandum).
Section 6.7. Forum Selection and Consent to Jurisdiction, Waiver of
Immunity. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT OR
THE GUARANTOR MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF NEW
YORK, BOROUGH OF MANHATTAN, OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND IN ADDITION ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY PROPERTY OF THE GUARANTOR MAY BE BROUGHT, AT THE ADMINISTRATIVE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE
LOCATED OR DEEMED LOCATED. THE GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, BOROUGH OF
MANHATTAN, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. SERVICE OF PROCESS MAY BE MADE UPON THE GUARANTOR BY
MAILING OR DELIVERING A COPY OF SUCH PROCESS TO IT IN CARE OF THE PROCESS
AGENT AT THE PROCESS AGENT'S ADDRESS AND THE GUARANTOR HEREBY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING IN NEW YORK ARISING OUT OF THIS AGREEMENT BY THE MAILING OF COPIES
OF SUCH PROCESS TO IT AT ITS ADDRESS FOR NOTICES SET FORTH BELOW ITS SIGNATURE
HERETO. THE GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE
TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. TO THE EXTENT THAT THE GUARANTOR HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT
IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT.
Section 6.8. Waiver of Jury Trial. EACH OF THE ADMINISTRATIVE AGENT, ON
BEHALF OF THE OTHER LENDER PARTIES, AND THE GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS EACH MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR
IN CONNECTION WITH, THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE
AGENT OR ANY OTHER LENDER PARTY, THE GUARANTOR, AND ANY AND ALL OTHER
GUARANTORS OR SURETIES OF ALL OR ANY OF THE GUARANTEED OBLIGATIONS. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT ENTERING INTO
THIS AGREEMENT.
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Section 6.9. Incorporation of Miscellaneous Provisions. The parties hereto
agree that the provisions of Sections 4.6 (Taxes), 4.7 (Mitigation), 4.8
(Payments, Computations, etc.), 4.9 (Proration of Payments), 4.10
(Miscellaneous Provisions for Payments in Gold) and 4.11 (Setoff), and the
last sentence of Section 10.11.2 (Participations) of the Loan Agreement shall
apply mutatis mutandis to the Guarantor as if set forth herein except that
references to an "Obligor" or the like shall be deemed to be references to the
Guarantor.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the day and year first above written.
The Guarantor:
Cyprus Amax Minerals Company
By: /s/ Francis J. Kane
Name Printed: Francis J. Kane
Title: Vice President Investor
Relations and Treasurer
Address for notices:
9100 East Mineral Circle
Englewood
Colorado 80112
USA
The Administrative Agent:
per pro N M Rothschild & Sons Limited
By: /s/ Andrew Wright
Name Printed: Andrew Wright
Title: Assistant Director
By: /s/ D.R. Beadle
Name Printed: D.R. Beadle
Title: Assistant Director
Address for notices:
New Court
St. Swithin's Lane
London EC4P 4DU
England
Attention: Dr. Michael A. Price
Facsimile No.: 44-171-280-5679
Telex No.: 888031
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APPENDIX B
CREDIT AGREEMENT
This Credit Agreement, dated as of March 19, 1996 ("Agreement"), by and
between Amax Gold Inc., a Delaware corporation (the "Borrower"), and Cyprus
Amax Minerals Company, a Delaware corporation (the "Lender");
W I T N E S S E T H:
Whereas, on the date of this Agreement the Lender indirectly owns shares of
the Borrower's common stock, par value $0.01 per share ("Common Stock")
constituting approximately 51.2% of the Borrower's outstanding Common Stock;
Whereas, the Borrower needs financial support from the Lender to finance
increases in actual and projected capital expenditures necessary to construct
and develop the Fort Knox mine and to provide working capital, and the Lender
is willing to provide to the Borrower up to $250,000,000 of financing for such
needs and for general corporate purposes, on the terms of this Agreement;
Whereas, each party has determined, after consulting with an independent
investment banking firm, that it is in the best interest of such party that
such financing from the Lender be provided on the terms and conditions set
forth in this Agreement;
Whereas, the Borrower and the Lender each have had the transactions
contemplated by this Agreement approved by its Board of Directors (and the
Borrower having had such transactions approved separately by the Special
Committee of the Borrower's Board of Directors, which consists solely of those
Directors who are unaffiliated with the Lender);
Now Therefore, the parties hereby agree to the following terms and
conditions:
ARTICLE I
Amounts and Terms of the Loan
Section 1.01. Amount of Credit. Subject to the terms and conditions hereof,
the Lender agrees to make one or more loans (individually a "Loan" and
collectively the "Loans") to the Borrower from time to time during the period
that commences on the date hereof and ends on the earlier of (i) December 31,
2001 or (ii) the date on which the Lender notifies Borrower that Loans will no
longer be made available hereunder (the expiration date determined by (i) or
(ii) is herein called the "Expiration Date"), in an aggregate principal amount
up to but not exceeding at any one time outstanding the sum of $250,000,000
(the "Maximum Loan Amount"). During such period the Borrower may borrow, pay
and prepay in whole or in any part, all in accordance with the terms and
conditions hereof. Each borrowing and cash prepayment of principal, if any,
shall be in an amount equal to an integral multiple of $1,000,000.
Section 1.02. Making the Loans. The Borrower shall give the Lender notice of
each borrowing hereunder not later than 11:00 a.m. Denver, Colorado, time at
least two (2) Business Days prior to the date a Loan is requested to be made,
specifying the inception date, the amount thereof and the initial Interest
Period for such Loan. The Lender shall have no obligation to make any Loans
hereunder. The Lender shall advise the Borrower prior to the end of the
Business Day prior to the date upon which a Loan is requested to be made
whether the Lender has agreed to make the Loan. If the Lender agrees to make a
Loan hereunder, the Lender will arrange the Loan and confirm the details in
writing to the Borrower. On the inception date of the borrowing, the Lender
will make the proceeds of the Loan available to the Borrower in immediately
available funds at the
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Borrower's account with Chemical Bank, New York (or any successor thereto), or
as the Borrower may otherwise direct in such notice.
Without regard to the applicable Interest Period of any Loan, the Loans
hereunder shall be payable upon demand by Lender specifying the amount of
Loans to be repaid and the date of payment.
The Loans to the Borrower shall be evidenced by a grid Note of the Borrower
substantially in the form of Exhibit A hereto (the "Note"). The Note will
evidence the obligation of the Borrower to pay the aggregate unpaid principal
amount of all Loans made by the Lender upon demand by the Lender pursuant to
Section 1.01 of this Agreement, together with all accrued interest on such
Loans. Entries made on the grid schedules of the Note by the Lender reflecting
borrowings, payments and interest rate calculations under this Agreement shall
constitute, absent proven error, prima facie evidence of the transactions
represented by such entries. The Note shall (i) be dated the date of the
initial Loan hereunder, (ii) be payable in accordance with its terms and the
terms of this Agreement and (iii) evidence the obligation of the Borrower to
pay interest on each Loan made hereunder from the date of such Loan on the
unpaid principal amount thereof outstanding from time to time, calculated in
accordance with the provisions of Section 1.03 and the outstanding principal
amount of such Loan in accordance with Section 1.06 or Section 1.07 of this
Agreement pursuant to the repayment notice given by the Borrower under the
applicable section of this Agreement. Except for the payment referenced in
Section 1.07 hereof, the Borrower shall make each payment (including any cash
prepayment) hereunder and under the Note, not later than the close of business
of the day when due by wire transfer, in lawful money of the United States of
America to the Lender, at its address referred to in Section 7.02 or as
otherwise directed by the Lender, in immediately available funds.
Section 1.03. Payment of Interest. Each Loan made by the Lender pursuant to
this Agreement shall bear interest on the principal balance thereof from time
to time unpaid at an annual rate equal to the LIBOR Rate (as defined herein)
for the interest period selected by the Borrower at its option for a period of
one, three or six months, or such other periods as are agreed between the
Borrower and the Lender (each, an "Interest Period"), and as set forth in the
notice of borrowing referred to in Section 1.02 hereof or the notice of
Interest Period selection referred to in Section 1.05 hereof, as the case may
be, plus 2.25% per annum, except as otherwise provided in this Section.
Interest on each Loan shall be due and payable in full on the earlier of (i)
last day of the Interest Period applicable to such Loan and (ii) the date upon
which the Lender demands that the Loan be repaid, and, in the case of any
Interest Period in excess of three months, at the end of each calendar quarter
occurring during the term thereof. The term "LIBOR Rate" shall have the
meaning ascribed to it in the Revolving Credit Agreement, dated as of April
15, 1994, between the Lender and the Borrower, whether or not such Agreement
shall have been terminated at the time of such interest calculation. If the
Borrower fails to make any payment to the Lender of the principal of or
interest on any Loan when such payment becomes due, such Loan shall accrue
interest at a rate that is 1.0% per annum higher than the rate otherwise
payable with respect to such Loan and such higher rate shall continue until
such default in payment by the Borrower is cured. All computations of interest
under the Note shall be made by the Lender on the basis of a year of 360 days,
consisting of twelve 30-day months, for the actual number of days (including
the first day but excluding the last day) elapsed.
Section 1.04. Prepayments in Cash. On any interest payment date, or as
otherwise agreed by the Lender, the Borrower may make cash prepayments of
principal of one or more Loans (which Loans shall be designated by the
Borrower) in an amount equal to an integral multiple of $1,000,000, and shall
be made without premium or penalty, but together with interest accrued, if
any, on the amount of each prepaid Loan (at the interest rate applicable to
such Loan) to the date of prepayment and shall be applied to the Loans as
requested by the Lender. The Borrower shall give Lender at least ten (10)
Business Days notice of any such prepayment; provided, that, if the Lender
shall require additional time to obtain the approvals that are necessary to
elect to accept such payment in Common Stock pursuant to Section 1.07, the
Lender may extend such payment date for a reasonable period of time. All such
cash payments shall be made by wire transfer in immediately available funds to
an account designated by the Lender.
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Section 1.05. Interest Period Selection. The Borrower shall have the option
to select a new Interest Period for each Loan, which period shall take effect
at the end of the then current Interest Period with respect to such Loan. The
Borrower shall give the Lender notice of such Interest Period selection
pursuant to this Section 1.05 not later than 11:00 a.m. Denver, Colorado, time
at least two (2) Business Days prior to the last day of the applicable
Interest Period, specifying the new Interest Period for such Loan. If the
Borrower does not deliver such notice of Interest Period selection to the
Lender as set forth herein, the Interest Period for such Loan shall be the
same number of months as the immediately preceding Interest Period for such
Loan. The selection of a subsequent Interest Period shall not be deemed to
constitute a new Loan for purposes of this Agreement.
Section 1.06. Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a date which is a
Saturday, Sunday or a public holiday or the equivalent for Lender or for banks
generally under the laws of the State of Colorado (any other day being a
"Business Day"), such payment may be made on the next succeeding Business Day
and such extension of time shall in such case be included in the computation
of interest due.
Section 1.07. Payment in Common Stock. At the Lender's election, which may
be exercised by its giving written notice to the Borrower at least two (2)
Business Days prior to the date (i) upon which the Lender has demanded payment
of the Note, (ii) upon which any interest payment is due, or (iii) on which
any repayment or prepayment of the Note is to be made in accordance with
Section 1.04 (unless such date is extended for a reasonable period of time by
the Lender at the Lender's election), the Lender may require the Borrower to
issue to the Lender Common Stock in lieu of a payment of amounts outstanding
under the Note; provided, that such issuance shall be subject to (a) the
acceptance by the New York Stock Exchange (the "NYSE") of a listing
application for the issuance of shares of Common Stock of the Borrower
therefor and (b) shareholder approval by the shareholders of the Borrower as
to such issuance. The number of shares of Common Stock that shall be issued
shall be equal to (I) the dollar amount of payment demanded or due on such
date divided by (II) the Average Market Price (as defined below). The "Average
Market Price" shall equal the average of the closing prices of the Common
Stock on the NYSE over the five (5) NYSE trading days ending on the Business
Day prior to the date that such demand is made, provided, that such Average
Market Price shall be subject to adjustment for extraordinary dividends or
distributions, stock splits, stock dividends and similar capital events
occurring during such five (5) NYSE trading-day period.
Section 1.08. Regulatory Approvals. As a condition precedent to issuing any
Common Stock to the Lender pursuant to Section 1.07 hereof, the Borrower shall
have obtained all authorizations and approvals of, and all other actions
required to be taken by, any applicable governmental authority or regulatory
body or stock exchange and shall have given all notices to, and made all
filings with, any such governmental authority or regulatory body or stock
exchange, that may be required in connection with such issuance of such Common
Stock.
Section 1.09. Failure to Obtain Regulatory Approvals. In the event the
Borrower is unable to obtain all authorizations and approvals required for the
issuance of any Common Stock pursuant to Section 1.08 hereof, such failure
shall not constitute a default. If the Common Stock was to be issued to pay an
interest or principal payment due under the Note, such payment shall be made
by the Borrower in immediately available funds on the date such payment is due
in accordance with Section 1.03 or 1.04 of this Agreement, as the case may be,
and the Note.
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ARTICLE II
Conditions of Lending
Section 2.01. Conditions Precedent to Making the Initial Loan. The
obligation of the Lender to make the initial Loan is subject to the following
conditions precedent:
(a) The Lender shall have received on or before the day the initial Loan
is made all of the following, in form and substance reasonably satisfactory
to the Lender:
(i) The Note duly executed by the Borrower;
(ii) Copies of the borrowing resolutions of the Board of Directors of
the Borrower authorizing the execution and delivery of this Agreement
and the Note as well as the Borrower's performance of all of the
covenants, obligations and other undertakings of the Borrower
contemplated by this Agreement and the Note and of all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to this Agreement and the Note, certified by the
Secretary or an Assistant Secretary of the Borrower;
(iii) A certificate of the Secretary or an Assistant Secretary of the
Borrower certifying the names and true signatures of the officers of
the Borrower authorized to sign this Agreement and the Note and any
other documents to be delivered hereunder;
(iv) A favorable opinion of counsel of the Borrower, as to matters
referred to in Section 3.01 of this Agreement; and
(v) A Notice of Borrowing under Section 1.02.
(b) On the date of such Loan the following statements shall be true:
(i) The representations and warranties of the Borrower contained in
Section 3.01 are true and correct in all material respects and shall be
deemed to have been made on and as of the date of such Loan (or of a
subsequent Loan for the purposes of Section 2.02);
(ii) No event has occurred and is continuing, or would result from
such Loan (or from a subsequent Loan for the purposes of Section 2.02),
which constitutes an Event of Default (as defined in Article V) or
would constitute an Event of Default but for the requirement that
notice be given or time elapse or both; and
Section 2.02. Conditions Precedent to Subsequent Loans. The obligation of
the Lender to make each subsequent Loan is subject to the conditions precedent
that on the date of any such subsequent Loan the statements made in Section
2.01(b)(i) and (ii) shall be true.
ARTICLE III
Representations and Warranties
Section 3.01. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power to execute, deliver and perform its obligations
under this Agreement and the Note.
(b) The execution, delivery and performance by the Borrower of this
Agreement and the Note have been, or in the case of the issuance of Common
Stock will be on or prior to the date of issuance, duly authorized by all
necessary corporate action (including authorization of the Board of
Directors of the Borrower to issue the Common Stock required to be issued
pursuant to Articles of this Agreement) and do not (and, in the case of the
Common Stock, such Common Stock will not at the time the same is to be
issued):
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(i) violate any provision of the Certificate of Incorporation, as
amended, or By-Laws of the Borrower or any law, order, writ, judgment,
decree, determination or award, in each case as presently in effect and
having applicability to the Borrower; or
(ii) result in a breach of or constitute a default under any material
indenture, bank loan agreement, credit agreement, bullion loan or other
material agreement to which the Borrower is a party or by which any of
its properties or the properties of any of its Subsidiaries, are
presently bound. As used in this Agreement, the term "Subsidiary" shall
mean, as to the Borrower, any corporation of which at least a majority
of the outstanding shares of stock, having by the terms thereof
ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether or not at the time stock of
any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency), is at the
time directly or indirectly owned or controlled by the Borrower or one
of more of its Subsidiaries.
(c) No authorization or approval of, or other action by, and no notice to
or filing with, any governmental authority or regulatory body, other than
the Securities and Exchange Commission ("SEC"), is required for the due
execution, delivery and performance by the Borrower of this Agreement
(except for such notices, any necessary shareholder approvals,
registrations, stock exchange listings or filings as may be required in
connection with issuing the Common Stock) or the Note.
(d) This Agreement is, and the Note when executed and delivered will be,
legal, valid and binding obligations of the Borrower enforceable against it
in accordance with their respective terms (subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles).
(e) The Common Stock, when issued in accordance with the terms of this
Agreement will be validly issued, fully paid and nonassessable.
ARTICLE IV
Covenants of the Borrower
Section 4.01. Payment of Principal, Premium and Interest. The Borrower duly
and punctually will pay or cause to be paid the principal of and interest on
the Loans evidenced by the Note according to the terms thereof.
Section 4.02. Reports, etc. The Borrower will furnish to the Lender the
following reports, information and documents:
(i) within 15 days after the Borrower is required to file the same with
the SEC, copies of the annual reports on Form 10-K, proxy statements,
quarterly reports on Form 10-Q, and of such reports, notices, documents and
other information (or copies of such portions of any of the foregoing as
the SEC may from time to time by rules and regulations prescribe) that the
Borrower may be required to file with the SEC pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended, or with
the principal securities exchange (or successor thereto) in the United
States on which securities of the Borrower are listed and, upon
distribution thereof, a copy of each report, proxy statement, notice,
document or other information sent by the Borrower to all of its
stockholders; and
(ii) promptly upon demand, such other information respecting the
financial condition, operations and properties of the Borrower and its
consolidated Subsidiaries as the Lender reasonably may request; provided
that the Lender shall maintain the confidentiality thereof in the same
manner as the Lender maintains the confidentiality of its own information
of like nature.
Section 4.03 Inspection. So long as this Agreement is in effect or the Note
is outstanding, the Borrower will permit the Lender or any of its authorized
representatives, at the Lender's expense, to inspect at all reasonable times
all properties, books and records of the Borrower or any of its consolidated
Subsidiaries
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reasonably related to the overall financial and business condition of the
Borrower and its consolidated Subsidiaries or to the observance and
performance by the Borrower of its obligations hereunder and under the Note,
and to discuss the business and affairs of the Borrower and its consolidated
Subsidiaries with its officers and independent accountants (and by this
provision the Borrower authorizes said accountants to discuss with the Lender
or such authorized representatives, the finances and affairs of the Borrower
and its consolidated Subsidiaries), all as often as reasonably may be
requested, subject to appropriate obligations of confidentiality.
Section 4.04. Compliance With Laws. The Borrower shall comply, in all
material respects, with all applicable laws, rules, regulations and orders,
except where the failure would not have a material adverse effect on the
Borrower's ability to perform under this Agreement and the Note.
Section 4.05. Listing Approval. The Borrower promptly shall use all
reasonable efforts to obtain the acceptance of the NYSE of a listing
application for the Common Stock to be issued pursuant to the terms of this
Agreement and, if so required as a condition to such listing, to obtain the
approval of a majority of its shareholders for the issuance for such Common
Stock.
Section 4.06. Security for Obligations. As security for the full and
punctual payment when due of all obligations arising under this Agreement
(including all such amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the United States Bankruptcy Code, 11
U.S.C. Section 362(a), and the operation of Sections 502(b) and 506(b) of the
United States Bankruptcy Code, 11 U.S.C. Sections 502(b) and 506(b), and any
other similar provisions arising under applicable law), the Borrower hereby
grants to the Lender a security interest in all of the Borrower's right, title
and interest, whether now existing or hereafter arising or acquired, in the
Collateral (as defined in the Collateral Agreements referred to in the Loan
Agreement pursuant to which the Borrower is financing the construction of the
Fort Knox Mine) in the form and manner contemplated by the Collateral
Agreements. The Borrower agrees to execute such documents and to make such
filings as shall be necessary and desirable in the opinion of the Lender to
perfect and protect the security interest granted hereby over the Collateral
as soon as practicable after the date hereof.
ARTICLE V
Events of Default
Section 5.01. Events of Default. If any of the following events (each, an
"Event of Default") shall occur and be continuing:
(a) The Borrower shall (i) fail to pay the principal of or any interest
on the Note when due, or (ii) fail to perform or observe any other term,
covenant or condition contained in this Agreement or in the Note on its
part to be performed or observed and any such failure shall remain
unremedied for five (5) Business Days in the case of clause (i) and thirty
(30) days in the case of clause (ii) after the same is discovered by any
Senior Officer of the Borrower; or
(b) Any representation or warranty made by the Borrower herein or by the
Borrower (or any of its officers) in any certificate or other document
delivered pursuant to this Agreement shall prove to have been incorrect in
any material respect when made and such incorrect representation or
warranty shall not have been corrected within ten (10) days after the same
is discovered by any Senior Officer of the Borrower; or
(c) The Borrower shall admit in writing its inability to pay its debts,
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Borrower or seeking to
adjudicate it a bankrupt or insolvent or seeking reorganization,
arrangement, adjustment, or composition of it or its debts under the law of
any jurisdiction relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and,
with respect to any involuntary proceeding instituted against the Borrower,
such proceeding shall not be dismissed within sixty (60) days;
B-6
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then, and in any such event, the Lender, by notice to the Borrower, may take
either or both of the following actions: (i) terminate this Agreement; or (ii)
declare the principal balance outstanding under the Note and all interest
accrued and unpaid thereon, and all other sums due hereunder, to be due and
payable without presentment, demand, protest, or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, however,
that upon the occurrence of an Event of Default specified in subparagraph (c)
above, (x) the Borrower's ability to borrow hereunder automatically shall be
terminated and (y) the Note, all such principal and interest and all such
other sums due hereunder automatically shall become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which
are hereby expressly waived by the Borrower.
ARTICLE VI
Provisions Regarding Common Stock
Section 6.01. Reservation of Shares of Common Stock. The Borrower agrees
that it will, at all times prior to the Expiration Date, undertake all such
further acts and assurances as may be reasonably required to reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock for the purpose of enabling it to satisfy
any obligation to issue shares of Common Stock pursuant to Section 1.07,
shares of Common Stock deliverable pursuant to Section 1.07. Before taking any
action that would cause an issuance of shares of Common Stock below the then
par value (if any) of the shares of Common Stock issuable pursuant to Section
1.07, the Borrower shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Borrower may validly and
legally issue fully paid and non-assessable shares of Common Stock.
Section 6.02. Transfer Taxes, Etc. The Borrower shall pay any and all
documentary stamp, issue or transfer taxes, and any other similar taxes
payable in respect of the issue or delivery of shares of Common Stock issuable
pursuant to Section 1.07; provided, however, that the Borrower shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock in a name other
than that of the Lender and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Borrower
the amount of any such tax or has established, to the satisfaction of the
Borrower, that such tax has been paid.
Section 6.03. Consolidation or Merger or Sale of Assets. Notwithstanding any
other provision herein to the contrary, in case of any consolidation or
merger, sale or transfer to which the Borrower is a party and pursuant to
which there is a change in the Common Stock of the Borrower, then lawful
provision, in a manner and on terms reasonably satisfactory to counsel for the
Lender, shall be made by the corporation formed by such consolidation or the
corporation whose securities, cash or other property will immediately after
the merger or consolidation be owned, by virtue of the merger or
consolidation, by the holders of Common Stock immediately prior to the merger
or consolidation, or the corporation which shall have acquired such assets or
securities of the Borrower (collectively the "Formed, Surviving or Acquiring
Corporation"), as the case may be, providing that the Lender shall have the
right thereafter to receive shares of common stock of such Formed, Surviving
or Acquiring Entity pursuant to Section 1.07. The above provisions of this
Section 6.06 shall similarly apply to successive consolidations, mergers,
sales, leases or transfers.
Section 6.04. Transfer Restrictions.
(a) Legends on Common Stock.
(i) Until the third anniversary of the date of original issuance of the
shares of Common Stock, certificates representing the shares of Common
Stock issued pursuant to Section 1.07 and not otherwise registered pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") shall bear a legend substantially to the
following effect:
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<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY SIMILAR
STATE SECURITIES LAWS AND THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM
REGISTRATION, UNDER SAID ACT AND LAWS."
The shares of Common Stock issued pursuant to Section 1.07 and not
otherwise registered pursuant to an effective registration statement under
the Securities Act shall be subject to the restrictions on transfer set
forth in the legends referred to above until the third anniversary of the
date of original issuance of such shares of Common Stock; provided,
however, and notwithstanding the foregoing, such shares of Common Stock may
be resold under and pursuant to the terms and conditions of Regulation S of
the Securities Act, prior to the end of the third anniversary date of the
issuance of such shares.
(ii) The certificates evidencing shares of Common Stock issued to the
Lender pursuant to Section 1.07 and not otherwise registered pursuant to an
effective registration statement under the Securities Act shall bear, until
such time as the Borrower and the transfer agent for the Common Stock shall
have received evidence satisfactory to each of them that the transfer of
such shares of Common Stock has been effected in accordance with the
limitations on transfer set forth in paragraph (a)(i) above, the following
additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES, OPINIONS OF COUNSEL AND
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS."
(b) Transfer Agent Requirements. The transfer agent and registrar for the
Common Stock shall not be required to accept for registration of transfer any
Common Stock bearing the legend contained in paragraph (a)(ii) above, except
upon presentation of satisfactory evidence that the restrictions on transfer
of the Common Stock referred to in the legend in paragraph (a)(i) have been
complied with, all in accordance with such reasonable regulations and
procedures as the Borrower may from time to time agree with the transfer agent
and registrar for the Common Stock.
ARTICLE VII
Miscellaneous
Section 7.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Note, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Lender and the Borrower, in the case of an amendment, or by
the party to be charged, in the case of a waiver or a consent, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 7.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and delivered to an officer of the other
party or mailed or transmitted by facsimile; if to the Lender to its address
at 9100 East Mineral Circle, Englewood, Colorado 80112-3299, Attention: Chief
Financial Officer (Fax No. 303-643-5269); if to the Borrower, to its address
at 9100 East Mineral Circle, Englewood, Colorado 80112-3299, Attention: Chief
Financial Officer (Fax No. 303-643-5505) or, as to each party, to such other
address as shall be designated by such party in a written notice to the other
party. All such notices and communications shall, when delivered to an officer
of the other party, be effective upon such delivery and, when mailed or
transmitted by facsimile, be effective when deposited in the mails or when
transmitted respectively, addressed as aforesaid; except that notices by the
Borrower to the Lender or by the Lender to the Borrower pursuant to the
provisions of Section 1.05 shall not be effective until received by the Lender
or the Borrower, as the case may be, but such notices may be given by
telephone and confirmed in writing or by facsimile on the same day and shall
be effective upon such telephonic notice.
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<PAGE>
Section 7.03. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under the Note,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder or under the Note preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
Section 7.04. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Borrower and the Lender and their respective successors
and assigns, except that (i) the Borrower shall not have the right, to assign
its rights hereunder or any interest herein except to a successor by merger,
consolidation or sale of all or substantially all of the Borrower's assets, in
each case if permitted under Section 4.07 above, without the prior written
consent of the Lender, and (ii) the Lender shall not assign any of its rights
or obligations hereunder or under the Note, except to a successor by merger,
consolidation or sale of substantially all of the Lender's assets without the
prior written consent of the Borrower.
Section 7.05. Use of Proceeds. The proceeds of the Loans shall be used by
the Borrower to finance increases in actual and projected capital expenditures
necessary to construct and develop the Fort Knox mine and to provide working
capital, and for general corporate purposes.
Section 7.06. Demand Registration Rights.
(i) At any time after the issuance of Common Stock pursuant to Section 1.07,
the Lender may make one or more written requests to the Borrower (a "Demand")
for registration under and in accordance with the provisions of the Securities
Act of all or part (but not less than 1,000,000 shares per Demand) of the
shares of Common Stock issued to the Lender pursuant to Section 1.07 of this
Agreement ("Registrable Shares"). Each such request shall specify the
aggregate number of Registrable Shares proposed to be registered and the
intended method of disposition thereof.
(ii) Upon receipt of a Demand, the Borrower shall use its best efforts to
effect such registration to permit the sale of Registrable Shares in
accordance with the intended method of disposition thereof and pursuant
thereto, the Borrower shall as expeditiously as possible:
(a) execute and deliver all such instruments and documents and do or
cause to be done all such other acts and things as may be necessary or, in
the opinion of the Lender, advisable to register such Registrable Shares
under the provisions of the Securities Act, and to use reasonable efforts
to cause the registration statement relating thereto to become effective
and to remain effective for such period as prospectuses are required by law
to be furnished, and to make all amendments and supplements thereto and to
the related prospectus which, in the opinion of the Lender, are necessary
or advisable, all in conformity with the requirements of the Securities Act
and the rules and regulations of the SEC applicable thereto;
(b) use its best efforts to qualify the Registrable Shares under the
applicable state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Registrable Shares, as requested
by the Lender, provided, that in no event shall the Borrower be obligated
to qualify to do business or file a general consent to service of process
in any jurisdiction;
(c) make available to the Lender, as soon as practicable, an earnings
statement that will satisfy the provisions of Section 11(a) of the
Securities Act; and
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Registrable Shares or any part thereof
valid and binding and in compliance with applicable law.
(iii) If any such Demand is made at a time when the Lender directly or
indirectly owns less than five percent 5% of the number of shares of Common
Stock outstanding, the Borrower may, if its Special Committee of its Board of
Directors determines in the good faith exercise of its reasonable judgment
that it would be inadvisable to effect a demand registration, defer such
demand registration until the earliest practicable time at which such demand
registration can be reasonably effected, which period shall not exceed three
(3) months.
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<PAGE>
(iv) All Registration Expenses incurred in connection with the first
registration statement to be filed hereunder shall be paid by the Borrower.
All Registration Expenses incurred in connection with each additional
registration statement to be filed hereunder shall be paid by the Lender. For
purposes of this Agreement, "Registration Expenses" shall mean any and all
expenses incident to performance of or compliance with this Section 7.06,
including, without limitation, (i) all SEC and stock exchange registration and
filing fees, (ii) all fees and expenses of complying with state securities or
"Blue Sky" laws (including fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Shares and determination of
the eligibility of the Registrable Shares for investment under the laws of
such jurisdiction as the Lender may indicate), (iii) all printing, messenger
and delivery expenses, (iv) all fees and expenses incurred in connection with
the listing of Registrable Shares on any exchange, and (v) the fees and
disbursements of counsel for the Borrower and of its independent public
accountants, but excluding underwriting discounts and commissions, brokerage
fees, transfer taxes, if any, fees and disbursements of counsel, accountants
or other experts or advisors to the Lender, and National Association of
Securities Dealers Inc. registration and filing fees.
Section 7.07. Fees and Expenses. The Borrower shall pay (i) all reasonable
out-of-pocket expenses of the Lender, including reasonable fees and
disbursements of special counsel for the Lender, in connection with the
preparation of this Agreement, any waiver or consent hereunder or any
amendment hereof or any default or alleged default hereunder and (ii) if an
Event of Default occurs, or upon the occurrence of an event that with notice
or the lapse of time or both would constitute an Event of Default, all
reasonable out-of-pocket expenses incurred by the Lender, including reasonable
fees and disbursements of counsel, in connection with such actual or potential
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings, actions or negotiations resulting therefrom. The Borrower shall
indemnify the Lender against any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery to the Lender of this Agreement, or any Note.
Section 7.08. Prior Agreement. This Agreement and the Note issued hereunder
shall supersede in their entirety any prior negotiations, discussions,
understandings or arrangements between the Lender and the Borrower pertaining
to the subject matter of this Agreement.
Section 7.09. Governing Law. This Agreement and the Note shall be governed
by, and construed in accordance with, the laws of the State of Colorado. IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
Amax Gold Inc.
By /s/ Mark A. Lettes
----------------------------------
TITLE: VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Attest:
/s/ Deborah J. Friedman
- -----------------------
SECRETARY
Cyprus Amax Minerals Company
By /s/ Francis J. Kane
----------------------------------
TITLE: VICE PRESIDENT INVESTOR
RELATIONS AND TREASURER
Attest:
/s/ Dale E. Huffman
- -----------------------
ASSISTANT SECRETARY
B-10
<PAGE>
EXHIBIT A
CREDIT NOTE
$250,000,000.00 Date: March 19, 1996
For Value Received, Amax Gold Inc., a Delaware corporation (the "Borrower"),
promises to pay to the order of Cyprus Amax Minerals Company, a Delaware
corporation (the "Lender"), upon demand by the Lender at the office of the
Lender located at 9100 East Mineral Circle, Englewood, Colorado 80112, or at
such other place as the Lender may direct in writing, in lawful money of the
United States of America and in immediately available funds, the principal
amount of Two Hundred Fifty Million Dollars ($250,000,000) or, if less than
such principal amount, the aggregate unpaid principal amount of all Loans made
by the Lender to the Borrower pursuant to Article I of the Agreement referred
to below in accordance with the respective Schedules applicable to such Loans
attached to and made part of this Note; provided, that to the extent that the
Borrower repays (including any prepayment) any principal amount of Loans in
Common Stock pursuant to and as defined in Section 1.07 of the Agreement prior
to the Expiration Date (as defined below), the Maximum Loan Amount shall
automatically be reduced by the amount of any Common Stock so issued, based
upon the value of such Common Stock at the time of issuance as determined in
accordance with Section 1.07 of the Agreement. The Lender shall have the right
to demand payment of the Loans at any time. Loans may be made to the Borrower
from time to time during the period that commences on the date hereof and ends
on the earlier of (i) December 31, 2001 or (ii) the date on which the Lender
notifies Borrower that Loans will no longer be made available hereunder (the
expiration date determined by (i) or (ii) is herein called the "Expiration
Date").
The Borrower further promises to pay interest at said office in like money,
from the date hereof on the unpaid principal amount hereof outstanding from
time to time, at the rates and at the times set forth in Article I of such
Agreement. Notwithstanding anything contained herein to the contrary, at the
election of the Lender, the principal of and interest on this Note may be paid
by the Borrower in Common Stock of the Borrower, in accordance with the
provisions of Section 1.07 of the Agreement, subject to satisfaction of the
conditions set forth in Section 1.08 of such Agreement.
This Note is the Note referred to in Section 1.02 of the Credit Agreement
between the Borrower and the Lender dated as of March 19, 1996, as the same
may hereafter from time to time be amended or supplemented in accordance with
the terms thereof ("Agreement"), is entitled to the benefits thereof and
subject to the terms and conditions set forth therein (including, without
limitation, the Lender's rights to accelerate the due date hereof) and may be
paid and prepaid as provided therein.
Upon the occurrence of any of the Events of Default specified in the
Agreement, all amounts then remaining unpaid on this Note may be declared to
be or shall automatically become immediately due and payable as provided
therein.
Amax Gold Inc.
By __________________________________
Attest:
_____________________________________
SECRETARY
B-11
<PAGE>
SCHEDULE OF LOANS AND PAYMENTS
MADE UNDER NOTE DATED MARCH 19, 1996
FROM AMAX GOLD INC.*
TO CYPRUS AMAX MINERALS COMPANY
Principal Amount of the Initial Loan:
$
Date of the Initial Loan:
Interest Rate for the Initial Loan:
PRINCIPAL BORROWINGS AND PAYMENTS OF THIS NOTE
<TABLE>
<CAPTION>
AMOUNT INTEREST PRINCIPAL UNPAID
DATE BORROWED RATE PAID PAID BALANCE
---- -------- ---- -------- --------- -------
<S> <C> <C> <C> <C> <C>
% $ $ $
% $ $ $
% $ $ $
% $ $ $
% $ $ $
% $ $ $
% $ $ $
% $ $ $
</TABLE>
- --------
* All terms used in this Schedule shall have the meanings given them in the
Agreement.
B-12
<PAGE>
APPENDIX C
AMAX GOLD INC.
9100 EAST MINERAL CIRCLE
ENGLEWOOD, COLORADO 80112
March 19, 1996
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Dear Sirs:
Reference is made to the Guaranty, dated the date hereof (the "Guaranty"),
by Cyprus Amax Minerals Company ("Cyprus Amax") in favor of N M Rothschild &
Sons Limited ("Rothschild"), in its capacity as the administrative agent for
the Lender Parties referred to in the Guaranty, a copy of which Guaranty is
attached to this letter as Exhibit A. Reference is also made to the Collateral
Sharing, Priority and Agency Agreement, dated as of March 19, 1996 (the
"Collateral Agreement"), among Cyprus Amax, Rothschild, LaSalle National
Trust, N.A., Amax Gold Inc. ("AGI"), Fairbanks Gold Mining, Inc., Lassen Gold
Mining, Inc., Melba Creek Mining, Inc. and Fairbanks Gold Canada Limited, a
copy of which Collateral Agreement is attached to this letter as Exhibit B.
In consideration of the execution and delivery by Cyprus Amax of the
Guaranty, AGI is entering into this letter agreement and undertaking the
obligations set forth below.
AGI hereby agrees to reimburse Cyprus Amax for (i) all payments made by
Cyprus Amax under the Guaranty, (ii) all reasonable out-of-pocket expenses of
Cyprus Amax, including reasonable fees and disbursements of counsel, incurred
in connection with the performance of Cyprus Amax's obligations under the
Guaranty, and (iii) all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the performance of
Cyprus Amax's obligations under the Guaranty. Any such reimbursement
obligation that arises shall be in the nature of a demand loan obligation
bearing interest as set forth in the immediately succeeding paragraph and
payable in cash (or such other consideration as may be agreed by AGI and
Cyprus Amax at the time of such payment) by AGI to Cyprus Amax within five (5)
Business Days (as defined in the Loan Agreement referred to in the Guaranty)
after receipt by AGI of a written notice of demand from Cyprus Amax.
Any such demand loan obligation shall bear interest at an annual rate equal
to the LIBOR Rate (as defined herein) for an interest period selected by
Cyprus Amax at its option for a period of one, three or six months, or such
other periods as are agreed between AGI and Cyprus Amax (each, an "Interest
Period"), plus 3.25% per annum, except as otherwise provided herein. Interest
on each amount shall be due and payable in full on the earlier of (i) last day
of the Interest Period applicable to such amount and (ii) the date upon which
Cyprus Amax demands that the amount be repaid, and, in the case of any
Interest Period in excess of three months, at the end of each calendar quarter
occurring during the term thereof. The term "LIBOR Rate" shall have the
meaning ascribed to it in the Revolving Credit Agreement, dated as of April
15, 1994, between Cyprus Amax and AGI, whether or not such Agreement shall
have been terminated at the time of such interest calculation. All
computations of interest hereunder shall be made by Cyprus Amax on the basis
of a year of 360 days, consisting of twelve 30-day months, for the actual
number of days (including the first day but excluding the last day) elapsed.
As security for the full and punctual payment when due of all obligations
arising under this letter agreement (including all such amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation
of Sections 502(b)
C-1
<PAGE>
and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Sections 502(b) and
506(b), and any other similar provisions arising under applicable law), AGI
hereby grants to Cyprus Amax a security interest in all of AGI's right, title
and interest, whether now existing or hereafter arising or acquired, in the
Collateral (as defined in the Collateral Agreement) in the form and manner
contemplated by the Collateral Agreement. AGI agrees to execute such documents
and to make such filings as shall be necessary and desirable in the opinion of
Cyprus Amax to perfect and protect the security interest granted hereby over
the Collateral as soon as practicable after the date hereof.
AGI agrees, if and to the extent requested by Cyprus Amax, to execute such
documents and to make such filings as shall be necessary to grant to Cyprus
Amax security interests in the Guanaco project and the Refugio project with
the highest priority permitted after giving effect to all prior security
interests in such projects, and subject to the receipt of any necessary
governmental and other approvals from third parties (including, without
limitation, the lenders to such projects).
AGI agrees to indemnify and hold harmless Cyprus Amax for any losses,
claims, damages or liabilities to which Cyprus Amax may become subject as a
result of executing or delivering the Guaranty or performing the obligations
contemplated thereby.
This letter shall be governed by and construed in accordance with the laws
of the State of Colorado.
Very truly yours,
Amax Gold Inc.
/s/ Mark A. Lettes
-------------------------------------
MARK A. LETTES
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Accepted and Acknowledged:
Cyprus Amax Minerals Company
/s/ Francis J. Kane
- -------------------------------------
FRANCIS J. KANE
VICE PRESIDENT AND TREASURER
C-2
<PAGE>
March 19, 1996
Cyprus Amax Minerals Company
9100 E. Mineral Circle
Englewood, Colorado 80112
Dear Sirs:
Reference is made to (i) the Guaranty (the "Guaranty"), dated the date
hereof, by Cyprus Amax Minerals Company ("Cyprus Amax") in favor of N M
Rothschild & Sons Limited, in its capacity as the administrative agent for the
Lender Parties referred to in the Guaranty, and (ii) the Credit Agreement,
dated as of the date hereof ("the Credit Agreement"), by and between Amax Gold
Inc. ("AGI") and Cyprus Amax. Copies of the Guaranty and Credit Agreement are
attached to this letter.
In consideration of the execution and delivery by Cyprus Amax of the
Guaranty and the Credit Agreement and in consideration of the obligation by
Cyprus Amax to maintain the Guaranty until the Fort Knox Economic Completion
Date (as defined in the Loan Agreement, as amended (the "Loan Agreement")),
AGI hereby agrees to pay to Cyprus Amax:
(i) an upfront fee (the "Upfront Fee") of $10,000,000 payable by AGI to
Cyprus Amax on any date after the date hereof upon Cyprus Amax' giving AGI
at least two (2) Business Days prior written notice of a demand for
payment; and
(ii) commitment fee (the "Commitment Fee") on each date upon which
accrued interest is payable under Section 3.2.3 of the Loan Agreement, or
such later date as Cyprus Amax may designate, equal to the product of (A)
the portion of the Guaranteed Obligations (as defined in the Guaranty)
constituting principal under the Loan Agreement to the extent that accrued
interest is due on such principal amount on such interest payment date
times (B) 1.75% per annum, on the basis and at the times that such interest
is calculated and due pursuant to the Loan Agreement.
AGI agrees to pay (i) all reasonable out-of-pocket expenses of Cyprus Amax,
including reasonable fees and disbursements of special counsel for Cyprus
Amax, in connection with the preparation of the Guaranty, any waiver or
consent thereunder or any amendment thereof and (ii) if Cyprus Amax is
required to make any payments under the Guaranty, all reasonable out-of-pocket
expenses of Cyprus Amax, including reasonable fees and disbursements of
counsel, in connection with any collection, bankruptcy, insolvency or other
enforcement proceedings, actions or negotiations resulting therefrom. AGI also
agrees to indemnify Cyprus Amax against any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution or delivery by Cyprus Amax of the Guaranty. The expenses, taxes and
other amounts set forth in this paragraph are hereinafter referred to as the
"Other Expenses". The Other Expenses shall be payable from time to time by AGI
to Cyprus Amax on any date after the date incurred upon Cyprus Amax' giving
AGI at least two (2) Business Days prior written notice of a demand for
payment.
At the election of Cyprus Amax, which may be exercised by its giving written
notice to AGI at least two (2) Business Days prior to the date upon which
payment of the Upfront Fee or the Other Expenses is demanded or a Commitment
Fee payment is due and subject to (i) the acceptance by the New York Stock
Exchange (the "NYSE") of a listing application for the issuance of shares of
Common Stock of AGI therefor and (ii) shareholder approval by the shareholders
of AGI as to such issuance, Cyprus Amax may request that the Upfront Fee, the
Other Expenses, the Commitment Fee or any part thereof shall be paid in shares
of Common Stock of AGI equal to (a) the dollar amount of the Upfront Fee, the
Other Expenses, the Commitment Fee or any part thereof demanded or due, as the
case may be, on such date divided by (b) the Average Market Price (as defined
below). The "Average Market Price" shall equal the average of the closing
prices of the Common Stock of AGI on the NYSE over the five (5) NYSE trading
days ending on the Business Day prior to the date upon which payment in Common
Stock of AGI is requested, provided, that such Average Market Price shall be
subject to adjustment for extraordinary dividends or distributions, stock
splits, stock dividends and similar capital events occurring during such five
(5) NYSE trading-day period.
C-3
<PAGE>
AGI further agrees that, until the occurrence of the Fort Knox Economic
Completion Date, AGI will not make any borrowing under the Revolving Credit
Agreement, dated April 15, 1994, by and between AGI and Cyprus Amax for
purposes other than making a payment of the Obligations under the Loan
Agreement without the prior written consent (subject to the DOCLOC Support
Agreement, dated February 14, 1995, between Cyprus Amax on the one hand and
AGI and N M Rothschild & Sons Limited and the other parties thereto on the
other hand, in respect of the Refugio project) of Cyprus Amax.
This letter shall be governed by and construed in accordance with the laws
of the State of Colorado.
Very truly yours,
Amax Gold Inc.
/s/ Mark A. Lettes
-------------------------------------
MARK A. LETTES
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Accepted and Acknowledged:
Cyprus Amax Minerals Company
/s/ Francis J. Kane
- -------------------------------------
FRANCIS J. KANE
VICE PRESIDENT AND TREASURER
C-4
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[LOGO OF AMAX GOLD INC. APPEARS HERE]
CONSENT SOLICITATION STATEMENT
DATED NOVEMBER 29, 1996
This Consent Solicitation Statement is being furnished to the stockholders
of Amax Gold Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of consents by the Company's Board of Directors (the "Board")
from holders of outstanding shares of the Company's common stock, par value
$.01 per share ("Common Stock"), on November 8, 1996 (the "Record Date").
This Consent Solicitation Statement and the form of Consent enclosed
herewith are being mailed to the stockholders of the Company on or about
December 3, 1996.
Stockholders are being asked to approve the acquisition (the "Acquisition")
by the Company from Cyprus Amax Minerals Company, a Delaware corporation
("Cyprus Amax"), of the Kubaka gold project located in the Magadan Region of
the Russian Federation ("Kubaka" or the "Kubaka Project"). The Company will
acquire all of the common stock of Cyprus Magadan Gold Corporation, a Delaware
corporation and an indirect wholly owned subsidiary of Cyprus Amax ("Cyprus
Magadan"). Cyprus Magadan has a 50% ownership interest in Omolon Gold Mining
Company, a Russian closed joint stock company ("Omolon"), which holds a
license to mine the Kubaka gold deposit and to explore and develop the
Evenskoye gold and silver deposit, both located in the Magadan Region of the
Russian Federation (the "License"). The purchase price will be payable by the
Company's issuance to Cyprus Amax of shares of its Common Stock as follows:
(i) 11,789,474 shares of Common Stock (the equivalent of approximately
$70 million, based on $5.9375 per share of Common Stock, the average
price per share for the ten trading days prior to October 17, 1995,
the date the Acquisition first was announced), to be issued upon
closing the Acquisition;
(ii) 4,210,526 shares of Common Stock (the equivalent of approximately
$25 million, based on $5.9375 per share of Common Stock), to be
issued within ten days after commencement of commercial production of
the Kubaka Project; and
(iii) a contingent payment in shares of Common Stock (a) equal to $10 per
gold equivalent ounce (up to a maximum of $45 million) of the
Company's pro rata share of proven and probable reserves in the event
the Company directly or indirectly acquires the right to mine other
deposits in the Russian Federation (outside the area covered by the
License and not covered by the terms of the Exploration Joint Venture
Agreement, effective January 1, 1994, between the Company and Cyprus
Amax) on or before June 30, 2004, and (b) valued at the average
closing price per share of Common Stock for the ten trading days
ending two business days before the date of payment (following the
later of the date the right to mine such deposits is awarded and the
date proven and probable reserves are established).
Stockholder approval shall include, but not be limited to, the authorization
and issuance to Cyprus Amax of the shares of Common Stock as payment for the
purchase price and as payment of amounts owed by Omolon to Cyprus Amax for
certain funding or financial support which the Company has agreed to repay to
Cyprus Amax under certain circumstances pursuant to the terms of the
Acquisition Agreement (the "Proposal").
Pursuant to the General Corporation Law of the State of Delaware ("Delaware
Law"), approval of the Proposal requires the consent of at least a majority of
the shares of Common Stock outstanding as of the Record Date. Abstentions and
broker non-votes will have the effect of withholding consent for the Proposal.
As of the Record Date, Cyprus Amax held approximately 51.2% of the outstanding
shares of Common Stock. The consent of Cyprus Amax will be sufficient to
approve the Proposal without the consent of any other stockholder. See
"BACKGROUND OF AND REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE
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SPECIAL COMMITTEE--Effects of the Proposal Upon Rights of Existing Holders of
Common Stock." Cyprus Amax has agreed to consent to the Proposal and has
advised the Company that Cyprus Amax will give its consent to the Proposal at
5:00 p.m., Mountain Time, on December 23, 1996 (the "Expiration Time"). Upon
receipt of the written consent of Cyprus Amax, the Proposal will be adopted.
Prior to the Expiration Time, consents may be revoked. Subsequent to the
Expiration Time, the Company will not consider any additional consents, and
consents previously delivered may not be revoked.
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THIS CONSENT SOLICITATION
STATEMENT, THE COMPANY WILL ACCEPT ALL WRITTEN CONSENTS FROM HOLDERS OF RECORD
ON THE RECORD DATE RECEIVED ON OR PRIOR TO THE EXPIRATION TIME (5:00 P.M.,
MOUNTAIN TIME, ON DECEMBER 23, 1996).
The Proposal is being submitted to stockholders for their consent to satisfy
a rule of the New York Stock Exchange (the "NYSE"), which requires the
approval of a majority of the consents received on the Proposal (provided that
the total consents received on the Proposal represents over 50% in interest of
the shares of Common Stock outstanding on the Record Date) as a prerequisite
to the listing of the Common Stock to be issued to Cyprus Amax in connection
with the Acquisition, on the basis that the Proposal contemplates that a
"tangible or intangible asset" is to be acquired directly or indirectly from a
substantial security holder of the Company (a holder of 5% or more of the
Company's outstanding shares of Common Stock) and the number of shares of
Common Stock to be issued in such transaction will exceed 1% of the number of
shares of Common Stock outstanding before such issuance. The Company's Common
Stock is also listed on the Toronto Stock Exchange (the "TSE"), and rules of
the TSE also require stockholder approval in certain circumstances.
The Company is engaged in the mining and processing of gold and silver ore
and in the exploration for and acquisition and development of gold-bearing
properties principally in North and South America and the Russian Federation.
The Company was incorporated in Delaware in April 1987 and is the surviving
corporation following a reincorporation merger effective June 1995. The
Company's principal offices are located at 9100 East Mineral Circle,
Englewood, Colorado 80112, and its telephone number is (303) 643-5500.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY CONCERNING THE PROPOSAL IF NOT
CONTAINED IN THIS CONSENT SOLICITATION STATEMENT, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS CONSENT SOLICITATION STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A CONSENT BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION. DELIVERY OF THIS CONSENT SOLICITATION STATEMENT SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR THEREIN SINCE THE DATE OF THIS CONSENT
SOLICITATION STATEMENT.
The date of this Consent Solicitation Statement is November 29, 1996.
2
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[MAP OF FAR EASTERN RUSSIA INDICATING THE LOCATION
OF THE KUBAKA PROJECT APPEARS HERE]
3
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
SUMMARY................................................................... 5
The Proposal............................................................. 5
The Company.............................................................. 5
Cyprus Amax.............................................................. 5
Relationship Between the Company and Cyprus Amax......................... 5
The Kubaka Project....................................................... 6
Background of and Reasons for the Acquisition............................ 7
Recommendation of the Special Committee.................................. 8
Opinion of Financial Advisor Regarding the Acquisition................... 8
Risks of Doing Business in the Russian Federation........................ 8
The Acquisition Agreement................................................ 10
Consent Solicitation..................................................... 12
Impact of Consent on Right to Challenge Transaction...................... 12
Effects of the Proposal Upon Rights of Existing Holders of Common Stock.. 13
STOCKHOLDER ACTION BY WRITTEN CONSENT..................................... 14
Recommendation of the Special Committee.................................. 14
Stockholder Approval..................................................... 14
Record Date.............................................................. 14
Consent Procedures; Revocation of Consents............................... 14
Impact of Consent on Right to Challenge Transaction...................... 14
Consents Required........................................................ 14
Cost of Solicitation..................................................... 15
MARKET PRICES OF THE COMPANY'S STOCK...................................... 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................... 16
CERTAIN TRANSACTIONS--RELATIONSHIP WITH CYPRUS AMAX....................... 17
Fort Knox Financing Arrangement.......................................... 17
Revolving Credit Agreements.............................................. 18
Stock Issuance Agreement................................................. 18
Exploration Joint Venture Agreement...................................... 18
Services Agreement....................................................... 19
Employee Transfer Agreement.............................................. 19
Net Operating Loss Agreement............................................. 19
Other Agreements......................................................... 19
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS.............................. 20
THE KUBAKA PROJECT........................................................ 21
The Kubaka Project....................................................... 21
Project History.......................................................... 21
Current and Planned Operations........................................... 21
Geology.................................................................. 22
Evenskoye Deposit........................................................ 22
Ore Reserves............................................................. 23
Mineral Deposits......................................................... 23
The Legal Regime for Gold Mining in Russia............................... 23
License for the Right to Use the Subsurface.............................. 24
Environmental Regulations................................................ 25
Project Permits and Approvals............................................ 25
Omolon and Project Ownership............................................. 26
Royalties, Taxes and Other Government Payments........................... 28
Project Financing........................................................ 29
Gold Sales Arrangements.................................................. 34
Political Risk Insurance................................................. 36
North Vein Agreement..................................................... 36
</TABLE>
<TABLE>
<CAPTION>
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<S> <C>
THE ACQUISITION AGREEMENT................................................. 37
General.................................................................. 37
Effective Time........................................................... 37
Purchase Price........................................................... 37
Assumption of Obligations and Indemnification............................ 38
Project Liquidity Needs.................................................. 38
Representations and Warranties........................................... 39
Covenants................................................................ 39
Conditions............................................................... 39
Costs.................................................................... 39
Termination.............................................................. 39
Accounting and Tax Treatment............................................. 39
BACKGROUND OF AND REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE
SPECIAL COMMITTEE........................................................ 40
Background............................................................... 40
Reasons for the Acquisition; Recommendation of the Special Committee..... 44
Additional Considerations of the Special Committee....................... 45
Opinion of Financial Advisor Regarding the Acquisition................... 49
Consent of Cyprus Amax; Intention of the Directors and Executive
Officers................................................................ 54
Effects of the Proposal Upon Rights of Existing Holders of Common Stock.. 54
SELECTED FINANCIAL AND PRO FORMA DATA
FOR THE COMPANY.......................................................... 56
THE RUSSIAN FEDERATION.................................................... 57
Political Structure and Political Developments........................... 57
Economic Conditions...................................................... 58
Social Conditions........................................................ 60
Legal Environment........................................................ 60
Organized Crime.......................................................... 60
Foreign Investments...................................................... 61
Taxation................................................................. 61
Repatriation and Exchange Controls....................................... 61
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............................... 62
Common Stock............................................................. 62
Preferred Stock.......................................................... 62
PROPOSALS FOR 1997 ANNUAL MEETING......................................... 66
AVAILABLE INFORMATION..................................................... 66
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 66
APPENDIX A--Acquisition Agreement
APPENDIX B--Opinion of Salomon Brothers Inc
APPENDIX C--Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations
</TABLE>
4
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SUMMARY
The following summary is not intended to be complete and is qualified in all
respects by the more detailed information included in this Consent Solicitation
Statement and the Appendices hereto. Stockholders are urged to read carefully,
in its entirety, this Consent Solicitation Statement, including the Appendices
hereto.
THE PROPOSAL
Stockholders are being asked to approve the Acquisition by the Company from
Cyprus Amax of the Kubaka Project located in the Magadan Region of the Russian
Federation ("Russia" or the "Russian Federation"). The Company will acquire all
of the common stock of Cyprus Magadan. Cyprus Magadan has a 50% ownership
interest in Omolon, a Russian closed joint stock company which holds the
License to mine the Kubaka gold deposit and to explore and develop the
Evenskoye gold and silver deposit, both located in the Magadan Region of
Russia. The purchase price will be payable by the Company's issuance to Cyprus
Amax of shares of its Common Stock as follows:
(i) 11,789,474 shares of Common Stock to be issued upon closing the
Acquisition;
(ii) 4,210,526 shares of Common Stock to be issued within ten days of
commencement of commercial production of the Kubaka gold property; and
(iii) a contingent payment in shares of Common Stock (a) equal to $10 per
gold equivalent ounce (up to a maximum of $45 million) of the Company's pro
rata share of proven and probable reserves in the event the Company
directly or indirectly acquires the right to mine other deposits in the
Russian Federation (outside the area covered by the License and not covered
by the Exploration JV Agreement) on or before June 30, 2004, and (b) valued
at the average closing price per share of Common Stock for the ten trading
days ending two business days before the date of payment (following the
later of the date the right to mine such deposits is awarded and the date
proven and probable reserves are established).
Stockholder approval shall include, but not be limited to, the authorization
and issuance to Cyprus Amax of the shares of Common Stock as payment for the
purchase price and as payment of amounts owed by Omolon to Cyprus Amax for
certain funding and financial support which the Company has agreed to repay to
Cyprus Amax under certain circumstances pursuant to the terms of the
Acquisition Agreement (the "Proposal").
THE COMPANY
The Company is engaged in the mining and processing of gold and silver ore
and in the exploration for and acquisition and development of gold-bearing
properties principally in North and South America and the Russian Federation.
CYPRUS AMAX
Cyprus Amax is a diversified mining company engaged in the exploration for
and the extraction, processing and marketing of mineral resources, primarily
copper, molybdenum, coal, lithium and gold.
RELATIONSHIP BETWEEN THE COMPANY AND CYPRUS AMAX
As of November 27, 1996, Cyprus Amax owned 52,132,655 shares or approximately
52.5% of the outstanding shares of Common Stock of the Company. Directors and
officers of Cyprus Amax comprise four of the seven members of the Company's
Board. Milton H. Ward, Chairman of the Board of Directors and Chief Executive
Officer of the Company, is Chairman of the Board of Directors, President and
Chief Executive Officer of Cyprus Amax; Gerald J. Malys, a director of the
Company, is Senior Vice President and Chief Financial
5
<PAGE>
Officer of Cyprus Amax; and Allen Born and Rockwell A. Schnabel, directors of
the Company, are also directors of Cyprus Amax. The seven members of the
Company's Board of Directors beneficially own in the aggregate approximately
1,291,513 shares, or less than 2%, of the outstanding shares of common stock of
Cyprus Amax.
Cyprus Amax is party to a number of contracts with the Company, including a
demand loan facility for $250 million, a convertible line of credit of $100
million, a Stock Issuance Agreement, an Exploration Joint Venture Agreement, a
Services Agreement, an Employee Transfer Agreement and a Net Operating Loss
Agreement. See "CERTAIN TRANSACTIONS--RELATIONSHIP WITH CYPRUS AMAX."
THE KUBAKA PROJECT
The Kubaka Project is a development stage, open pit, mill recovery, gold
mining project located in the Magadan Region of the Russian Far East,
approximately 200 miles south of the Arctic Circle and 600 miles northeast of
the major port city of Magadan. Cyprus Magadan holds an indirect 50% interest
in the Kubaka Project through its 50% ownership in Omolon Gold Mining Company,
a Russian closed joint stock company. Cyprus Magadan supplies managerial,
technical and administrative services for the Kubaka Project.
Reserves and Planned Operations. The Kubaka Project has proven and probable
reserves of approximately 5.5 million tons of ore with an average grade of
approximately 0.46 ounces of gold per ton, containing approximately 2.5 million
ounces of gold as well as significant silver reserves. The construction of
roads and facilities and the pre-stripping of the mine have been substantially
completed. The mill, construction of which has been substantially completed, is
planned to process approximately 1,930 tons of ore per day. Based on currently
available information, the estimated gold recovery rate is approximately 97%,
the estimated cash production costs are approximately $185 to $195 per ounce
(including royalties and taxes), and commercial production is scheduled to
commence late in the first quarter of 1997.
Project Financing. Based on progress to date, the total capital costs of the
Kubaka Project are estimated to be $228 million. The shareholders of Omolon
have made equity contributions in the aggregate amount of $80 million ($40
million from Cyprus Magadan and $40 million from the Russian shareholders). An
additional $6 million of equity capital will be provided by Cyprus Magadan and
the Russian shareholders in equal contributions (with Cyprus Magadan permitted
to make all or part of its contribution in kind).
Debt financing for the Kubaka Project of $100 million in the aggregate has
been borrowed from the European Bank for Reconstruction and Development
("EBRD") and the Overseas Private Investment Corporation, an agency of the US
government ("OPIC" and together with EBRD, the "Project Lenders") pursuant to
the Loan Agreement, dated as of June 30, 1995, between Omolon and EBRD (the
"EBRD Loan Agreement"), and the Finance Agreement, dated as of June 30, 1995,
between Omolon and OPIC (the "OPIC Loan Agreement" and together with the EBRD
Loan Agreement, the "Project Loan Agreements" or the "Project Loans"). Omolon
currently is negotiating amendments to the Project Loan Agreements providing
for an additional $30 million of borrowing ($15 million from each of EBRD and
OPIC). See "THE KUBAKA PROJECT--Project Financing." The Project Loans can be
borrowed in two tranches that bear interest at rates typical for financings of
the type obtained by Omolon. The rate under the EBRD Loan Agreement is based on
the London Inter-Bank Offered Rate ("LIBOR") and under the OPIC Loan Agreement
is based on a U.S. Treasury rate. The Project Loans are payable beginning
December 15, 1997 and ending December 15, 2001 and are subject to certain
prepayment penalties. Cyprus Magadan and Cyprus Amax each have guaranteed
Omolon's repayment of the Project Loans until the Kubaka Project meets required
completion tests. The Project Loans also are secured by the assets and stock of
Omolon and other security arrangements, including certain support agreements of
Cyprus Magadan and Cyprus Amax. See "THE ACQUISITION AGREEMENT--Assumption of
Obligations and Indemnification" and "THE KUBAKA PROJECT--Project Financing."
6
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Omolon also has arranged for $14 million of subordinated debt from a bank
licensed to do business in Russia, which debt also will be guaranteed by Cyprus
Amax (the "Subordinated Loan"). The Company has agreed to reimburse Cyprus Amax
for any payments it makes pursuant to such guaranty. Omolon also has agreed, to
the extent permissible under the Project Loans without requiring any prepayment
of the outstanding Project Loans, that if actual capital costs related to the
construction and start-up of the Kubaka Project are less than the estimated
$228 million, then a portion of the Subordinated Loan equal to the difference
will be prepaid by Omolon (or if Omolon fails to so prepay, by the Company). In
addition, Omolon is discussing a potential working capital line of credit of as
much as $20 million from a bank licensed to do business in Russia (a "Working
Capital Line of Credit") to finance the purchase of operating supplies for 1997
and transportation of such supplies over the winter ice road. See "THE
ACQUISITION AGREEMENT--Project Liquidity Needs" and "THE KUBAKA PROJECT--
Project Financing."
Political Risk. Cyprus Amax has made arrangements in an attempt to mitigate
the political risks of doing business in the Russian Federation with respect to
the Project Loans by obtaining the right to terminate the guaranties of Cyprus
Magadan and Cyprus Amax upon satisfaction of certain completion tests and
financial ratios and by obtaining the further right to terminate such
guaranties prior to completion upon a determination that a Qualified Political
Event (as defined in the guaranty of Cyprus Magadan) has occurred. See "THE
KUBAKA PROJECT--Project Financing." Additionally, Cyprus Amax has obtained
political risk insurance coverage for $36 million (plus additional standby
coverage) of its equity investment in the Kubaka Project, and it is a condition
to closing that such coverage be assigned to the Company. In order to terminate
such guaranties prior to completion and/or obtain payment under such insurance
coverage, the shares of Cyprus Magadan common stock and Cyprus Magadan's
interest in the Kubaka Project would need to be surrendered to OPIC. See "THE
KUBAKA PROJECT--Political Risk Insurance."
Royalties and Taxes. The Kubaka Project is subject to a minimum royalty
burden payable to Russian governmental agencies of approximately 11.8% of
revenues. The Company is negotiating to reduce its royalty burden in accordance
with Russian Government Decree No. 1007, dated August 26, 1996, which reduces
the royalty rate for gold to a range of 2% to 4%. In addition, based on planned
production, the Kubaka Project will have an estimated average Russian tax
burden of approximately $20 million per year.
Evenskoye Deposit. Omolon also has the right to explore and, subsequently, to
develop the Evenskoye deposit, located approximately 180 miles from the Kubaka
Project. The License requires Omolon to complete exploration activities, a
feasibility study and its assessment of the reserves for the Evenskoye deposit
prior to December 31, 1998. See "THE KUBAKA PROJECT--License for the Right to
Use the Subsurface."
BACKGROUND OF AND REASONS FOR THE ACQUISITION
Since 1994, the Company has discussed acquiring the Kubaka Project from
Cyprus Amax. The Company became involved in the operations at the project in
January 1995, and the Company commenced negotiations regarding the terms and
conditions of the Acquisition during the summer of 1995. On September 22, 1995,
the Board delegated power and authority to negotiate the terms of the
Acquisition and, if appropriate, to approve the Proposal and to recommend it to
the Company's stockholders, to a special committee composed of the members of
the Board who are not affiliates of Cyprus Amax or officers or employees of the
Company (the "Special Committee"). From the summer of 1995 through January
1996, management of the Company met with representatives of Cyprus Amax to
negotiate the terms of the Acquisition, including the payment of the purchase
price, and the Special Committee met several times to discuss the proposed
acquisition of the Kubaka Project.
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On January 24, 1996, the Special Committee determined that the Proposal was
fair and approved the Acquisition, and the parties executed the original
acquisition agreement. Finalization of the transaction was delayed, however, as
a result of increases in capital costs and delays in project development. After
an evaluation of project capital costs, it was determined that the required
capital would increase from an estimated $180 million to $228 million.
Financing for the capital cost shortfall is being arranged.
The Special Committee met several times from February through October 1996 to
consider the increased capital costs for the Kubaka Project and changes to the
terms of the Acquisition. In the course of those meetings, the Special
Committee re-evaluated and again approved the Acquisition and the issuance of
the shares of Common Stock to Cyprus Amax. In October 1996 Cyprus Amax and the
Company amended the terms of the original acquisition agreement. See "THE
ACQUISITION AGREEMENT."
In the course of its deliberations, the Special Committee considered the
potential benefits and risks of proceeding with the Acquisition. The Special
Committee considered as beneficial the Kubaka Project's proven and probable
reserves of approximately 2.5 million contained ounces of gold, the prearranged
equity and debt financing, the advanced stage of development of the project and
the access to exploration opportunities in the region provided by the Kubaka
Project. The Special Committee also considered the risks inherent in doing
business in the Russian Federation and the specific risks associated with the
Acquisition. For further information on the background of the transaction and
the factors considered by the Special Committee, see "BACKGROUND OF AND REASONS
FOR THE ACQUISITION; RECOMMENDATION OF THE SPECIAL COMMITTEE."
RECOMMENDATION OF THE SPECIAL COMMITTEE
The Special Committee of the Board, composed of the members of the Board who
are not affiliates of Cyprus Amax or officers or employees of the Company, was
delegated the power and authority to negotiate the terms of the Acquisition and
to approve or disapprove the Proposal. The Special Committee, acting on behalf
of the Board, believes that the Proposal is fair to and in the best interests
of all stockholders and recommends that stockholders consent to the Proposal.
See "BACKGROUND OF AND REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE
SPECIAL COMMITTEE."
OPINION OF FINANCIAL ADVISOR REGARDING THE ACQUISITION
Salomon Brothers Inc ("Salomon Brothers") has delivered its written opinion
dated October 9, 1996 to the Special Committee of the Board to the effect that,
as of such date, the consideration payable by the Company in connection with
the Acquisition is fair, from a financial point of view, to the Company's
stockholders, exclusive of Cyprus Amax and its affiliates. See "BACKGROUND OF
AND REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE SPECIAL COMMITTEE--
Opinion of Financial Advisor Regarding the Acquisition."
The opinion of Salomon Brothers is attached as Appendix B to this Consent
Solicitation Statement and is incorporated herein by reference.
RISKS OF DOING BUSINESS IN THE RUSSIAN FEDERATION
Foreign companies conducting operations in the Russian Federation face
significant political, economic, currency, legal and social risks. These risks
are highlighted below and discussed in further detail in "BACKGROUND OF AND
REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE SPECIAL COMMITTEE--Risks of
Doing Business in the Russian Federation" and "THE RUSSIAN FEDERATION."
8
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Political Risks. The Russian Federation emerged in 1991 from the former
Soviet Union as an independent state. The politics of the Russian Federation
have been characterized by considerable instability and uncertainty. Although
reform-minded parties, including one sponsored by the Government, lost ground
to anti-reform parties in the December 1995 elections for the Federal Assembly,
President Yeltsin won another four-year term in the June/July 1996 presidential
elections. President Yeltsin's health is generally viewed as poor. In the event
of Yeltsin's death in office, the Russian Constitution provides that he will be
succeeded by the prime minister, who has three months in which to organize new
presidential elections. If changes in policy that are hostile to foreign
investment or that alter laws regulating gold occur, such changes could have a
material adverse effect on the Kubaka Project.
Currency Risks. The value of the Russian rouble, as reflected in the exchange
rate against the US dollar, has fluctuated significantly in the past. The rate
of rouble decline against the dollar has decreased significantly since the
introduction in July 1995 of the so-called "rouble corridor," under which the
rouble/dollar exchange rate was permitted to fluctuate within a given range.
The "rouble corridor" has been replaced by a "crawling peg" mechanism, which
has had a similarly stabilizing effect. In addition to the risks associated
with the rouble/dollar exchange rate not keeping pace with inflation, there is
also a risk of inadequate supplies of roubles resulting in delays in payment
for rouble denominated obligations in the Russian Federation.
The Kubaka Project and its financing arrangements have been structured in an
attempt to mitigate against currency risks. Omolon will receive payment for
gold from the Russian authorities prior to delivery and at then current London
gold prices. Such payments are payable 50% in dollars and 50% in roubles at
then current rouble/dollar exchange rates. The anticipated rouble payments are
expected to be roughly equivalent to the Kubaka Project's rouble expenses. In
addition, Omolon is permitted to export rather than sell its gold to the
Russian authorities in the event the Russian authorities decline to purchase or
fail to pay for gold and under certain other circumstances. See "THE KUBAKA
PROJECT--Project Financing" and "THE KUBAKA PROJECT--Gold Sales Arrangements."
An investment in the Kubaka Project does face currency related risks, which
could be significant in the event of inflation if expenses denominated in
roubles exceed anticipated rouble payments or if new restrictions on
convertibility are introduced.
Economic Risks. Until 1991, the economy of Russia was administered by the
central authorities of the former Soviet Union. Confronted with the collapse of
those authorities and the command economy they managed, and the resulting
economic crisis, the Russian Government has been attempting to implement
policies of economic reform and stabilization. While these policies have met
with some success, notably the implementation of the mass privatization
program, the economy of Russia has been characterized by inflation, high levels
of taxation, unstable fiscal policy, legal uncertainty and the possibility of
the collapse of certain sectors of the economy. Furthermore, since gold is of
national monetary significance, policies affecting gold could be particularly
sensitive to a major economic crisis.
Legal Risks. As part of the effort to transform its command economies into
market economies, the Russian Government has rapidly introduced laws,
regulations and legal structures intended to give participants in the economy a
greater degree of confidence in the legal validity and enforceability of their
obligations. The lack of consensus about the scope, content and pace of
economic and political reform and the speed with which legislation has been
drafted has resulted in legislation that is ambiguous and, in many instances,
has left key issues unresolved. No assurance can be given that the
uncertainties associated with the existing and future laws and regulations of
Russia will not have a material adverse effect on the Kubaka Project.
Social Risks. The political and economic changes in Russia in recent years
have resulted in significant dislocations, as existing structures of authority
have collapsed and new ones are only beginning to take shape. Significant
organized criminal activity also is reported to have arisen.
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THE ACQUISITION AGREEMENT
The Company will acquire Cyprus Magadan pursuant to an Agreement and Plan of
Reorganization, dated as of January 24, 1996, and as amended by the Amended and
Restated Agreement and Plan of Reorganization, dated October 9, 1996 (as
amended, the "Acquisition Agreement"), among the Company, Amax Russia
Corporation, a Delaware corporation and wholly owned subsidiary of the Company
("Amax Russia"), Cyprus Amax, Cyprus Magadan and Cyprus Gold Company, a
Delaware corporation and wholly owned subsidiary of Cyprus Amax ("Cyprus
Gold").
The following description of the Acquisition Agreement does not purport to be
complete and is qualified in its entirety by reference to the Acquisition
Agreement, a copy of which is attached hereto as Appendix A and incorporated
herein by reference.
Purchase Price. The purchase price has three components. At the closing of
the Acquisition, the Company will transfer to Cyprus Amax 11,789,474 shares of
Common Stock (the "Closing Shares"). Within ten days following the commencement
of commercial production, the Company will transfer to Cyprus Amax an
additional 4,210,526 shares of Common Stock (the "Production Shares"). The date
of the commencement of commercial production is the date upon which the Kubaka
Project ceases to capitalize start-up costs and begins to expense operating
costs.
In addition, the Company is required to make contingent payments in Common
Stock (the "Contingent Payment Shares") to Cyprus Amax with respect to the
Company's share of new mineral deposits in the Russian Federation acquired
directly or indirectly by the Company prior to June 30, 2004, other than (i)
deposits any portion of which are located within the boundaries described in
the License of Omolon or (ii) deposits acquired pursuant to the Exploration JV
Agreement ("Additional Deposits"). As payment for an Additional Deposit, the
Company will issue the number of Contingent Payment Shares, valued at the
average price per share of Common Stock for the ten trading days ending two
business days before the date of payment, as are equal to each Additional
Deposit's Reserve Value (defined as $10 per gold equivalent ounce of the
Company's pro rata share of the Additional Deposit's proven and probable
reserves established by a feasibility study), up to a maximum aggregate value
of $45 million. The Contingent Payment Shares are required to be delivered to
Cyprus Amax within ten business days following the later of the date upon which
the Company acquires the right to mine such deposit and the date upon which the
reserves are established.
Based on $5.9375 per share of Common Stock, the average price per share of
Common Stock for the ten trading days prior to October 17, 1995, the date the
Acquisition first was announced, the aggregate consideration payable to Cyprus
Amax for the Kubaka Project would have a value of approximately $95 million,
plus up to an additional $45 million if reserves at new properties in the
Russian Federation are acquired.
Assumption of Obligations and Indemnification. The Company has agreed to
assume substantially all of the obligations of Cyprus Amax under each of the
Cyprus Amax Support Agreement and the Reclamation Agreement (defined below) and
to pledge its shares of Cyprus Magadan to the Project Lenders. However, Cyprus
Amax has agreed to remain liable under the Guaranty Agreement, dated June 30,
1995, as amended, between Cyprus Amax and the Project Lenders and to fund any
payments due from Cyprus Magadan to the Project Lenders under the Cyprus Amax
Support Agreement or the Guaranty Agreement, dated June 30, 1995, as amended,
between Cyprus Magadan and the Project Lenders. (The Cyprus Amax guaranty of
the Project Loans is referred to herein as the "Cyprus Amax Guaranty"). Omolon
will remain obligated to make repayments under the Project Loans.
10
<PAGE>
In addition, the Company is required to indemnify Cyprus Amax for payments
made by Cyprus Amax under the Cyprus Amax Guaranty in the event of a default
under the Project Loan Agreements or the Cyprus Amax Support Agreement caused
by the gross negligence or willful misconduct of the Company. In the event
Cyprus Amax is obligated to make a payment under the Cyprus Amax Guaranty at a
time when the Company has concluded that the continued operation of Kubaka
Project would have a material adverse effect on the Company, the Company has
the right to offer to transfer its interest in Cyprus Magadan to Cyprus Amax.
In the event Cyprus Amax accepts the Cyprus Magadan shares, Cyprus Amax is
obligated to indemnify the Company in connection with any obligations under the
Cyprus Amax Support Agreement, the Reclamation Agreement and the Subordinated
Loan. If Cyprus Amax rejects the shares of Cyprus Magadan, the Company retains
its obligations under the Reclamation Agreement and the Subordinated Loan but
is released from its obligations to Cyprus Amax under the Cyprus Amax Support
Agreement, absent any prior gross negligence or willful misconduct of the
Company. Cyprus Amax also will guarantee the Subordinated Loan, and the Company
has agreed to reimburse Cyprus Amax for any payments Cyprus Amax makes under
the Subordinated Loan.
Cyprus Amax has agreed to indemnify the Company for losses resulting from
Cyprus Amax's failure to prevent defaults from occurring under certain
provisions of the Project Loan Agreements (including any failure by Cyprus Amax
to maintain an investment grade credit rating or to continue to own indirectly
at least 50% of Omolon).
Project Liquidity Needs. Cyprus Amax has funded, and will continue to fund
until the closing of the Acquisition, a portion of Omolon's costs to purchase
and deliver operating supplies needed for 1997. The Company has agreed to use
its commercially reasonable efforts to cause Omolon to reimburse Cyprus Amax
for such expenditures or, if such efforts fail, to reimburse Cyprus Amax
directly.
In the event Omolon faces additional unfunded liquidity needs, the Company
has agreed to seek subordinated shareholder loans from the Russian shareholders
of Omolon and from Cyprus Magadan and/or additional third party financing, or
the Company may contribute funds. If the Company does not fund such liquidity
needs, Cyprus Amax will have the right to fund such liquidity needs by making a
short-term, unsecured loan to Omolon, repayable in six months on commercially
reasonable terms. If the total of such loans exceeds $5 million or if any loan
is not repaid in six months, then Cyprus Amax may convert the short-term
unsecured loan to a term loan that is guaranteed by the Company. The Company
may satisfy its obligation to make any payment under such guaranty in cash or,
if Cyprus Amax agrees, by issuing shares of Common Stock. Stockholder approval
of the issuance of shares of Common Stock pursuant to the Acquisition Agreement
includes approval of the issuance of shares of Common Stock pursuant to such
guaranty.
Representations and Warranties. The Acquisition Agreement contains customary
representations and warranties. Cyprus Amax has made certain additional
representations and warranties concerning Omolon environmental matters and the
absence of defaults under the Project Loan Agreements.
Covenants. Each of the Company and Cyprus Amax has agreed to obtain all
necessary consents and approvals and to provide the other party with full
access to information needed in connection with such party's investigation.
Pending closing, the parties have agreed to cause Cyprus Magadan and Omolon to
conduct business only in the ordinary course. Cyprus Amax has agreed to use
commercially reasonable efforts to obtain the additional $30 million of
financing from the Project Lenders and to implement the Subordinated Loan; to
maintain the gold sales arrangements; to obtain the additional $6 million of
equity contributions from the shareholders of Omolon; and to consent to the
Acquisition and issuance of shares of Common Stock in accordance with the
Acquisition Agreement.
11
<PAGE>
Conditions. The Acquisition Agreement requires customary conditions to
closing to be satisfied or waived. The obligations of the Company and Amax
Russia are conditioned on the fulfillment of certain additional closing
conditions, including: (i) approval of the Acquisition by the stockholders of
the Company; (ii) satisfaction or waiver of all of the conditions precedent to
the making of loans under the Project Loan Agreements, including the additional
financing being negotiated; (iii) maintenance of the gold sales arrangements;
(iv) finalization of the North Vein Agreement (defined below); (v) assignment
of the political risk insurance coverage obtained from OPIC by Cyprus Amax to
the Company; (vi) the absence of a material adverse change in the Kubaka
Project; (vii) receipt of any necessary governmental consents or approvals; and
(viii) the completion of the $14 million Subordinated Loan and $6 million of
additional equity contributions.
Termination. The Acquisition Agreement may be terminated (i) at any time
before closing by mutual written agreement of Cyprus Amax and the Company; (ii)
by Cyprus Amax or the Company, in the event (a) there is a material breach of
the Acquisition Agreement or (b) the satisfaction of any conditions becomes
impossible or impracticable with the use of commercially reasonable efforts; or
(iii) by Cyprus Amax or the Company at any time after March 31, 1997 if the
closing has not occurred on or before such date.
The Acquisition Agreement is attached as Appendix A to this Consent
Solicitation Statement and is incorporated herein by reference.
CONSENT SOLICITATION
This Consent Solicitation Statement is being furnished to stockholders in
connection with the solicitation of written consents by the Board from holders
of outstanding shares of Common Stock. The Board has set November 8, 1996 as
the Record Date for determining the stockholders of record whose written
consent is to be solicited. Only stockholders of record at the close of
business as of the Record Date will be entitled to consent to the Acquisition.
Approval of the Proposal requires the consent of at least a majority of the
shares of Common Stock outstanding as of the Record Date. Abstentions and
broker non-votes will have the effect of withholding consent for the Proposal.
As of the Record Date, Cyprus Amax owned approximately 51.2% of the
outstanding shares of Common Stock of the Company. The consent of Cyprus Amax
will be sufficient to approve the Proposal without the consent of any other
stockholder. Cyprus Amax has agreed to consent to the Proposal and has advised
the Company that Cyprus Amax will deliver its written consent at the Expiration
Time (5:00 p.m., Mountain Time, on December 23, 1996). Upon receipt of the
written consent of Cyprus Amax, the Proposal will be adopted. Prior to the
Expiration Time, consents may be revoked. Subsequent to the Expiration Time,
the Company will not consider any additional consents and consents previously
delivered may not be revoked.
The directors and executive officers of the Company (with four of the seven
directors and one of the eight executive officers being directors and/or
executive officers of Cyprus Amax), holding in the aggregate less than 1% of
the shares of Common Stock as of the Record Date, have advised the Company that
they intend to give their written consent to the Proposal.
Written consents must be signed, dated and received by the Company prior to
the Expiration Time. If a stockholder submits a consent form which fails to
indicate whether the stockholder does or does not consent to the Proposal, the
stockholder shall be deemed to have consented to the Acquisition. A stockholder
who signs and returns the enclosed consent may revoke it by a written
revocation delivered to Georgeson & Company Inc. ("Georgeson") any time before
the Expiration Time. Consents will be tabulated by Georgeson. THERE WILL BE NO
MEETING AT WHICH STOCKHOLDERS MAY VOTE IN PERSON.
IMPACT OF CONSENT ON RIGHT TO CHALLENGE TRANSACTION
If a stockholder consents to the Proposal, such consent may limit the right
of the stockholder to challenge the transaction in the future.
12
<PAGE>
EFFECTS OF THE PROPOSAL UPON RIGHTS OF EXISTING HOLDERS OF COMMON STOCK
Assuming the issuance of the shares of Common Stock to Cyprus Amax under the
Acquisition Agreement as proposed in this Consent Solicitation Statement
(omitting any Contingent Payment Shares potentially issuable under the
Acquisition Agreement), the percentage of the Company's voting securities owned
of record by existing holders of shares of Common Stock, other than Cyprus
Amax, will be reduced significantly. The Proposal, if approved by stockholders,
would reduce the ownership interest of existing holders of outstanding shares
of Common Stock, other than Cyprus Amax, to approximately 40.9% (assuming
issuance of both the Closing Shares and the Production Shares) or 42.5%
(assuming issuance of only the Closing Shares) and increase Cyprus Amax's
record ownership to approximately 59.1% or 57.5%, respectively, of the
outstanding shares of Common Stock.
As a result of Cyprus Amax's rights under existing agreements that permit the
issuance of Common Stock in lieu of outstanding indebtedness and other
obligations, Cyprus Amax is deemed to be the beneficial owner of 64,983,326
shares or approximately 57.9% of the shares of Common Stock (in addition to
approximately 18.3 million shares that Cyprus Amax could have elected to be
issued on November 29, 1996 under the terms of the Fort Knox Financing
Arrangements, described below). If stockholders approve the Proposal, Cyprus
Amax's beneficial ownership of the shares of Common Stock would increase to
approximately 63.2% (assuming issuance of both the Closing Shares and the
Production Shares) or 61.9% (assuming issuance of only the Closing Shares), in
each case, omitting any Contingent Payment Shares potentially issuable under
the Acquisition Agreement. Cyprus Amax's ownership is subject to further
increase in the event the Company elects to satisfy certain potential
obligations to make payments by issuing shares of its Common Stock pursuant to
the Company's agreement to guarantee loans by Cyprus Amax in the event Omolon
has liquidity needs in the future. See "--THE ACQUISITION AGREEMENT--Project
Liquidity Needs."
The percentage of the Company's voting securities owned by existing holders
of shares of Common Stock, other than Cyprus Amax, may be reduced significantly
depending on the number of shares that are issued to Cyprus Amax under the Fort
Knox Financing Arrangement. See "CERTAIN TRANSACTIONS--RELATIONSHIP WITH CYPRUS
AMAX--Fort Knox Financing Arrangement" and "BACKGROUND OF AND REASONS FOR THE
ACQUISITION; RECOMMENDATION OF THE SPECIAL COMMITTEE--Effects of the Proposal
Upon Rights of Existing Holders of Common Stock."
Cyprus Amax, as the holder of greater than 50% of the outstanding shares of
Common Stock, will continue to be able to elect all the directors of the
Company and to direct corporate policy.
13
<PAGE>
STOCKHOLDER ACTION BY WRITTEN CONSENT
RECOMMENDATION OF THE SPECIAL COMMITTEE
On September 22, 1995, the Board delegated to the Special Committee power
and authority to negotiate the terms of the Proposal and, if appropriate, to
approve the Proposal and to recommend it to the Company's stockholders.
Thereafter, all negotiations concerning the Proposal on behalf of the Company
and the Board were conducted by the Special Committee, its advisors and the
management of the Company. The Special Committee, on behalf of the Board,
approved the Acquisition and the issuance of the shares of Common Stock
contemplated thereby. The Board consists of seven directors, two of whom are
senior executive officers of Cyprus Amax and three of whom are directors of
Cyprus Amax. The Special Committee (composed of those directors on the Board
who are neither affiliates of Cyprus Amax nor officers or employees of the
Company), acting on behalf of the Board, determined that the Proposal is fair
to and in the best interests of all stockholders and recommends that
stockholders consent to the Proposal.
STOCKHOLDER APPROVAL
Stockholder approval is being sought to take action by written consent in
lieu of a meeting of stockholders in accordance with Delaware Law. Stockholder
approval shall include, but not be limited to, the authorization and issuance
to Cyprus Amax of the shares of Common Stock as payment for the purchase price
and as payment of amounts owed by Omolon to Cyprus Amax for certain funding or
financial support which the Company has agreed to repay to Cyprus Amax under
certain circumstances pursuant to the terms of the Acquisition Agreement (the
"Proposal").
RECORD DATE
The close of business on November 8, 1996 shall be the Record Date for the
determination of the holders of Common Stock entitled to receive this Consent
Solicitation Statement and to give or withhold their written consent.
CONSENT PROCEDURES; REVOCATION OF CONSENTS
As of the Record Date, Cyprus Amax owned approximately 51.2% of the
outstanding shares of Common Stock of the Company. The consent of Cyprus Amax
will be sufficient to approve the Proposal without the consent of any other
stockholder. Cyprus Amax has agreed to consent to the Proposal and has advised
the Company that Cyprus Amax will deliver its written consent at the
Expiration Time (5:00 p.m., Mountain Time, on December 23, 1996). Upon receipt
of the written consent of Cyprus Amax, the Proposal will be adopted. Prior to
the Expiration Time, consents may be revoked. Subsequent to the Expiration
Time, the Company will not consider any additional consents and consents
previously delivered may not be revoked.
To be effective, consents must be signed and dated and mailed or delivered
to Georgeson prior to 5:00 p.m., Mountain Time, on December 23, 1996, the
Expiration Time. Any consent form mailed or delivered to the Company that
fails to indicate whether the stockholder does or does not consent to the
Proposal shall be deemed to be a consent to the Proposal. Any consent given
pursuant to this solicitation may be revoked by the person giving it at any
time before the Expiration Time by a written revocation mailed or delivered to
Georgeson. There will not be a meeting at which stockholders may vote in
person. Consents will be tabulated by Georgeson.
IMPACT OF CONSENT ON RIGHT TO CHALLENGE TRANSACTION
If a stockholder consents to the Acquisition, such consent may limit the
right of the stockholder to challenge the transaction in the future.
CONSENTS REQUIRED
The Proposal is being submitted to stockholders for their consent to satisfy
a rule of the NYSE which requires the approval of stockholders as a
prerequisite to the listing of the Common Stock to be issued to Cyprus
14
<PAGE>
Amax in connection with the Acquisition, on the basis that the Proposal
contemplates that a "tangible or intangible asset" is to be acquired directly
or indirectly from a substantial security holder of the Company (a holder of
5% or more of the Company's outstanding shares of Common Stock) and the number
of shares of Common Stock to be issued in such transaction will exceed 1% of
the number of shares of Common Stock outstanding before such issuance. The
Company's Common Stock also is listed on the TSE, and rules of the TSE also
require stockholder approval in certain circumstances.
Under Section 228 of Delaware Law and the Company's By-Laws, any action that
could be taken by stockholders at a meeting may be taken without a meeting if
consents in writing, setting forth the actions so taken, are signed by the
holders of a majority of the outstanding shares of Common Stock. Under this
provision of Delaware Law, no written consent shall be effective to take the
corporate action referred to therein unless, within 60 days of the earliest
dated consent delivered in accordance with Delaware Law to the corporation,
written consents signed by a sufficient number of holders (here, holders of a
majority of the outstanding shares of Common Stock on the Record Date) to take
such action are so delivered.
As of the Record Date, there were 96,519,535 shares of Common Stock
outstanding. Common Stock is the only outstanding class of voting securities
of the Company. Each share of Common Stock outstanding on the Record Date is
entitled to one vote on the Proposal.
As of the Record Date, Cyprus Amax had an indirect record ownership of
49,361,557 shares of Common Stock or approximately 51.2% of the shares of
Common Stock outstanding on such date. Cyprus Amax has agreed to consent to
the Proposal. The consent of Cyprus Amax will be sufficient to approve the
Proposal without the consent of any other stockholder. As of the Record Date,
directors and executive officers of the Company (with four of the seven
directors and one of the eight executive officers of the Company being
directors and/or executive officers of Cyprus Amax) owned beneficially less
than 1% of the shares of Common Stock (including shares which may be acquired
within 60 days upon exercise of employee stock options) outstanding on such
date. Such directors and executive officers of the Company have advised the
Company that they intend to consent to the Proposal.
COST OF SOLICITATION
The Company will bear the cost of solicitation of consents. In addition to
the use of mails, consents may be solicited by officers and regular employees
of the Company, personally or by telephone or telegraph, and the Company may
reimburse persons holding shares in their names or those of their nominees for
their expenses in sending solicitation material to their principals.
Additional solicitation of consents of brokers, banks, nominees and
institutional investors will be made by Georgeson at a cost to the Company of
approximately $5,000 plus out-of-pocket expenses.
15
<PAGE>
MARKET PRICES OF THE COMPANY'S STOCK
The Common Stock is listed on the NYSE under the symbol "AU" and on the TSE
under the symbol "AXG." The Company's $3.75 Series B Convertible Preferred
Stock, par value $1.00 per share (the "Series B Preferred Stock"), is listed
on the NYSE under the symbol "AUPrB." The following table sets forth the
quarterly high and low sales price of the Common Stock and the Series B
Preferred Stock for the fiscal quarters indicated as reported on the NYSE
Composite Transactions Tape and the dividends paid on such stock. On October
16, 1995 (the date prior to the public announcement of the Acquisition), the
last sale prices of the Common Stock and the Series B Preferred Stock reported
on the NYSE was $5 15/16 and $48 3/4, respectively. The approximate number of
record holders of shares of Common Stock and the Series B Preferred Stock as
of the Record Date was 8,472 and 65, respectively.
<TABLE>
<CAPTION>
SERIES B PREFERRED
COMMON STOCK STOCK
---------------------- -----------------------
FISCAL YEAR HIGH LOW DIVIDEND HIGH LOW DIVIDEND
----------- ------ ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
1996
Fourth Quarter
(through November 29,
1996)..................... $6 1/4 $5 1/4 $ -- $53 1/4 $50 $ --
Third Quarter.............. 6 5/8 5 1/4 -- 53 3/4 49 3/4 .9375
Second Quarter............. 7 1/8 5 3/8 -- 57 3/8 51 1/8 .9375
First Quarter.............. 9 5/8 6 3/8 -- 66 5/8 54 3/8 .9375
1995
Fourth Quarter............. 7 5/8 5 5/8 55 7/8 47 .9375
Third Quarter.............. 6 7/8 5 1/2 -- 52 1/2 47 7/8 .9375
Second Quarter............. 6 1/4 5 -- 49 1/2 46 1/2 .9375
First Quarter.............. 6 1/8 4 1/2 -- 49 42 3/4 .9375
1994
Fourth Quarter............. 7 5/8 5 5/8 -- 56 1/4 47 7/8 .9791
Third Quarter.............. 7 7/8 6 1/8 -- 55 5/8 50 --
Second Quarter............. 8 1/4 6 5/8 -- -- -- --
First Quarter.............. 8 1/4 6 1/4 -- -- -- --
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of November 29, 1996, the following is, to the knowledge of the Company,
the only person (including any "group" as that term is used in Section
13(d)(3) of the Exchange Act) who is a beneficial owner of more than 5% of the
shares of Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
Cyprus Amax 64,983,326 shares(1) 57.9%
9100 East Mineral Circle
Englewood, Colorado 80112
</TABLE>
- --------
(1) Includes 12,850,671 shares of Common Stock that Cyprus Amax has the right
to acquire within 60 days. Does not include the 16,000,000 shares of
Common Stock that Cyprus Amax has the right to acquire in connection with
the Acquisition or any additional shares that may be issued to Cyprus Amax
in connection with the Fort Knox Financing Arrangement (defined below).
16
<PAGE>
CERTAIN TRANSACTIONS--RELATIONSHIP WITH CYPRUS AMAX
Cyprus Amax is a diversified mining company engaged in the exploration for
and the extraction, processing and marketing of mineral resources, primarily
copper, molybdenum, coal, lithium and gold. Cyprus Amax was incorporated in
Delaware in 1969 and operates primarily in the United States. Cyprus Amax's
principal executive offices are located at 9100 East Mineral Circle,
Englewood, Colorado 80112, and its telephone number is (303) 643-5000.
As of November 29, 1996, Cyprus Amax owned 52,132,655 shares or
approximately 52.5% of the outstanding shares of Common Stock of the Company.
Cyprus Amax holds these shares of Common Stock as a result of the following
events: (i) the acquisition of a 40% interest in the Company pursuant to the
merger on November 15, 1993 of AMAX Inc., a New York corporation ("AMAX"),
which owned approximately 68% of the outstanding shares of Common Stock, with
and into Cyprus Minerals Company (renamed Cyprus Amax Minerals Company), (ii)
the acquisition in July 1994 by Cyprus Amax of 3,000,000 shares of Common
Stock under a Stock Purchase Agreement for the purpose of retiring debt owed
by the Company to Cyprus Amax, (iii) the issuance of 6,601,133 shares of
Common Stock to Cyprus Amax in July 1995 as payment for interest and principal
due Cyprus Amax under DOCLOC II (defined below), (iv) the purchase of
8,318,673 shares of Common Stock by Cyprus Amax in September 1995 as payment
for interest and principal due Cyprus Amax under DOCLOC II, (v) the purchase
of 128,042 shares of Common Stock by Cyprus Amax on September 29, 1995 under
the Stock Issuance Agreement in lieu of the remaining principal amount owed
Cyprus Amax under DOCLOC II, and (vi) the issuance of 2,771,098 shares of
Common Stock to Cyprus Amax as payment of certain obligations due under the
Fort Knox Financing Arrangement (discussed below). Cyprus Amax is the
beneficial owner of 64,983,326 shares or approximately 57.9% of the Common
Stock (in addition to approximately 18.3 million shares of Common Stock which
Cyprus Amax could have elected to be issued on November 29, 1996 under the
terms of the Fort Knox Financing Arrangement) as a result of Cyprus Amax's
rights under existing agreements that permit the issuance of Common Stock in
lieu of outstanding indebtedness and other obligations. Cyprus Amax's
ownership interest is subject to increase in the event the Company elects to
satisfy certain potential obligations to make payments by issuing shares of
its Common Stock pursuant to the Company's agreement to guarantee loans by
Cyprus Amax in the event Omolon has liquidity needs in the future and certain
other subordinated indebtedness. See "THE ACQUISITION AGREEMENT--Project
Liquidity Needs," and "BACKGROUND OF AND REASONS FOR THE ACQUISITION;
RECOMMENDATION OF THE SPECIAL COMMITTEE--Effects of the Proposal Upon Rights
of Existing Holders of Common Stock."
Directors and officers of Cyprus Amax comprise four of the seven members of
the Company's Board. Milton H. Ward, Chairman of the Board and Chief Executive
Officer of the Company, is Chairman of the Board of Directors, President and
Chief Executive Officer of Cyprus Amax; Gerald J. Malys, a director of the
Company, is Senior Vice President and Chief Financial Officer of Cyprus Amax;
and Allen Born and Rockwell A. Schnabel, directors of the Company, are also
directors of Cyprus Amax. The seven members of the Company's Board of
Directors beneficially own in the aggregate approximately 1,291,513 shares, or
less than 2%, of the outstanding shares of common stock of Cyprus Amax.
In addition to the proposed Acquisition, Cyprus Amax is party to a number of
contracts with the Company, which are described below.
FORT KNOX FINANCING ARRANGEMENT
Pursuant to a financing arrangement with Cyprus Amax (the "Fort Knox
Financing Arrangement"), approved by the Company's stockholders in September
1996, Cyprus Amax has guaranteed (the "Cyprus Amax Guaranty") the Company's
$250 million secured financing (the "Fort Knox Loan") until economic
completion of the Company's Fort Knox project and has provided the Company
with a $250 million demand loan facility (the "Demand Loan Facility"), in
exchange for which the Company has agreed to (i) pay Cyprus Amax a financing
and guaranty fee of $10 million (the "Financing and Guaranty Fee"), (ii) pay
Cyprus Amax 1.75 percent on amounts outstanding under the Fort Knox Loan
("Interest Differential Payments"), (iii) reimburse Cyprus Amax for any
payments made or costs incurred under the Cyprus Amax Guaranty, (iv) make no
additional borrowings under DOCLOC I without the prior consent of Cyprus Amax,
and (v) grant Cyprus Amax
17
<PAGE>
a first priority security interest in the collateral for the Fort Knox Loan,
and if requested, security interests in certain additional assets to the
extent available. All of these obligations to Cyprus Amax are payable in cash
or, at the election of Cyprus Amax, in shares of Common Stock, valued at the
time of issuance of the shares.
On November 1, 1996, Cyprus Amax elected to receive payment in shares of
Common Stock of an aggregate of $15,171,767 for all accrued interest on the
Demand Loan Facility and Interest Differential Payments due through October
31, 1996, as well as the Financing and Guaranty Fee. On November 12, 1996, the
Company issued 2,771,098 shares of Common Stock to Cyprus Amax as payment for
such obligations.
As of November 29, 1996, the Company had borrowed $110 million under the
Demand Loan Facility. If Cyprus Amax had elected on such date to receive
payment for such obligation in shares of Common Stock, Cyprus Amax would have
been entitled to receive approximately 18.3 million shares of Common Stock
(based on an assumed stock price of $6.00 per share).
REVOLVING CREDIT AGREEMENTS
The Revolving Loan Agreement, dated April 15, 1994 ("DOCLOC I"), between the
Company and Cyprus Amax, provides that the Company can borrow up to $100
million and repay any indebtedness with up to two million shares of the
Company's $2.25 Series A Convertible Preferred Stock, par value $1.00 per
share ("Series A Preferred Stock"). Such shares of Series A Preferred Stock
may be redeemed by the Company for 12,099,213 shares of Common Stock at a
price equal to the greater of $5.854 per share or the average closing price
per share over a period prior to redemption. Cyprus Amax may acquire at any
time up to 12,099,213 shares of Common Stock at a price of $8.265 per share,
in which event DOCLOC I would be terminated and any outstanding principal and
interest would be deemed repaid. Under the terms of the Fort Knox Financing
Arrangement, the Company may not borrow under DOCLOC I without the prior
consent of Cyprus Amax.
In March 1995, the Company and Cyprus Amax entered into a convertible line
of credit ("DOCLOC II"), under which the Company borrowed the entire $80
million available. During 1995 Cyprus Amax acquired 14,919,809 shares of
Common Stock at $5.362 per share pursuant to DOCLOC II, DOCLOC II was
terminated and the outstanding indebtedness was deemed repaid.
STOCK ISSUANCE AGREEMENT
In September 1995, the Company and Cyprus Amax entered into an Agreement
Regarding Stock Issuance pursuant to which, with the agreement of both
parties, obligations owing from the Company to Cyprus Amax under existing or
future contractual arrangements may be paid in shares of Common Stock, valued
at the 30-day average closing price per share prior to the date of payment. Of
the 879,500 shares issuable, 128,042 shares were issued to Cyprus Amax as
payment for $835,473 due Cyprus Amax under DOCLOC II.
EXPLORATION JOINT VENTURE AGREEMENT
The Company entered into an Exploration JV Agreement with Cyprus Amax
effective January 1, 1994. Under the Exploration JV Agreement, the Company and
Cyprus Amax have agreed to pool their efforts for the principal purpose of
discovering and developing future gold prospects, with Cyprus Amax providing
75% and the Company providing 25% of the initial exploration funding for such
prospects. Properties held by the parties prior to January 1, 1994 (including
the Kubaka deposit) are excluded from the joint venture. A subsidiary of
Cyprus Amax has been appointed as Manager to manage, direct and control
exploration activities. Either party may withdraw upon giving 60 days' notice
to the other party. Pursuant to the Exploration JV Agreement, the Company has
the first right to acquire any gold property covered by the Exploration JV
Agreement, and Cyprus Amax has the first right to acquire properties
containing deposits of minerals or precious metals other than gold. The
agreement will terminate on January 1, 1998, unless extended by the parties.
18
<PAGE>
SERVICES AGREEMENT
Pursuant to the terms of the Services Agreement, the Company and Cyprus Amax
have agreed to provide a variety of managerial and other services to each
other on a full cost-reimbursement basis. The agreement is terminable by the
Company or by Cyprus Amax as of the end of any month on 180 days' prior
written notice. For the first nine months of 1996, amounts charged to the
Company by Cyprus Amax pursuant to the Services Agreement were approximately
$2.0 million, including the costs of insurance coverage for the Company, and
amounts charged to Cyprus Amax by the Company pursuant to the Services
Agreement were approximately $1.3 million reimbursement for the services
provided by the Company for the Kubaka Project.
EMPLOYEE TRANSFER AGREEMENT
Pursuant to the Employee Transfer Agreement, the Company and Cyprus Amax
have amended their respective benefit plans to allow employees to transfer
from the Company to Cyprus Amax or from Cyprus Amax to the Company with
minimal effect on an employee's benefits.
NET OPERATING LOSS AGREEMENT
Pursuant to the Net Operating Loss Agreement, the Company agreed to allow
Cyprus Amax to use the Company's net operating loss generated in 1993 (the
"1993 NOL"), which resulted in refunds of taxes paid by Cyprus Amax in prior
years, and Cyprus Amax agreed to reimburse the Company at such time that the
Company would have received the benefit for the 1993 NOL had the Company
elected to carry forward the 1993 NOL.
OTHER AGREEMENTS
The Company and Cyprus Amax were parties to the Put and Call Agreement under
which Cyprus Amax had the right to sell shares of Common Stock to the Company
upon exercise of warrants issued in connection with the acquisition of the
Fort Knox project in 1992. All warrants expired on January 8, 1996.
The Company and Cyprus Amax entered into an agreement which gave the Company
the option to purchase Cyprus Amax's interest in the Cerro Quema advanced-
stage gold exploration prospect in Panama. The Company terminated the
agreement in September 1995.
In July 1994, the Company issued 3,000,000 shares of its Common Stock
pursuant to the Stock Purchase Agreement to Cyprus Amax as payment for
approximately $20.7 million of indebtedness owed to Cyprus Amax under a
promissory note.
19
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
As of September 30, 1996, the following table sets forth the amount of all
equity securities of the Company and Cyprus Amax that are beneficially owned
by each director of the Company, the chief executive officer and each of the
four other most highly compensated executive officers of the Company in 1995,
and all directors and executive officers of the Company as a group. A person
is considered to "beneficially own" any shares (i) over which such person
exercises sole or shared voting or investment power or (ii) of which such
person has the right to acquire beneficial ownership at any time within 60
days (e.g., through the exercise of stock options). Unless otherwise
indicated, each person has sole voting and investment power with respect to
the shares set forth opposite his or her name.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES OF NUMBER OF SHARES
OF COMPANY COMPANY SERIES B OF CYPRUS AMAX
NAME OF BENEFICIAL OWNER COMMON STOCK(1)* PREFERRED STOCK(1) COMMON STOCK
------------------------ ---------------- ------------------- ----------------
<S> <C> <C> <C>
Milton H. Ward.......... 20,000 -- 964,005(2)
Richard H. Block(3)..... 25,000 -- --
Allen Born.............. 21,287(4) -- 97,609(2)(5)
Gerald J. Malys......... 13,443(4) -- 187,529(2)(6)
Rockwell A. Schnabel.... 35,441(4) 2,500 18,276(5)
Vernon F. Taylor, Jr.... 24,660(7) 3,000(7) 24,094(8)
Russell L. Wood......... 14,288(4) -- --
Roger A. Kauffman (9)... 92,315(10) 200 --
Deborah J. Friedman..... 21,252 400 26,864(2)
Mark A. Lettes.......... 61,313(10) -- --
Neil Muncaster (9)...... 57,555(10) 500 1,003
All directors and
executive officers as a
group (17 persons)..... 477,899(11) 7,100 1,355,997
</TABLE>
- --------
*All amounts shown are less than one percent of the class.
(1) Each share of Series B Preferred Stock is convertible into 6.061 shares of
Common Stock. Shares of Common Stock include shares obtainable upon
conversion of the Series B Preferred Stock. Also included in the table
above are shares of Common Stock held pursuant to the Company's Employee
Thrift Plan and shares of restricted stock granted under the Company's
Performance Share Plan.
(2) Includes shares subject to options exercisable within 60 days: 632,294
shares for Mr. Ward; 75,461 shares for Mr. Born; 97,088 shares for Mr.
Malys; and 21,700 shares for Ms. Friedman.
(3) Mr. Block was elected a director of the Company on July 1, 1996.
(4) Includes shares held in the Deferred Compensation Plan for Members of the
Board of Directors: 6,649 shares for Mr. Born; 6,943 shares for Mr. Malys;
5,789 shares for Mr. Schnabel; and 9,788 shares for Mr. Wood.
(5) Includes shares held in the Cyprus Amax Non-Employee Director Deferred
Compensation Plan.
(6) Includes 10,000 shares held by Mrs. Malys.
(7) Includes 1,227 shares of Common Stock and 3,000 shares of Series B.
Preferred Stock owned by trusts in which Mr. Taylor, as trustee, has
investment or voting power.
(8) Includes 12,344 shares of Cyprus Amax common stock obtainable upon
conversion of 6,000 shares of $4.00 Series A Convertible Preferred Stock
of Cyprus Amax.
(9) Mr. Kauffman and Mr. Muncaster resigned their positions with the Company
effective April 1, 1996 and May 1, 1996, respectively.
(10) Includes shares subject to options exercisable within 60 days: 60,000
shares for Mr. Kauffman; 43,000 shares for Mr. Lettes; and 35,000 shares
for Mr. Muncaster.
(11) Includes 187,000 shares subject to options exercisable within 60 days and
1,033 shares owned by executive officers who have joined the Company
since December 31, 1995.
20
<PAGE>
THE KUBAKA PROJECT
Stockholders are being asked to approve the Acquisition by the Company from
Cyprus Amax of all of the common stock of Cyprus Magadan, which indirectly
holds an interest in a license to mine the Kubaka Project and to explore and
develop the Evenskoye gold and silver deposit, both located in the Magadan
Region of Russia.
THE KUBAKA PROJECT
The Kubaka Project is a development stage, open pit, mill recovery, gold
mining project located in the Russian Far East in the Magadan Region,
approximately 200 miles south of the Arctic Circle and approximately 600 miles
northeast of the major port city of Magadan. Cyprus Magadan holds an indirect
50% interest in the Kubaka Project through its 50% ownership in Omolon Gold
Mining Company, a Russian closed joint stock company. The Kubaka Project is
being developed under a license from the governments of the Russian Federation
and the Magadan Region. The Kubaka Project has proven and probable reserves of
approximately 5.5 million tons of ore with an average grade of approximately
0.46 ounces of gold per ton, containing approximately 2.5 million ounces of
gold as well as significant silver reserves. Based on the progress of the
Kubaka Project to date, substantially all project financing expected to be
needed has been arranged or is being negotiated, and construction of
facilities and pre-stripping of the mine have been substantially completed.
The mill, construction of which has been substantially completed, is planned
to process approximately 1,930 tons of ore per day. Based on currently
available information, the estimated gold recovery rate is approximately 97%,
the estimated cash production costs are approximately $185 to $195 per ounce
(including royalties and taxes), and commercial production is scheduled to
commence late in the first quarter of 1997.
PROJECT HISTORY
The first reports on the geological structure and minerals of the region
came from geological surveys in 1936 and 1948. The Kubaka deposit was
discovered in 1979, and geological surveys and further exploration work on the
Kubaka deposit was conducted from 1984 to 1988. Detailed exploration of the
ore zone was conducted from 1988 to 1992. Small-scale operations were
conducted by Dukat Mining and Processing Combine in a small open pit with a
pilot plant process facility in the early 1990's. These operations were
discontinued in March 1994.
Since 1990, Cyprus Amax has been working in the far eastern region of Russia
evaluating mining opportunities, mainly in gold, as a supplement to its gold
exploration program. Cyprus Amax's initial efforts involved working with the
Northeastern Geologic Expedition ("SVG"), the government agency for
exploration and geology in Russia's far eastern region. After evaluating many
deposits, Cyprus Amax targeted two deposits, Kubaka and Evenskoye.
In March 1993, bidding was opened for commercial development rights to the
mineral resources of the Kubaka and Evenskoye deposits. Omolon, a closed
joint-stock company formed under Russian law including several Russian
shareholders and Cyprus Magadan, was awarded the bid, and in August 1993,
Omolon was granted the License for the right to recover gold and silver from
the Kubaka deposit and to explore and recover gold and silver from the
Evenskoye deposit.
The Company became involved in the Kubaka Project in the beginning of 1995.
The Company's President and Chief Operating Officer was elected as one of six
directors on the Board of Directors of Omolon in April 1995.
CURRENT AND PLANNED OPERATIONS
The Kubaka Project's remote location in the sub-Arctic region of the Russian
Far East requires the Company to plan for operation in extreme cold and
provision of all services and facilities on site. Power will be supplied by an
on-site diesel-electric generating plant, installation of which was completed
in October 1996.
21
<PAGE>
Process water will be supplied from a wellfield and from reclaim water from
the tailings water collection pond. Fresh water will be supplied from a
wellfield located adjacent to the Kubaka River. Two wells are operating
currently and a third well should be developed by year-end 1996. All
equipment, supplies and personnel must be transported to the site by air or
winter road. There is a helipad at the site and an unpaved, 600-meter air
strip on neighboring property three miles from the site suitable for small
aircraft. During four months of the year, the site usually is accessible also
by a 235-mile winter road. The Company plans to transport the majority of the
project's annual requirements for materials, equipment and supplies by truck
on the winter road. In addition, helicopters commonly are used for these
purposes in this part of the Russian Federation, and the Company plans to rely
on helicopters to transport personnel to the Kubaka Project and, when the
winter road is not available, to transport supplies.
Construction activities began in earnest at the Kubaka site in January 1995
with the mobilization and construction of a permanent camp and temporary fuel
storage facilities. Engineering of the project is approximately 99% complete
and construction is approximately 95% complete. To date, the camp, the sewage
treatment plant, most site roads, the tailings water dam and the fuel tank
farm are completed. Construction of the spillway and the internal tailings
dikes are scheduled to be completed by year end 1996. The satellite
communications system is completed and will commence operation when all
permits are in hand. Winterizing of facilities and equipment has been
completed. All of the equipment required to commence operations, including the
mining fleet, has been delivered to the site. The principal supplies necessary
for the project are diesel fuel, cement, reagents, grinding media, equipment
parts, explosives and food.
Construction management and facilities engineering of the Kubaka Project are
being conducted by Davy International of Toronto, and construction is being
conducted by the Company in conjunction with local contractors. In locations
such as Kubaka where permafrost exists, additional steps must be taken to
assure proper construction.
Mining is planned to be conducted by open pit methods using 50-ton trucks.
The average stripping ratio is expected to be approximately 10.8 tons of waste
to 1.0 ton of ore. The average distance for ore haulage from the pit to the
mill stockpile is anticipated to be approximately 1.6 miles. The ore is
planned to be processed in a mill with a capacity of approximately 1,930 tons
per day. An ore grinding circuit is followed by a cyanide leach circuit using
carbon in pulp. With a fine grind of the ore, the Company estimates a gold
recovery rate of approximately 97%.
Once construction is complete, the Kubaka Project is planned to operate with
approximately 350 employees, who will rotate on a six weeks on and two weeks
off schedule. The mine currently is expected to operate approximately 330 days
per year on two 12-hour shifts per day, with a 35-day maintenance period.
Construction delays and cost increases have occurred at the Kubaka Project
and no assurance can be given that additional unanticipated costs or delays
will not be encountered in the construction or operation of the project. See
"BACKGROUND OF AND REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE SPECIAL
COMMITTEE."
GEOLOGY
The topographic relief of the Kubaka site is mountainous, with permafrost at
least 350 feet deep. The geology in the area consists primarily of volcanic
Paleozoic rocks resting on a Precambrian crystalline basement. Gold occurs in
the volcanic rocks as disseminated grains of electrum usually concentrated
near bands of adularia and quartz in three major veins occupying faults, with
numerous subsidiary veins. Ore samples show extremely low presence of
sulfides.
EVENSKOYE DEPOSIT
Omolon also has the right under the License to explore and, subsequently, to
develop the Evenskoye deposit, a vein deposit located approximately 180 miles
south of the Kubaka Project. The Evenskoye deposit has been
22
<PAGE>
explored in the past with two levels of underground drifts, as well as
numerous drill holes. Closer spaced drilling and additional metallurgical
work, as well as economic feasibility studies will need to be completed in
order to establish the Evenskoye deposit as a proven and probable reserve.
Omolon must complete exploration activities, a feasibility study and its
assessment of the reserves for the Evenskoye deposit prior to December 31,
1998. See "--License for the Right to Use the Subsurface."
ORE RESERVES
The following table sets forth the Company's share of the proven/probable
ore reserves for the Kubaka Project. Ore reserves for the Kubaka Project have
been prepared by the Company based on data obtained from the government of the
Russian Federation, which was revised and analyzed by Cyprus Amax with
assistance from Kilborn Engineering Pacific, Ltd., a geostatistical model
completed by the Company in April 1996 and reviewed by Mine Reserve
Associates, Inc., together with other information. These reserves were
calculated using a cutoff grade of 0.06 ounce per ton of ore.
PROVEN/PROBABLE ORE RESERVES(1)
<TABLE>
<CAPTION>
AVERAGE GOLD CONTAINED THE COMPANY'S AVERAGE SILVER CONTAINED THE COMPANY'S
ORE ORE GRADE OUNCES SHARE OF CONTAINED ORE GRADE OUNCES OF SHARE OF CONTAINED
TONS (OZ PER TON) OF GOLD OUNCES OF GOLD (OZ PER TON) SILVER OUNCES OF SILVER
- --------- ------------ --------- ------------------ -------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
5,473,201 0.46 2,506,253 1,253,127 0.52 2,843,121 1,421,561
</TABLE>
- --------
(1) Proven and probable reserves are that part of a mineral deposit that can
be extracted or produced economically and legally at the time of reserve
determination and customarily are stated in terms of ore when dealing with
metals. Reserves represent in-place grades and do not reflect losses in
the recovery process; the expected average mill recovery rate is
approximately 97%.
MINERAL DEPOSITS
In addition to the proven and probable ore reserves at Kubaka, there are
additional mineral deposits at the Evenskoye property.
MINERAL DEPOSITS(1)
<TABLE>
<CAPTION>
AVERAGE GOLD GRADE AVERAGE SILVER GRADE
TONS (OZ PER TON) (OZ PER TON)
---- ------------------ --------------------
<S> <C> <C>
2,361,105 0.30 8.90
</TABLE>
- --------
(1) A mineral deposit is a mineralized body which has been delineated by
appropriate drilling and/or underground sampling which support a
sufficient tonnage and average grade of metal(s) under standards
established by the Securities and Exchange Commission. A mineral deposit
does not qualify as a reserve until a comprehensive evaluation, based upon
unit costs, grade, recovery rates and other factors necessary to conclude
economic viability, is concluded.
THE LEGAL REGIME FOR GOLD MINING IN RUSSIA
The legal regime applicable to the mining of gold in Russia is in a period
of development and transition. The basic law regulating the exploitation of
natural resources, including gold, currently is the Law "On the Subsurface"
No. 2395-1, dated February 21, 1992 and amended on March 3, 1995 (as amended,
the "Law on the Subsurface"). The Law on the Subsurface provides that
subsurface natural resources may be exploited only in accordance with the
terms of a validly issued license from the Committee for Geology and Use of
the Subsoil ("Roskomnedra") or one of its regional offices. In August 1996,
the functions of Roskomnedra were transferred to the Ministry of Natural
Resources; however, this Consent Solicitation Statement will continue to
reference Roskomnedra.
Under governmental decree, only Russian citizens and Russian legal entities
(such as Omolon) are entitled to extract gold. Authority for matters relating
to on-shore gold reserves falls jointly within the jurisdictions of
23
<PAGE>
the Federal Government, governments of administrative subdivisions of the
Russian Federation (such as autonomous regions) and, to a limited extent,
local self-governing bodies (such as regions). Various drafts of legislation
pertaining to mineral development as well as the gold industry, including a
new Law on Precious Metals and Precious Stones, are currently under
consideration and may be enacted at some future date. Omolon has been advised
by counsel that its rights and properties currently are being held and
operated in material compliance with existing Russian law.
A license may not be assigned by the licensee except in the following
situations: (i) a change in the organizational and legal status of the
licensee; (ii) the transformation of the licensee into another enterprise by
incorporation or merger, provided that the original licensee has a stake of
more than 50% in the new enterprise; and (iii) the division of the licensee
into different enterprises, provided it continues operations under the terms
of the license. Any such assignment of a license requires its renewal, but its
terms are not be subject to revision. Although the parties do not view these
assignment provisions as applicable to the sale of the shares of Cyprus
Magadan to the Company, Omolon may seek the written acknowledgement from the
appropriate authorities of the transfer of the shares of Cyprus Magadan to the
Company.
The License and Russian legislation provide that the License may be
terminated: (i) for breach of the license; (ii) for certain health or safety
reasons; (iii) in certain emergency situations; or (iv) upon the liquidation
of the licensee. The Law on the Subsurface defines the procedure for the early
termination of a subsurface license. The licensee is entitled to written
notice of termination and has the right to appeal any termination to a Russian
court. In certain circumstances, the licensee has a period in which to cure
the reasons for the termination.
LICENSE FOR THE RIGHT TO USE THE SUBSURFACE
On August 10, 1993, the Magadan Regional Soviet of People's Deputies (the
"Magadan Regional Soviet") and Roskomnedra (together with the Magadan Regional
Soviet, the "Subsurface Owner") granted Omolon a License for the Right to Use
the Subsurface (as amended, the "License"). The License grants Omolon the
rights to both the commercial development of the Kubaka deposit and the
exploration and subsequent development of the Evenskoye deposit, subject to
additional terms set forth in an agreement with the Subsurface Owner. The
License is for a period of 18 years, subject to extension for up to an
additional two years. The License limits the ownership interest of a foreign
party (Cyprus Magadan) to a maximum of 50%.
The License requires that production at the Kubaka Project commence in the
first quarter of 1997 (unless certain force-majeure events occur). Omolon must
achieve gold production of approximately 295,780 ounces of gold per year and a
gold recovery factor of at least 96.3% for the Kubaka Project or be assessed a
penalty based on the shortfall in production or the recovery rate. Based on
currently available information, Omolon anticipates satisfying these
requirements. Under the terms of the License, Omolon is not liable for the
prior environmental condition of the property. See "--Royalties, Taxes and
Other Government Payments."
The License has a number of additional requirements. At least 90% of the
employees working on the project must be Russian and 70% of the employees must
be residents of the Magadan Region. Within one month after commencement of
construction of the enterprise, Omolon must establish a charity fund of $1
million and supplement it annually. Additionally, Omolon must set up a
satellite communication system and make ten subscriber lines available to the
Magadan Region. Omolon also is required to install all-weather navigation
equipment at the Evensk airport. These requirements have been incorporated in
the Kubaka Project's capital and operating cash projections.
With respect to the Evenskoye deposit, Omolon must complete exploration
activities, a feasibility study and its assessment of the reserves prior to
December 31, 1998, or the License may be terminated. See "--The Legal Regime
for Gold Mining in Russia." Subsequently, Roskomnedra and Omolon are required
to agree on the amount of reserves at Evenskoye that should be developed
commercially. If they cannot reach an agreement, Roskomnedra and Omolon are
required to have an international expert assess the project. If Omolon rejects
the
24
<PAGE>
expert assessment and decides not to develop the Evenskoye deposit and another
party is willing to develop it on the same terms, Omolon, in order to maintain
its rights under the License to mine the Kubaka Project, must: (i) transfer to
the Subsurface Owner without compensation the Evenskoye deposit and either an
ore concentrating mill or $1.0 million; and (ii) transfer $8 million to the
new subsurface user of the Evenskoye field, which amount will be repaid from
the new operations at Evenskoye.
ENVIRONMENTAL REGULATIONS
Environmental law in Russia is continuing to develop. Many environmental
laws have been passed since 1991, but enforcement procedures are not well
established. Currently, the basic law regulating the environment is the Law
"On the Protection of the Natural Environment" (as amended, the "Law on
Environmental Protection"), which imposes a variety of civil liabilities on
enterprises operating in Russia which unlawfully damage the environment.
Environmental actions may be commenced by any Russian citizen or entity
without the need to show personal damages.
The Law on Environmental Protection and other environmental legislation are
implemented by the Ministry of Environmental Protection and Natural Resources
of the Russian Federation (the "Ministry of Environmental Protection").
Commencement of work may begin only after the Ministry of Environmental
Protection has made a positive evaluation of the potential environmental
impact of the project. The Ministry of Environmental Protection and its local
agencies have formed expert commissions to conduct a review of feasibility
studies prepared by a project's sponsor. The Kubaka Project received a
positive evaluation of its potential environmental impact from expert
commissions at both the federal and regional level, and the Ministry of
Environmental Protection subsequently issued the necessary environmental
approvals for the Kubaka Project. See "--Project Permits and Approvals." The
Company believes that the Kubaka Project is operating, and is planned to be
operated, in substantial compliance with applicable Russian environmental
legislation.
PROJECT PERMITS AND APPROVALS
Environmental Approvals. The feasibility study for the Kubaka Project
received final approval from the Magadan Oblast Committee for Environmental
Protection and Natural Resources (the "Magadan Committee") in October 1994.
This key approval, a prerequisite for subsequent permits, covers the proposed
methods of tailings disposal, discharges to water and air, use of the land and
construction and operation of the facilities. Changes that do not alter the
level or type of environmental impact agreed upon are acceptable changes
within the scope of the approval; however, more significant changes require a
full reexamination by the Magadan Committee. The approval from the Magadan
Committee is subject to approval at the Federal level. Such approval was
received on April 21, 1995 from the Ministry of Environmental Protection.
(Pursuant to Presidential Decree No. 1177, dated August 14, 1996, the Ministry
of Environmental Protection was replaced by the State Committee on the
Protection of the Environment; however this Consent Solicitation Statement
will continue to refer to the Ministry of Environmental Protection.) Under the
terms of the License, Omolon is not liable for the prior environmental
condition of the property.
Mine Permitting. Omolon obtained a license from the Federal Mining and
Industry Inspectorate ("Gosgorteknadzor") in Moscow in April 1995, which
authorizes mining operations at the Kubaka Project pursuant to the mine plan
as submitted. Omolon may seek amendments to the license to reflect changes in
the mine design made since April 1995. The Company believes that amendments,
if any, will not require substantial negotiation. Omolon also plans to apply
at the appropriate times for additional permits that routinely are issued in
the course of operating a mine.
Other Permits and Approvals. Additional permits and approvals are required
for certain land use, water use and discharges to the air and are expected to
be obtained with acceptable conditions in the ordinary course as the Kubaka
Project proceeds.
25
<PAGE>
OMOLON AND PROJECT OWNERSHIP
Cyprus Magadan owns a 50% interest in the Omolon Gold Mining Company, which
holds a license to develop the Kubaka Project and to explore and develop the
nearby Evenskoye gold and silver deposit. The other 50% interest in Omolon is
owned by five Russian shareholders as follows: (i) the Association of the
Native Peoples of the Severo-Evensk District, a benevolent foundation (the
"Association"), with a 6.6% ownership interest, (ii) Geometal, a private
limited liability company involved in small and medium-size gold mining
activities in the Magadan Region ("Geometal"), with an approximately 27.9%
ownership interest, (iii) Dukat Mining and Processing Combine, the largest
silver mining company in the Magadan Region, which is held primarily by the
Russian Government and which is currently proposed to be privatized ("Dukat"),
with an approximately 2.8% ownership interest, (iv) Magadan Gold/Silver
Company, a small, private precious metal mining and sales company ("MGSC"),
with a 6.6% ownership interest, and (v) Rossiisky Kredit Commercial Bank
("Rossiisky Kredit"), with a 6.0% ownership interest (collectively, the
"Russian Shareholders"). Percentage ownership reflects the percentage of
capital contributions made by each shareholder to Omolon (all of which were
made in cash in all cases other than plant and equipment from Dukat valued at
$1.5 million).
Omolon was formed under the laws of the Russian Federation as a closed joint
stock company and has a current authorized capital of 388.48 billion roubles
($80 million) from Cyprus Magadan and the Russian Shareholders. Each
shareholder must contribute pro rata to its ownership interest to meet
additional capital requirements of Omolon or such shareholder's interest will
be adjusted proportionately; however, no shareholder's interest may be
increased to greater than 50%.
The obligations of Cyprus Magadan as the "Foreign Party" under the Amended
and Restated Charter (the "Charter") include assisting in obtaining modern
equipment, obtaining financing for the Kubaka Project, providing management
and technical services pursuant to the Management Agreement (defined below)
and cooperating with the preparation and submission of all tender documents,
including a feasibility study.
Management decisions are made at the General Meeting of Shareholders,
although management of the Kubaka Project has been delegated to the Foreign
Party pursuant to the Management Agreement. Between General Meetings of
Shareholders, the Board of Directors of Omolon (the "Omolon Board") manages
the affairs of the company. The Omolon Board is composed of seven directors--
three nominated by the Russian Shareholders and four nominated by the Foreign
Party prior to repayment by Omolon of the Project Loans or, if later, the date
the Cyprus Amax Guaranty is released or Omolon repays Cyprus Amax amounts paid
under the guaranty) (the "Financing Period"); after the Financing Period the
Omolon Board of Directors shall consist of six members, with three nominated
by the Russian Shareholders and three nominated by the Foreign Party. The
Management Operating Committee, which is subordinate to the Omolon Board,
handles the day-to-day operations and implements the decisions of the Omolon
Board. Members of the Management Operating Committee are appointed by the
Omolon Board. The General Manager is the chief executive officer of Omolon and
the chairman of the Management Operating Committee. During the Financing
Period, the General Manager is the nominee of the Foreign Party, and after
such period, the power to nominate the General Manager alternates annually
between the Foreign Party and the Russian shareholders. A special
environmental committee, composed of two nominees of the Foreign Party and one
nominee of the Russian shareholders has the tie-breaking vote on the Omolon
Board with respect to reclamation and environmental matters at all times.
Finally, the Auditing Commission, elected at the General Meeting of
Shareholders, exercises control over the financial and business activities of
Omolon and conducts the internal audits of Omolon.
Pursuant to the Charter, Omolon will distribute as dividends 80% of its
after tax profits less reserve funds. However, the Project Loan Agreements
prohibit Omolon from making distributions to its shareholders (other than the
management fees and repayment of amounts borrowed from or guaranteed by a
shareholder for working capital for Omolon) until and unless certain financial
ratios are met. See "--Project Financing."
Transfer of a shareholder's interest in Omolon is restricted. In the event a
shareholder wants to transfer its interest, the other shareholders have a
right of first refusal. If there is a change in control (as defined in the
26
<PAGE>
Charter) of a Russian Shareholder, the other shareholders have an opportunity
to purchase the interest of the changed entity.
If there is a change in Russian or other law that is more favorable to the
Foreign Party, the Foreign Party and Omolon can take advantage of the benefit
of such change. If there is a change in Russian or other law that is adverse,
the shareholders must compensate the Foreign Party or the Foreign Party can
refer the issue to an expert for resolution or terminate the Charter.
Each of the shareholders has agreed not to compete with the business or
business prospects of Omolon. Each of the Russian Shareholders has agreed that
in the event it or its affiliate is presented a business opportunity with
respect to the exploration, development or mining of any mineral deposit
located in the Magadan Region, such Russian Shareholder will grant the Foreign
Party an option to participate in such business opportunity. Conversely, the
Foreign Party has agreed that in the event it or its affiliate is awarded or
presented a business opportunity with respect to the exploration, development
or mining of any mineral deposit located in the Magadan Region, the Foreign
Party will grant to at least one of the Russian Shareholders (chosen in the
sole discretion of the Foreign Party) the option to participate in such
business opportunity.
The Russian Shareholders and the Foreign Party each may terminate the
Charter, upon 30-days written notice, if any of the following occur: (i) a
breach by the other party of the Charter or the Management Agreement; (ii) an
event of force majeure lasting more than 180 days during which the objectives
of the Charter and Omolon are impaired substantially; (iii) it becomes
impossible for Omolon to carry on business consistent with its objectives and
the shareholders cannot agree on a course of action; and (iv) a competent
authority terminates or liquidates Omolon. The Russian Shareholders may
terminate upon 30-days written notice if the Foreign Party becomes bankrupt or
liquidates or the Russian Shareholders elect not to take the offer of the
Foreign Party to purchase the Foreign Party's interest. The Foreign Party may
terminate upon 30-days written notice if (i) a Russian Shareholder becomes
bankrupt or liquidates; (ii) the Foreign Party effectively is excluded from
the management of Omolon (for example, as a result of nationalization); (iii)
Omolon fails for a period of six months after the first dore is poured by
Omolon to obtain the required foreign exchange for operating costs, debt
service and dividends; (iv) the shareholders fail to agree on an adjustment of
the economic benefits of the Foreign Party to compensate for an adverse change
in applicable law; or (v) there is a change of control of the Russian
Shareholders. The Charter is governed by Russian law and provides for
resolution of disputes by arbitration in Stockholm, Sweden.
Management Agreement. Pursuant to a Management Agreement, effective as of
April 13, 1995 (the "Management Agreement"), between Cyprus Magadan and
Omolon, Cyprus Magadan has agreed to manage, supervise and control
exploration, development and mining operations. Cyprus Magadan will receive
cost reimbursements and management fees equal to 4% of the gross sales from
the Kubaka Project and at least 2% of the gross sales from the Evenskoye
deposit. Pursuant to the terms of the Project Loan Agreements, Cyprus Magadan
will not be paid any management fee prior to the later of the project
completion date and December 15, 1997, if an event of default or potential
event of default has occurred and is continuing or if Cyprus Magadan has
notified the Project Lenders, pursuant to the Cyprus Magadan Guaranties, that
a political event has commenced. In addition, the Project Loan Agreements
state that management fee payments may be made by Omolon to Cyprus Magadan
only after payments for certain non-rouble operating costs, Project Loan
payments and certain transfers to the Cash Collateral Account. See "--Project
Financing." Payments to Cyprus Magadan under the Management Agreement are
payable before shareholder distributions.
The Management Agreement expressly limits Cyprus Magadan's liability. Omolon
will indemnify Cyprus Magadan for any loss suffered in the performance of its
duties, except for any loss arising from the bad faith, willful misconduct or
gross negligence of Cyprus Magadan's officers, agents or employees, for which
Cyprus Magadan will indemnify Omolon. The Management Agreement remains in
effect until the expiration of the License, unless terminated earlier by the
Omolon Board in accordance with the Charter. The Management Agreement is
governed by New York law and provides for resolution of disputes by
arbitration in Stockholm, Sweden.
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Reclamation Agreement. Pursuant to the Reclamation Agreement, dated as of
August 10, 1995 (the "Reclamation Agreement"), among Omolon, Cyprus Amax,
Cyprus Magadan and each of the Russian Shareholders, each of the shareholders
of Omolon agreed to make annual payments for the three years prior to
cessation of activities at the Kubaka Project into the Omolon reclamation fund
(which is a requirement of the License and of Russian environmental law) to
cover reclamation costs in the event that Omolon has insufficient funds.
Reclamation costs for the Kubaka Project are estimated to be approximately
$5.0 to $7.0 million. The Reclamation Agreement is governed by New York law.
ROYALTIES, TAXES AND OTHER GOVERNMENT PAYMENTS
Royalties
Under the current license, Omolon must make royalty payments equal to a
percentage of the total value of the gold produced, starting at 4% and
increasing by 1% for each $10 by which the market price of gold exceeds $375
per ounce, up to a maximum of 10% of the total value when the market price of
gold is at or above $435 per ounce. Government Decree No. 1007, dated August
26, 1996, reduces the royalty rate for gold to a range of 2% to 4%, and
instructs the appropriate governmental agency to renegotiate royalty rates
with existing license holders within this range by the end of 1996. Based on
recent communications with regulators, the Company anticipates that Omolon's
royalty rate will be reduced.
Omolon also must pay to the Mineral Resource Base Replacement Fund a mineral
restoration tax of 7.8% of gold sales (the "Mineral Restoration Tax"). The
Mineral Restoration Tax due may be reduced by certain geological and
geophysical expenditures incurred during the year and preapproved by the
regional branch of the Russian Federation Committee for Geology and Use of
Mineral Resources. Omolon expects, with the consent of the Project Lenders, to
benefit from this provision as a result of exploration costs incurred
concurrently with production from the Kubaka Project.
Taxes
The Russian taxation system is new, rapidly evolving and subject to frequent
change. The following is a summary of the major taxes currently impacting the
operations of Omolon in the Russian Federation. Assuming production at the
currently planned levels and no change in the tax law, it is estimated that
Omolon will have an annual average Russian tax liability of approximately $20
million (excluding royalties).
Profits Tax. A profits tax is assessed on the taxable profits of an
enterprise as determined under Russian tax and accounting rules. At present,
the federal profits tax is 13% and regional authorities have imposed
additional taxes on business profits of 22%, for a total profits tax rate for
1995 of 35%.
Value-Added Tax (VAT). VAT is an indirect tax payable on the purchase of
most goods and services and on the importation of goods, generally at the rate
of 20%. Import VAT is calculated on the customs value of imported goods plus
any import duties and excises which apply. An exemption from import VAT (not
from import duty) is available for imported assets which qualify as listed
"technological equipment." Omolon has a specific ruling from the Customs
Committee extending this relief to certain mining equipment. However, it is
possible that this relief will be removed in the near future. If this were to
occur, the import VAT exemption might only be available for Omolon in respect
of fixed assets used in production that are imported as a contribution to
capital.
A "reverse charge" VAT was introduced into the law in April 1995. A Russian
company (i.e. Omolon) must withhold VAT at the effective rate of 16.67% from
payments for a broad range of services, including engineering, construction
and installation services provided by foreign legal entities not registered in
the Russian Federation.
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Omolon will be required to pay VAT to businesses that supply it with goods
and services in Russia. A federal law dated April 1, 1996 introduced changes
to VAT that will enable gold-mining companies to claim input credit for VAT
paid on certain expenses included in the cost of metals sold, as well as on
purchases of fixed assets.
Labor Taxes. Businesses are obligated to make compulsory social payments,
including payments to the State Pension Fund, Employment Fund, Social
Insurance Fund and Medical Insurance Fund, based on payroll costs. The total
labor tax burden in the Magadan region currently is 41% of gross salaries.
Withholding Tax. Current legislation requires Russian companies to withhold
15% of dividends paid (including dividends to non-Russian shareholders) and
15% of interest payable to non-Russian creditors, as well as 20% of most other
payments to unregistered foreign legal entities. However, the current
U.S./Russia Tax Treaty stipulates a withholding tax rate of 15% on dividends
and 0% on interest, but reduces to 5% the withholding tax rate on dividends
paid from a Russian company to a U.S. shareholder which is the beneficial
owner of at least 10% of the voting stock. Interest paid on the Project Loans
is exempt from withholding tax.
Other Taxes. Other regional and local taxes may be imposed, but these are
normally much less significant than those discussed above. For example,
mortgages and certain other pledges of property to secure debt must be
registered to be valid and a state duty of 1.5% of the value of the contract
must be paid upon such registration. Under the Project Loan Agreements, Omolon
is not obligated to expend in excess of $1.425 million (including registration
duty) in connection with certain registrations.
Other Government Payments
The License requires Omolon to produce an annual average of 9,200 kg
(approximately 295,780 ounces) of gold at the Kubaka Project in 1999 and
subsequent years. If Omolon fails to produce at least 295,780 ounces, Omolon
will be required to make a penalty payment equal to the value of gold per
ounce times 20% of the royalty and Mineral Restoration Tax that would have
been payable on the difference between 295,780 ounces and the actual output.
During the first through fourth years of production when the penalty applies,
the maximum penalty is $4 million per year. During the fifth through ninth
years of production when the penalty applies, the maximum annual penalty is $5
million if output falls below 295,780 ounces but above 75% of 295,780 ounces
and $6.5 million if output falls below 75% of 295,780 ounces. In addition,
Omolon must achieve a gold recovery factor of at least 96.3% for the Kubaka
Project or be assessed a penalty (on the same basis as the penalty for failure
to meet required production) based on the shortfall in the recovery rate.
Based on currently available information, Omolon anticipates satisfying these
requirements without making penalty payments.
PROJECT FINANCING
Based on progress to date, the total capital costs of the Kubaka Project are
estimated to be approximately $228 million. The shareholders of Omolon have
contributed a total of $80 million (with each of Cyprus Magadan and the
Russian shareholders contributing $40 million) of the required capital. An
additional $6 million of equity capital will be provided by Cyprus Magadan and
the Russian Shareholders in equal contributions (with Cyprus Magadan permitted
to make all or part of its contribution in kind). Of the remaining $142
million of financing required to complete the Kubaka Project, Omolon has
borrowed $100 million from EBRD and OPIC under the terms of the Project Loan
Agreements, and the terms of an additional $30 million of borrowing are
currently being negotiated ($15 million each from EBRD and OPIC).
Omolon also has arranged a Subordinated Loan for $14 million to finance
completion of the project, which debt also will be guaranteed by Cyprus Amax.
The Company has agreed to reimburse Cyprus Amax for any payments it makes
pursuant to such guaranty. In addition, Omolon is considering a Working
Capital Line of Credit of as much as $20 million to finance the purchase of
operating supplies for 1997 and transportation of such supplies over the
winter ice road. See "THE ACQUISITION AGREEMENT--Assumption of Obligations and
Indemnification."
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If any of these financing arrangements were not completed or were
unavailable, the Company would not be obligated to close the Acquisition.
However, if Omolon, with the assistance of Cyprus Amax and the Russian
Shareholders, were able to obtain acceptable alternative financing, the
Company likely would complete the Acquisition. Any new financing arrangement
would require the consent of the Project Lenders or payment of the Project
Loans and may require a license from the Central Bank of the Russian
Federation. There can be no assurance that alternative financing would be
available on acceptable terms, if at all.
Project Loan Agreements
Pursuant to the Project Loan Agreements, the Project Lenders have provided
$100 million in financing for the Kubaka Project in two tranches: (i) Tranche
1 totaling $90 million, with OPIC providing $47.5 million and EBRD providing
$42.5 million; and (ii) Tranche 2 totaling $10 million, with each Project
Lender providing $5 million. The Project Loan Agreements are governed by New
York law and provide for resolution of disputes by arbitration in London, New
York or Washington, D.C.
Interest Rate. The interest rate for Tranche 1 and Tranche 2 is typical for
financings of the type obtained by Omolon. The rate under the EBRD Loan
Agreement is based on the six month LIBOR and under the OPIC Loan Agreement is
based on the U.S. 90-day Treasury Bill rate. The interest rates increase
slightly once completion has been achieved and the loan becomes nonrecourse.
Additional interest on Tranche 2 will apply based on the amount of the cash
generated from the Kubaka Project. The Project Loan Agreements provide a
default interest rate for any overdue amount. Additionally, Omolon will pay a
commitment charge at the rate of 0.5% per year on that portion of any loan not
cancelled or disbursed.
Repayment and Prepayment. Tranche 1 is scheduled to be repaid in eight equal
semi-annual installments beginning December 15, 1997 and ending June 15, 2001.
Amendments to the Project Loans may increase the number of installment
payments to nine, with the last payment due on December 15, 2001. See "--
Amendments to Project Loan Agreements." Tranche 2 is scheduled to be repaid in
full in a single installment in the amount of $10 million on December 15,
2001. Voluntary prepayment is permitted in amounts not less than $1 million.
Tranche 2 may only be prepaid voluntarily in full. Omolon may not repay
Tranche 2 unless Tranche 1 has been repaid. In the case of prepayment of
Tranche 2, a prepayment charge based on the date of prepayment will be
assessed ranging from 44% of the principal amount of Tranche 2 if prepayment
occurs on or prior to December 1997, declining to 7% if prepayment occurs on
or prior to June 2001.
Affirmative Covenants. The Project Loan Agreements require that Omolon agree
to certain affirmative covenants and other covenants including project
implementation and the continuance of government and other approvals, project
operation in accordance with international practices and a defined list of
environmental standards and submission of the development plan for the
approval of the Project Lenders. Omolon also must maintain a Retrospective
Debt Service Coverage Ratio (defined as gross revenues payable in currencies
other than roubles during a certain interest period divided by the sum of all
principal and interest due and payable in respect of the Tranche 1 loans at
the end of such interest period) for the preceding interest period of not less
than 1.25 and a Loan Life Debt Service Coverage Ratio (defined as (a) the net
present value of all future net income divided by (b) the aggregate
outstanding principal amount of the Tranche 1 loans less the cash collateral
amount) of not less than 1.25. Omolon has indemnified the Project Lenders and
their officers, directors and agents.
Negative Covenants. In addition to certain customary negative covenants, the
Project Loan Agreements require that Omolon agree to the following: (i)
dividends may not be declared or paid until and unless certain financial
covenants are met and no event of default has occurred or is likely to occur;
(ii) no capital expenditures may be incurred other than for the Kubaka Project
in an aggregate amount in excess of $500,000 million in any year; (iii) no
leases (in excess of $250,000 per year) may be obtained, no liens may be
granted and no additional indebtedness may be incurred except as permitted;
(iv) Omolon may not engage in hedging activity without the prior written
consent of the Project Lenders; (v) no loans or advances in excess of $8
million may be made;
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(vi) no changes to the business, capital or the charter documents of Omolon
may be made; and (vii) no long term debt other than under the construction
contract with Davy International may be prepaid. Dividends may be paid only on
an interest payment date after giving not less than 45 days notice, and
dividend payments in currencies other than roubles may be paid only after
certain other priorities have been met.
Events of Default. The Project Loan Agreements contain standard events of
default in addition to the following events of default: (i) the failure of the
Project Completion Date to occur within eighteen months of physical completion
of construction of the Project, (ii) nationalization or expropriation of any
substantial part of the property or other assets of Omolon; (iii) a default
with respect to any indebtedness of Cyprus Amax in excess of $20 million or
any indebtedness of Omolon or Cyprus Magadan; (iv) a final judgment or order
for the payment of money in excess of $2 million rendered against Omolon; (v)
assignment to Cyprus Amax by Standard & Poor's of a credit rating below BB- at
any time when any amounts are guaranteed by Cyprus Magadan or the failure of
Cyprus Amax at any time to own indirectly 50% of the shares of Omolon; (vi) an
environmental default; (vii) project costs exceed by more than $10 million the
amount set forth in the Project Loan Agreements and the shareholders of Omolon
have not provided cash contributions or subordinated loans within 60 days to
cover 50% of the excess; and (viii) a bank account default. Principal and
interest will be accelerated automatically if Omolon voluntarily or
involuntarily becomes dissolved, bankrupt or insolvent.
Amendments to Project Loan Agreements. Omolon is currently negotiating
amendments to the Project Loan Agreements providing for an additional $30
million and permission for Omolon to obtain a Working Capital Line of Credit
and the Subordinated Loan. The amendments would require that Tranche 1 (which
would total $112.5 million) be repaid in nine equal semi-annual installments
and would require that Tranche 2 (which would total $17.5 million) be repaid
in a single installment. These amendments also entitle the Project Lenders to
declare a default if (i) the Project Completion Date fails to occur within two
years of physical completion of construction of the Project or (ii) project
costs exceed $230 million and the shareholders of Omolon have not provided
cash contributions or subordinated loans within 60 days to cover the full
amount of the excess. Disbursement under these amendments would require
satisfaction of certain conditions, including the following: (i) Omolon has
borrowed the full amount of the Subordinated Loan; (ii) the Russian
shareholders have contributed an additional $3 million (or the equivalent in
roubles) of equity capital in cash to Omolon; (iii) Cyprus Magadan has
committed to contribute at a later date an additional $3 million (or the
equivalent in roubles) of equity capital either in cash or in kind to Omolon;
(iv) project costs necessary to achieve physical completion of the Kubaka
Project do not exceed $230 million, unless the shareholders of Omolon provide
additional financing; and (v) execution and delivery of corresponding
amendments to guaranties, support agreements and security documents. The terms
of these amendments have been substantially agreed upon by the Project
Lenders, and the Company expects that these amendments will be signed once the
required licenses from the Central Bank of the Russian Federation are
obtained.
If these amendments are not executed and delivered, then the Project Lenders
would be entitled to declare a default (see "Events of Default" above) and to
accelerate the Project Loans and exercise their remedies against the security
for the Project Loan Agreements (see "Security for Loan Agreements" below).
However, consummation of the Acquisition is subject to the condition that
these amendments be executed and delivered and that the conditions to the
additional financing be satisfied. In the event these conditions are not met,
the Company would not be required to close the Acquisition, but if acceptable
alternative financing were arranged, the Company likely would complete the
Acquisition. Any new financing arrangement would require the consent of the
Project Lenders or payment of the Project Loans and may require a license from
the Central Bank of the Russian Federation. There can be no assurance that
alternative financing would be available.
Security for Loan Agreements.
The Project Loans are secured in favor of the Project Lenders by the
following guaranties, project support agreements and pledge agreements (which
security is to be shared among EBRD and OPIC pursuant to a security sharing
agreement).
Cyprus Magadan Guaranty. Pursuant to the Cyprus Magadan Guaranty between
Cyprus Magadan and the Project Lenders, Cyprus Magadan guarantees the full and
prompt payment of all amounts payable by Omolon pursuant to the Project Loan
Agreements and any other agreement to which Omolon and either or both Project
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Lenders are parties. The Cyprus Magadan Guaranty terminates (i) in full on the
project completion date, but only if the Loan Life Debt Service Coverage Ratio
is greater than or equal to 1.4; (ii) in full if upon any guaranty reduction
date after the project completion date, the Adjusted Guaranteed Principal
Amount (defined as the aggregate outstanding principal amount of the Tranche 1
loans less the cash collateral amount less 71% of the net present value of all
future net income) is zero or less; and (iii) upon a determination that a
Qualified Political Event (political violence, expropriation or both) has
occurred, subject to the tender by Cyprus Amax of all of its rights to the
Kubaka Project and to compliance with certain conditions and procedures set
forth in the guaranty. As a condition to the Project Lenders providing an
additional $30 million of financing under the Project Loan Agreements, the
Project Lenders may require that termination of the Cyprus Magadan Guaranty
may not occur on the project completion date unless at least $25 million of
the principal of the Project Loans has been repaid. The Cyprus Magadan
Guaranty is governed by New York law. See "THE KUBAKA PROJECT--Project
Financing" and "THE ACQUISITION AGREEMENT--Assumption of Obligations and
Indemnification."
Cyprus Amax Guaranty. Pursuant to the Cyprus Amax Guaranty between Cyprus
Amax and the Project Lenders, Cyprus Amax guarantees all amounts payable by
Cyprus Magadan to the Project Lenders (or either of them) pursuant to the
Cyprus Magadan Guaranty and each other agreement to which Cyprus Magadan and
either Project Lender or both Project Lenders are parties; provided, however,
that Cyprus Amax will not be liable for Cyprus Magadan's obligations under the
Cyprus Amax Support Agreement to provide Omolon with sufficient funds to
enable Omolon (i) to fulfill certain obligations under the License with
respect to the Evenskoye deposit in the event Omolon elects not to develop
that deposit and such election would result in the termination of the License
and a default under the Project Loan Agreements and (ii) to take any action
necessary in connection with any release or threatened release of any
hazardous materials at any site or facility owned, operated or leased by
Omolon, which was related to the negligence or willful misconduct of either
Cyprus Magadan or Cyprus Amax, or in connection with Cyprus Magadan's
obligations under the Reclamation Agreement, except as otherwise provided
therein. The Cyprus Amax Guaranty is governed by New York law. Additionally,
the Company expects that Cyprus Amax will guaranty the $14 million
Subordinated Loan that Omolon currently is seeking to arrange. The Company has
agreed to reimburse Cyprus Amax for any payments it makes pursuant to such
guaranty. See "THE ACQUISITION AGREEMENT--Assumptions of Obligations and
Indemnification."
Project Support Agreement. The Project Loans are supported by the Support
Agreement, dated as of August 30, 1995, among Omolon, Cyprus Amax, Cyprus
Magadan and the Project Lenders (the "Cyprus Amax Support Agreement") and the
Support Agreement, dated as of August 30, 1995, among the Russian
Shareholders, Omolon and the Project Lenders (the "Russian Shareholders
Support Agreement" and together with the Cyprus Amax Support Agreement, the
"Project Support Agreements"). Pursuant to the Cyprus Amax Support Agreement,
Cyprus Magadan and Cyprus Amax are obligated to (i) provide assistance in
technical and personnel matters, (ii) indemnify the lenders against any
environmental liability, and (iii) indemnify the lenders for between 50% and
100% of Omolon's liability for the breach of certain payment or security
restrictions applicable under the Project Loan Agreements or in the event of
expropriatory action. Cyprus Magadan and Cyprus Amax also are obligated, to
the extent Omolon has insufficient funds, to provide Omolon with sufficient
funds to enable Omolon (i) to fulfill certain obligations under the License
with respect to the Evenskoye deposit in the event Omolon elects not to
develop that deposit and such election would result in the termination of the
License and a default under the Project Loan Agreements and (ii) to take any
action necessary in connection with any release or threatened release of any
hazardous materials at any site or facility owned, operated or leased by
Omolon which was caused by or related to the negligence or wilful misconduct
of either Cyprus Magadan or Cyprus Amax. The Project Support Agreements also
subordinate all payment obligations of Omolon to its shareholders, including
payments under the Management Agreement but excluding operating costs, to its
payment obligations under the Project Loan Agreements. Such payment
obligations to the shareholders are also pledged in favor of the Project
Lenders.
As a condition to the Project Lenders providing an additional $30 million in
financing, the Cyprus Amax Support Agreement is being amended to require
Cyprus Magadan and Cyprus Amax to repay the Project Loans or fund any
additional cost overruns that arise and are not contemplated by the
Development Plan as in
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effect on June 1996. In connection with the Acquisition, the Company will
assume the obligation to fund any such cost overruns, and Cyprus Amax will
have no obligation to reimburse the Company for any such funding. See "THE
ACQUISITION AGREEMENT--Assumption of Obligations and Indemnification."
The Cyprus Amax Support Agreement is governed by New York law. The Russian
Shareholders Support Agreement is governed by New York law and provides for
resolution of disputes by arbitration in London, New York or Washington, D.C.
Pledge Agreements. The Project Loans are supported by pledges of Omolon's
onshore and offshore accounts, of the shares of Cyprus Magadan and Omolon, of
any proceeds from Omolon's insurance policies and of Omolon's assets and its
interest in the project agreements.
Subordinated Loan
The amendments to the Project Loan Agreements require an additional $14
million in the form of a Subordinated Loan solely to fund a portion of the
cost overruns at the project. Omolon has arranged a Subordinated Loan from a
bank licensed to do business in Russia, which loan will be guaranteed by
Cyprus Amax. While the terms of the Subordinated Loan are subject to the
negotiation with the lending bank, the Company expects the terms to be
substantially as set forth below:
Interest. The interest rate payable on the Subordinated Loan is expected to
be LIBOR plus 6.075 percent. Interest due will be capitalized if not paid when
due. Accrued interest will be payable on each June 15 and December 15.
Repayment. The Subordinated Loan will be subject to mandatory prepayment in
nine semi-annual payments from available revenues commencing on the later of
December 15, 1997 or the project completion date and on each successive June
15 and December 15. These payments are subject to the provisions of the Cyprus
Amax Support Agreement and the Project Loan Agreements and, to the extent any
mandatory payment is not permitted by the provisions of such agreements,
amounts not paid will be deferred to the next successive interest payment
date, bearing interest at the rate set forth above. In addition, to the extent
that, under the Project Loan Agreements, revenues would be available for the
payment of dividends to Omolon shareholders, such amounts must be used to pay
any past due principal and interest and to prepay the Subordinated Loan.
Omolon also has agreed, to the extent permissible under the Project Loans
without requiring any prepayment of the outstanding Project Loans, that if
actual capital costs related to the construction and start up of the Kubaka
Project are less than the estimated $228 million, a portion of the
Subordinated Loan equal to the difference will be prepaid by Omolon (or if
Omolon fails to so prepay, by the Company).
Subordination. Payments of principal and interest on the Subordinated Loan
will be subordinated in both right of payment and in the event of liquidation
to payments on the Project Loan Agreements on terms set forth in the
subordination agreement between Omolon, the Project Lenders and the
subordinated lender. Under such subordination agreement, payments may be made
on the Subordinated Loan only so long as no actual or potential event of
default has occurred under the Project Loan Agreements.
Covenants. Omolon is prohibited, during any period when the Subordinated
Loan is outstanding, from granting or being subject to any lien, other than
liens permitted by the Project Loan Agreements. In addition, Omolon may not be
subject to any other junior indebtedness that ranks senior to the Subordinated
Loan. Finally, no dividends may be paid by Omolon to its shareholders while
the Subordinated Loan is outstanding.
Events of Default. Events of default in the Subordinated Loan include non-
payment of principal or interest when due (taking into consideration permitted
deferrals set forth above), bankruptcy of Omolon, and default by Omolon under
any debt agreement if the effect is to permit holders thereof to accelerate
indebtedness.
Guaranty. Cyprus Amax has agreed to guarantee the Subordinated Loan. The
Company has agreed to reimburse Cyprus Amax for any payments it makes pursuant
to such guaranty.
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GOLD SALES ARRANGEMENTS
The principal law governing the sale of gold is a November 1991 Presidential
Decree, which empowers the Russian Government to regulate matters concerning
precious metals. Pursuant to this decree, the Russian Government issued a
January 1992 Decision in which it retained the sole right to sell gold outside
Russia. The Russian Government issued a June 1994 Decision with respect to the
sale of gold within the Russian Federation, which provides that license
holders must sell, on the basis of purchase and sale contracts, gold and
silver produced in the Russian Federation to an agency of the Russian
Government, the Committee for Precious Metals and Precious Stones
("Roskomdragmet"), or if Roskomdragmet declines to purchase them, to the
Central Bank of the Russian Federation or to certain authorized commercial
banks. The functions of Roskomdragmet, including its rights and obligations
under the Roskomdragmet Agreement with Omolon, are to be transferred to the
Ministry of Finance and/or the Ministry of Industry.
A March 1995 Presidential Decree permits, under certain circumstances, 50%
of the purchase price of gold to be paid in freely convertible currency and
the remainder to be paid in roubles, although this 50% level could be changed
by future legislation.
In January 1994, the Russian Government issued a Decree, specific to Omolon,
which permits Omolon to sell for freely convertible currency on the world
market any gold which is not purchased by Roskomdragmet, provided that any
such sale be made through Vneshtorgbank, the state foreign trade bank. In
accordance with existing Russian currency laws, 50% of all such hard currency
export sales proceeds must be converted into roubles.
On the basis of these Decrees and Decisions, Omolon has entered into a
Purchase-Sales Contract with Roskomdragmet (the "Roskomdragmet Agreement") and
an Agency Agreement with Vneshtorgbank (the "Vneshtorgbank Agreement"), each
of which is described below.
Roskomdragmet Agreement. Pursuant to the Roskomdragmet Agreement, dated May
29, 1995, between Omolon and Roskomdragmet, Omolon is obliged to offer for
sale to Roskomdragmet all of its production from the Kubaka and Evenskoye
fields, in dore-alloy bars. Omolon must notify Roskomdragmet by November 1 of
each year of its estimated production of dore during the next calendar year.
Omolon also must submit its projected schedule of shipments of dore at least
30 days prior to each calendar quarter. Roskomdragmet must confirm by written
notice the amount of dore which it intends to purchase during that period or
deliver a rejection notice.
Roskomdragmet must pay the London fixed market price for gold and silver,
less refining, transportation and insurance costs. Under the agreement, Omolon
is paid for gold prior to delivery, and the purchase price for gold is payable
50% in US dollars (to Omolon's Offshore Account described below) and 50% in
roubles. The US dollar portion of the purchase price is calculated on the
basis of the US dollar world market price of gold. The rouble portion of the
purchase price is calculated by converting the US dollar portion of the
purchase price into roubles at the exchange rate quoted by the Central Bank of
Russia. All of the purchase price for silver is payable in roubles.
Upon receipt at any stage of a rejection notice from Roskomdragmet or the
failure of Roskomdragmet to deposit payment for the gold to be delivered,
Omolon has the right to sell the dore not being purchased by Roskomdragmet to
another purchaser pursuant to the terms of the Vneshtorgbank Agreement.
Dore is to be delivered to Roskomdragmet or its agent at the Kubaka site,
and upon certification of delivery, risk and title pass to Roskomdragmet. If
Roskomdragmet fails to take delivery within a certain period, Omolon is
entitled to notify the banks of such failure, in which event funds for payment
of the purchase price will be released to Omolon, and Omolon will hold the
shipment for the account of Roskomdragmet.
The Roskomdragmet Agreement provides for resolution of disputes by
arbitration in Moscow.
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Vneshtorgbank Agreement. The Vneshtorgbank Agreement, dated June 1, 1995,
provides that in the event of nonacceptance of or nonpayment for dore by
Roskomdragmet, Vneshtorgbank will export dore produced by Omolon to a
purchaser outside Russia to be specified by Omolon. Vneshtorgbank is entitled
to an agency fee for performing export services. The payment and delivery
mechanism to be entered into by Omolon with the end purchaser is to be similar
to that described in the Roskomdragmet Agreement, except that pursuant to the
Vneshtorgbank Agreement, all purchase monies are to be paid into Omolon's
Offshore Account, and upon release of the funds, 50% of the purchase price for
gold and 100% of the purchase price for silver must be transferred to Omolon's
Russian bank account and converted into roubles. The Vneshtorgbank Agreement
provides for resolution of disputes by arbitration in Stockholm, Sweden.
Central Bank Licenses. Licenses from the Central Bank of Russia are required
for Omolon to borrow funds for more than 180 days and to deposit dollar
proceeds in an offshore account. Omolon's Central Bank Licenses, dated
November 4, 1995, became effective on November 24, 1995 after satisfaction of
certain conditions. Omolon's Borrowing License allows Omolon to borrow $100
million from EBRD and OPIC to finance the Kubaka Project. Omolon's Offshore
Account License allows Omolon to keep foreign currency funds in an account
with Citibank London in connection with the Project Loans. Omolon is applying
for a supplement to its existing licenses from the Central Bank to permit the
additional financing, including the additional $30 million from the Project
Lenders and the Subordinated Loan.
The Offshore Account License sets forth authorized subaccounts and the
maximum limits for subaccount balances. The Cash Collateral Subaccount may
have an aggregate balance equal to the lesser of (i) $13.5 million less the
face amount of any letter of credit multiplied by (a) the value of all
disbursements made under the Project Loans divided (b) by $100,000,000, and
(ii) the outstanding amounts under Tranche 1 of the Project Loans plus $5
million less the face amount of any letter of credit. The Revenue Subaccount
and the Cash Collateral Subaccount may have an aggregate balance equal to the
sum of the amounts payable on the next interest payment date, payments for
operating costs and costs associated with Omolon's administrative activities,
the fees and expenses due to Citibank and Moscow Narodny Bank for the next six
months and the limit for the Cash Collateral Account. Amounts in excess of all
limits in total established by the Offshore Account License must be
transferred to an account of Omolon in the Russian Federation within 14 days.
The Central Bank Licenses terminate upon repayment in full of the Project
Loans, and at such time, payment for all gold and silver sold must be made
into a Russian bank.
Offshore Account Arrangements. The Offshore Bank Account Agreement is an
accounts agreement between Omolon and Citibank London under which Omolon
agrees to give security over the Offshore Account to Moscow Narodny Bank, the
trustee acting on behalf of the Project Lenders, under a security and trust
deed. The Blocked Account Agreement among Omolon, Roskomdragmet and Citibank
London covers the Roskomdragmet Sales Subaccount (a subaccount of the Offshore
Account) into which the US dollar proceeds of dore sales are paid by
Roskomdragmet, as contemplated in the Roskomdragmet Agreement. The Russian
Blocked Account Agreement is an agreement similar to the Blocked Account
Agreement but applies to Omolon's Russian bank, Rossiisky Kredit, rather than
Citibank London.
The US dollar component of proceeds of sales of dore made pursuant to the
Roskomdragmet Agreement, the Vneshtorgbank Agreement or other sales agreements
approved by the Project Lenders is to be paid directly into an offshore
account of Omolon in accordance with the offshore account arrangements
discussed above. For so long as the Project Loans are outstanding, such sales
proceeds will be retained in such accounts up to limits set in Omolon's
Central Bank Licenses and will be available for use to meet operating and
capital expenses and to establish a cash collateral reserve for the Project
Lenders. Proceeds in excess of such limits are required to be transferred to
Omolon's account with Rossiisky Kredit in the Russian Federation. Amounts
maintained in Omolon's accounts are required to be applied or invested subject
to contractual limitations imposed by the Project Lenders, which are typical
for financings of the type obtained by Omolon and are intended to protect the
interests of the Project Lenders.
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POLITICAL RISK INSURANCE
Pursuant to the Contracts of Insurance, dated effective September 29, 1995
(the "Political Risk Insurance"), between Cyprus Amax and OPIC, OPIC has
agreed to provide Cyprus Amax with insurance coverage in the amount of $36
million, which is 90% of the amount of Cyprus Amax's equity contribution in
Omolon (the maximum statutory limit) and which can be adjusted from time to
time based on Cyprus Amax's exposure, and insurance coverage for the fee due
under the Management Agreement. The Political Risk Insurance covers four
categories of political risk: (i) inconvertibility of earnings or returns;
(ii) expropriation of funds; (iii) political violence (defined as a violent
act undertaken with the primary intent of achieving a political objective);
and (iv) interference with operations. Coverage is subject to extensive
procedural and coverage limitations, long waiting periods, burdens of proof
and numerous conditions to recovery and may be terminated if Omolon fails to
operate the Kubaka Project in accordance with good international practices in
the gold industry and a defined list of environmental standards. The Contracts
of Insurance are governed by the law of Washington, D.C. and provide for
resolution of disputes by arbitration in Washington, D.C. OPIC has agreed to
Cyprus Amax's assignment of the policy to the Company at closing pursuant to
the terms of the Acquisition Agreement.
In addition, Cyprus Magadan and Cyprus Amax may terminate their guaranties
to the Project Lenders upon the occurrence of a qualified political event,
and, therefore, the Project Lenders may be deemed to have assumed the risk of
a qualified political event in respect of the Project Loans. See "--Project
Financing--Cyprus Magadan Guaranty."
NORTH VEIN AGREEMENT
The Company expects Omolon to enter into an agreement (the "North Vein
Agreement"), subject to the approval of the Project Lenders, to purchase
and/or process approximately 99,200 tons of gold ore from a nearby property
owner (the "North Vein Ore") and to process that ore as soon as reasonably
practicable following start-up of the Kubaka processing plant. The Company
anticipates processing the North Vein Ore before processing ore mined from the
Kubaka Project. Omolon will receive an amount equal to the excess of revenues
from sale of the gold produced over all costs of the Company plus a profit
margin for the period the North Vein Ore is processed.
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THE ACQUISITION AGREEMENT
GENERAL
Stockholders are being asked to approve the Acquisition by the Company from
Cyprus Amax of all of the common stock of Cyprus Magadan. Cyprus Magadan has a
50% ownership interest in Omolon Gold Mining Company, a Russian closed joint
stock company, which holds a license to mine the Kubaka gold deposit located
in the Magadan Region of the Russian Federation.
The terms of the Acquisition are set forth in the Acquisition Agreement
among the Company, Amax Russia, Cyprus Amax, Cyprus Magadan and Cyprus Gold.
Pursuant to the Acquisition Agreement, Amax Russia will be merged into Cyprus
Magadan, and Cyprus Magadan will become a wholly owned subsidiary of the
Company. The following description of the Acquisition Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Acquisition Agreement, a copy of which is attached as Appendix A to this
Consent Solicitation Statement and incorporated herein by reference.
STOCKHOLDERS ARE URGED TO READ THE ACQUISITION AGREEMENT IN ITS ENTIRETY.
EFFECTIVE TIME
Following stockholder approval of the Acquisition Agreement, the Merger will
become effective on such date as the Certificate of Merger is filed with the
Secretary of State of the State of Delaware (the "Effective Time"), which will
occur promptly following the satisfaction or waiver of all conditions
contemplated by the Acquisition Agreement.
PURCHASE PRICE
The purchase price has three components. At the closing of the Acquisition,
the Company will transfer to Cyprus Amax 11,789,474 shares of Common Stock
(the "Closing Shares"). Within ten days following commencement of commercial
production, the Company will transfer to Cyprus Amax an additional 4,210,526
shares of Common Stock (the "Production Shares"). The date of commencement of
commercial production is the date upon which the Kubaka Project ceases to
capitalize start-up costs and begins to expense operating costs in accordance
with U.S. generally accepted accounting principles. Based on $5.9375 per share
of Common Stock, the average price per share of Common Stock for the ten
trading days prior to October 17, 1995, the date the Acquisition first was
announced, the aggregate value of the Closing Shares and the Production Shares
would be approximately $95 million.
In addition, the Company is required to make contingent payments in Common
Stock (the "Contingent Payment Shares") to Cyprus Amax with respect to the
Company's share of new mineral deposits in the Russian Federation acquired
directly or indirectly by the Company, other than (i) deposits any portion of
which are located within the boundaries described in the License of Omolon or
(ii) deposits acquired pursuant to the Exploration JV Agreement ("Additional
Deposits"). As payment for an Additional Deposit, the Company will issue the
number of Contingent Payment Shares, valued at the average price per share of
Common Stock for the ten trading days ending two business days before the date
of payment, as are equal to each Additional Deposit's Reserve Value (defined
as $10 per gold equivalent ounce of the Company's pro rata share of the
Additional Deposit's proven and probable reserves established by a feasibility
study prepared in accordance with industry standards). The North Vein Ore is
not an Additional Deposit under the Acquisition Agreement.
The Company has no contingent payment obligation for an Additional Deposit
(i) to the extent that the contingent payments exceed $45 million or (ii) if
such Additional Deposit is acquired after June 30, 2004. The Contingent
Payment Shares are required to be delivered to Cyprus Amax within ten business
days following the later of the date upon which the Company acquires the right
to mine such deposit and the date upon which reserves are established in a
feasibility study.
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ASSUMPTION OF OBLIGATIONS AND INDEMNIFICATION
The Company has agreed to assume substantially all of the obligations of
Cyprus Amax under each of the Cyprus Amax Support Agreement and the
Reclamation Agreement and to pledge its shares of Cyprus Magadan to the
Project Lenders. Cyprus Amax has agreed to continue to perform the Cyprus Amax
Guaranty and to fund any payments to the Project Lenders under the Cyprus Amax
Support Agreement or the Cyprus Magadan Guaranty. Omolon remains obligated to
make repayments under the Project Loans and the Subordinated Loan. In
addition, the Company is required to indemnify Cyprus Amax for payments made
by Cyprus Amax under the Cyprus Amax Guaranty in the event of a default under
the Project Loan Agreements caused by the gross negligence or willful
misconduct of the Company. In the event Cyprus Amax is obligated to make a
payment under the Cyprus Amax Guaranty at a time when the Company has
concluded that the continued operation of Kubaka Project would have a material
adverse effect on the Company, the Company has the right to offer to transfer
its interest in Cyprus Magadan to Cyprus Amax. In the event Cyprus Amax
accepts the Cyprus Magadan shares, Cyprus Amax is obligated to indemnify the
Company in connection with any obligations under the Cyprus Amax Support
Agreement, the Reclamation Agreement and the Subordinated Loan. If Cyprus Amax
rejects the shares of Cyprus Magadan, the Company retains its obligations
under the Reclamation Agreement and the Subordinated Loan but is released from
its obligations to Cyprus Amax under the Cyprus Amax Support Agreement, absent
any prior gross negligence or willful misconduct of the Company.
Cyprus Amax will also guaranty the Subordinated Loan, and the Company has
agreed to reimburse Cyprus Amax for any payments Cyprus Amax makes under such
guaranty. The Company also has agreed, to the extent permissible under the
Project Loans without requiring any prepayment of the outstanding Project
Loans, that if actual capital costs related to the construction and start up
of the Kubaka Project are less than the estimated $228 million, then a portion
of the Subordinated Loan equal to the difference will be prepaid by Omolon (or
if Omolon fails to so prepay, by the Company).
In the event of third party claims (i.e. claims from persons other than the
Project Lenders) relating to the operation of Cyprus Magadan following
closing, the Company has agreed to indemnify Cyprus Amax.
Cyprus Amax has agreed to indemnify the Company for liabilities relating to
any breach by Cyprus Magadan prior to closing of certain covenants under the
Project Loan Agreements and any failure by Cyprus Amax to maintain an
investment grade credit rating or to continue to own indirectly at least 50%
of Omolon.
PROJECT LIQUIDITY NEEDS
Cyprus Amax has funded, and will continue to fund until the closing of the
Acquisition, a portion of Omolon's costs to purchase and deliver operating
supplies needed for 1997. The Company has agreed to use its commercially
reasonable efforts to cause Omolon to reimburse Cyprus Amax for such
expenditures or if such efforts fail, to reimburse Cyprus Amax directly.
The Company has agreed to monitor progress toward project completion and to
notify Cyprus Amax if Omolon experiences additional liquidity needs, including
project costs overruns, beyond available funds. In the event such needs are
experienced, the Company has agreed to seek additional cash contributions or
subordinated shareholder loans from the Russian Shareholders and Cyprus
Magadan and/or additional third-party financing, or the Company may contribute
funds.
If the Company does not fund such liquidity needs, Cyprus Amax will have the
right to fund such overruns by making a short-term, unsecured loan to Omolon,
repayable in six months on commercially reasonable terms. If the total of such
loans exceeds $5 million or are not repaid in six months, then Cyprus Amax may
convert the short-term unsecured loan to a term loan that is guaranteed by the
Company. The Company may satisfy its obligation to make any payment under such
guaranty either in cash or, if Cyprus Amax agrees, by issuing shares of Common
Stock valued at the ten-day average closing price of the Common Stock for the
period ending two business days before the payment date. Stockholder approval
of the issuance of shares of Common Stock pursuant to the Acquisition includes
approval of the issuance of shares of Common Stock under such guaranty.
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REPRESENTATIONS AND WARRANTIES
The Acquisition Agreement contains representations and warranties of the
parties concerning, among other things, incorporation, authority of the
parties to execute the Acquisition Agreement, the capital structure and share
ownership of the parties and no conflicts. Cyprus Amax has made certain
additional representations and warranties concerning Omolon, environmental
matters and the absence of defaults under the Project Loan Agreements.
COVENANTS
Each of the Company and Cyprus Amax has agreed to obtain all necessary
consents and approvals and to provide the other party with full access to
information needed in connection with such party's investigation. Pending
closing, the parties have agreed to cause Cyprus Magadan and Omolon to conduct
business only in the ordinary course. Cyprus Amax has agreed to use
commercially reasonable efforts to obtain the additional $30 million of
financing from the Project Lenders, to implement the Subordinated Loan, to
maintain the gold sales arrangements; to obtain the additional $6 million of
equity contributions from the Shareholders of Omolon; and to consent to the
Acquisition and issuance of shares of Common Stock in accordance with the
Acquisition Agreement.
CONDITIONS
The Acquisition Agreement requires customary conditions to closing to be
satisfied or waived. The obligations of the Company and Amax Russia are
conditioned on the fulfillment of certain additional closing conditions,
including: (i) approval of the Acquisition by the stockholders of the Company;
(ii) satisfaction or waiver of all of the conditions precedent to the making
of loans under the Project Loan Agreements, including the $30 million of
additional financing being negotiated with the Project Lenders; (iii)
maintenance of the gold sales arrangements; (iv) finalization of the North
Vein Agreement; (v) assignment of the political risk insurance coverage
obtained from OPIC by Cyprus Amax to the Company; (vi) the absence of a
material adverse change in the Kubaka Project; (vii) receipt of any necessary
governmental consents or approvals; and (viii) the completion of the $14
million Subordinated Loan and $6 million of additional equity contributions.
COSTS
Each party is responsible for its own costs and expenses incurred in
connection with the Acquisition Agreement and the related transactions.
TERMINATION
The Acquisition Agreement may be terminated: (i) at any time before closing
by mutual written agreement of Cyprus Amax and the Company; or (ii) by Cyprus
Amax or the Company, in the event (a) there is a material breach of the
Acquisition Agreement which is not cured within 15 days (or such longer period
as may be agreed upon) of notification or (b) the satisfaction of any
conditions becomes impossible or impracticable with the use of commercially
reasonable efforts; or (iii) by Cyprus Amax or the Company at any time after
March 31, 1997 if the closing has not occurred on or before such date.
ACCOUNTING AND TAX TREATMENT
The Acquisition will be treated as a purchase for accounting purposes. The
Acquisition will not be taxable (for US tax purposes) to any of the parties to
the Acquisition Agreement or their respective shareholders.
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BACKGROUND OF AND REASONS FOR THE ACQUISITION;
RECOMMENDATION OF THE SPECIAL COMMITTEE
BACKGROUND
The acquisition of the Kubaka Project by the Company from Cyprus Amax has
been considered as a possibility by the parties since the merger of Cyprus
Minerals Company and AMAX Inc. (the "Cyprus Amax Merger") to form Cyprus Amax
in November 1993. Since the Cyprus Amax Merger, Cyprus Amax has anticipated
rationalizing its ownership in gold prospects by offering those of its gold
prospects that have become sufficiently attractive for development to the
Company. The Company has included the possible acquisition of gold projects
held by Cyprus Amax as part of its growth strategy. Cyprus Amax continued to
do exploration, to conduct feasibility analysis and to seek financing for the
Kubaka Project following the Cyprus Amax Merger.
In February 1995, at the request of Cyprus Amax, the Company assumed the
management of the day-to-day operations of the Kubaka Project. In April 1995,
the Company's President and Chief Executive Officer was elected to the Omolon
Board of Directors.
Under the direction of the Company, a new development plan for the Kubaka
Project was completed in June 1995. Also in June 1995, documentation for the
$100 million of debt financing to be provided by EBRD and OPIC for the Kubaka
Project was signed by Cyprus Amax. Upon finalization of the development plan
and execution of the Project Loan Agreements and collateral documents, Cyprus
Amax and the Company determined that it was the appropriate time to discuss
the potential purchase by the Company of Cyprus Amax's interest in the Kubaka
Project. The Company's Board had been updated about the progress of the Kubaka
Project and related debt financing periodically since the Company's
involvement in the operations at the Kubaka Project in the beginning of 1995.
During July 1995, the Company and Cyprus Amax each worked on preparing an
analysis of comparable transactions. The Company requested Salomon Brothers to
provide information regarding comparable transactions, both in the Russian
Federation and other areas.
The officers and employees of the Company and Cyprus Amax who conducted
negotiations regarding the original acquisition agreement through January
1996, included, on behalf of the Company, Roger A. Kauffman, who was then
President and Chief Operating Officer, Mark A. Lettes, Vice President and then
Chief Financial Officer, and Deborah J. Friedman, Vice President, General
Counsel and Secretary, and, on behalf of Cyprus Amax, Gerald J. Malys, Senior
Vice President and Chief Financial Officer of Cyprus Amax, who also serves as
a Director of the Company, Larry D. Clark, Vice President, Business
Development, and Dale E. Huffman, General Attorney and Assistant Secretary.
Prior to joining the Company, Ms. Friedman had served in various positions in
the Cyprus Amax law department, including General Counsel and Associate
General Counsel.
At the end of July 1995, after preliminary discussions between the parties
regarding the price and the structure for the acquisition, Cyprus Amax
proposed a total purchase price of $140 million, payable in full upon closing
of the acquisition in shares of Common Stock. The Company, after review of the
Kubaka Project and comparable transactions and after consultation with Salomon
Brothers, reopened discussions with Cyprus Amax to seek a lower price with
contingent payment features. The Company wanted to reduce its exposure to the
risks of doing business in the Russian Federation by limiting its payment
obligation at closing and allocating as much of the purchase price as possible
in the form of contingent, future payments. The use of the contingent payment
features also was a means of compromise between the parties regarding the
overall value of the transaction. The Company's management discussed the
potential acquisition with representatives of Cyprus Amax several times in
August and early September 1995.
On August 4, 1995, Salomon Brothers signed an engagement letter agreeing to
provide a fairness opinion to the Special Committee of the Board. Salomon
Brothers had been engaged on a number of occasions in the past on behalf of
the members of the Special Committee to provide financial advice with respect
to other transactions between the Company and Cyprus Amax.
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The Company's Board met on September 22, 1995 in Fairbanks, Alaska, to
discuss the potential acquisition of the Kubaka Project from Cyprus Amax. The
Board delegated to the Special Committee (comprised of the directors of the
Board who are neither affiliates of Cyprus Amax nor officers or employees of
the Company) the authority to review, evaluate, negotiate and approve or
disapprove the acquisition of the Kubaka Project. Subsequently, the Special
Committee met separately to discuss the Kubaka Project and the proposed
transaction. The Special Committee received the advice of its legal counsel,
who have particular expertise in Russian matters, and ratified the engagement
of Salomon Brothers as its financial advisor. After consultation with its
financial advisor, the Special Committee directed its legal counsel and
certain management of the Company to negotiate further the terms of the
acquisition.
During the last two weeks of September 1995, management of the Company met
with representatives of Cyprus Amax to continue negotiations regarding the
basic terms of the acquisition. Representatives of Cyprus Amax and the Company
reached tentative agreement on a proposed purchase price consisting of three
components: (i) shares of Common Stock valued at $70 million (based on $5.9375
per share, the average price per share of Common Stock for the ten trading
days prior to October 17, 1995, the date a joint press release of the Company
and Cyprus Amax was issued announcing the Acquisition), to be issued at
closing; (ii) shares of Common Stock valued at $25 million (based on $5.9375
per share) to be issued upon commencement of commercial production; and (iii)
a contingent payment of $10 per gold equivalent ounce, not to exceed $45
million in the aggregate, of the Company's pro rata share of reserves at new
properties in the Russian Federation which the Company directly or indirectly
acquires the right to mine on or before June 30, 2004, payable in shares of
Common Stock valued at the time such shares are issued. As part of these
discussions, Cyprus Amax agreed to remain liable on its guaranty of Omolon's
repayment of the Project Loans from EBRD and OPIC without seeking
indemnification for such payments from the Company, and the Company agreed to
assume the risk of any environmental liability in connection with the Kubaka
Project. The parties agreed that the contingent payment portion of the
purchase price would be based on the amount of proven and probable reserves as
established by a feasibility study.
The Special Committee met again on October 2, 1995 in Englewood, Colorado
and received the advice of its legal counsel and financial advisor with
respect to the status of the Kubaka Project and the proposed basic terms of
the transaction. The Special Committee and the other members of the Board met
together to receive a detailed report from the legal counsel for the Special
Committee and the Company's management regarding the Kubaka Project as well as
the terms of the License, the Charter and the Project Loan Agreements and
collateral documents. Salomon Brothers also discussed the status of its review
of the Kubaka Project with the entire Board.
During the week of October 2, 1995, management of the Company and legal
counsel for the Special Committee negotiated the terms and conditions of the
acquisition with representatives of Cyprus Amax. Basic agreement on the key
terms for the acquisition was reached by the managements of both the Company
and Cyprus Amax on October 6, 1995.
The Special Committee met on October 12, 1995 in Englewood, Colorado. With a
director affiliated with Cyprus Amax present, the Special Committee reviewed
the key terms of the proposed acquisition. In addition, Salomon Brothers
presented its opinion to the Special Committee that, as of such date, the
transaction was fair, from a financial point of view, to the Company's
stockholders, exclusive of Cyprus Amax and its affiliates. Salomon Brothers
subsequently met separately with the members of the Special Committee and its
counsel to discuss its opinion further. The Special Committee approved the
acquisition and authorized and directed the officers of the Company to prepare
a proposed form of merger agreement.
The Company and Cyprus Amax issued a joint press release on October 17,
1995, publicly announcing the Company's intention to purchase, subject to
approval by the Company's stockholders and Board, Cyprus Amax's interest in
the Kubaka Project.
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On October 20, 1995, a purported derivative action was filed in the Court of
Chancery of Delaware captioned Harbor Finance Partners v. Allen Born, et. al.
The complaint alleges that the Company's acquisition of the Kubaka Project is
being made at a price in excess of its fair market value and that the
Company's directors breached their fiduciary duties in agreeing to the
transaction. The complaint seeks rescission of the transaction and damages in
an unspecified amount against the directors. The Company believes the
complaint is without merit, and the Company intends to defend the matter
vigorously.
The managements of Cyprus Amax and the Company, with the assistance of
outside counsel, continued negotiations regarding the final terms and
conditions of the acquisition and prepared a proposed form of merger
agreement.
At a meeting held on December 13, 1995 in Englewood, Colorado, the Special
Committee discussed the current status of the Kubaka Project, of the
negotiations concerning the merger agreement and of borrowings under the
Project Loan Agreements with EBRD and OPIC.
At a meeting of the Special Committee held on January 3, 1996 in Englewood,
Colorado, the Special Committee, with its legal counsel present by telephone,
received the report of the Company's management regarding cost variances
experienced in the construction of the Kubaka Project to date and the
potential for future cost overruns. The Company's management had conducted an
extensive review of certain cost issues and discussed their review with the
Special Committee. Following receipt of the report of management, the Special
Committee determined that management's expectations regarding potential cost
overruns were reasonable and did not materially affect the Company's
acquisition of the Kubaka Project. The Special Committee asked that management
and its financial advisors apprise Salomon Brothers concerning the present
status of the Kubaka Project's development and budget.
At a meeting of the Special Committee held on January 10, 1996, in
Englewood, Colorado, with its legal counsel and Salomon Brothers present by
telephone, the Special Committee reviewed the present status of the Kubaka
Project, including the potential for cost overruns. The increase in the price
of the Company's shares since the announcement of the Company's proposed
acquisition of the Kubaka Project in October 1995 also was discussed. While it
was noted that the increased share price resulted in a higher market value for
the shares being paid to Cyprus Amax as consideration for the Kubaka Project,
the following factors were identified as reflecting positively on the
transaction: (i) the perception that the market viewed the acquisition of the
Kubaka Project as favorable to the Company, because, among other things,
through its involvement in the Kubaka Project and certain other ventures, the
Company was nearing a new level within the industry, as a potential producer
of significant amounts of gold on an ongoing basis, and (ii) the increase in
the price of gold reflected positively on the value of the Kubaka Project.
At a meeting of the Special Committee held on January 24, 1996 in Englewood,
Colorado, with legal counsel for the Special Committee and Salomon Brothers
present by telephone, Salomon Brothers presented its opinion to the Special
Committee that, as of such date, the transaction was fair, from a financial
point of view, to the Company's stockholders, exclusive of Cyprus Amax and its
affiliates. The Special Committee recommended that, subject to the receipt of
Salomon Brothers' written fairness opinion, the Company should proceed with
the acquisition of the Kubaka Project pursuant to the terms of the Acquisition
Agreement. Thereafter, Salomon Brothers delivered its written opinion dated
January 24, 1996 and the parties executed the original acquisition agreement.
Finalization of the Acquisition was delayed as a result of certain increases
in capital costs and delays in project completion. In February 1996, the
managements of the Company and Cyprus Amax undertook a complete evaluation of
project capital costs for the Kubaka Project. In March 1996, personnel from
Cyprus Amax Engineering and Project Development Company were seconded to the
Company and became responsible for the construction and start-up of the
project and commenced a complete review and assessment of the project capital
and completion schedule. As a result of their review, it was determined in
April that, due to delayed start-up, higher logistics and freight costs,
higher than anticipated labor costs and taxes and some design changes, the
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required project capital would increase from a projected $180 million to
approximately $228 million and that an additional $20 million would be
required for operating supplies and financing costs as a result of
rescheduling start-up from October 1996 to March 1997 and the need to
transport a year's supplies over the winter ice road.
Also during the spring of 1996, the Company faced significantly increased
total capital costs estimated at $370 million at the Fort Knox project in
Alaska and the need to restructure the Company's $250 million bank loan. The
Company and Cyprus Amax reached agreements under which Cyprus Amax would
provide the Company with the necessary financial support for the Fort Knox
Loan. See "CERTAIN TRANSACTIONS--RELATIONSHIP WITH CYPRUS AMAX--Fort Knox
Financing Arrangement."
At its April 30, 1996 meeting, the Board reviewed the final cost estimate
for the Kubaka Project and received the reports of the Company's management
and of the Cyprus Amax Project Development Company. The members of the Special
Committee met separately with the Company's management to review the cost to
complete estimates and the Company's proposed press release. On April 30,
1996, the Company reported that an updated review of the Kubaka Project
indicated that due to delayed start-up, higher logistics and freight costs,
higher than anticipated labor costs and taxes, and some design changes, the
total capital construction costs for the Kubaka project had increased to
approximately $228 million from an original estimate of approximately $182
million.
During May and June of 1996, management of Cyprus Amax met with the Project
Lenders to discuss a restructuring of the Project Loans. At a meeting of
Cyprus Amax and the Project Lenders in Washington D.C. on July 18, 1996, the
Project Lenders agreed to lend an additional $30 million. In exchange, the
Project Lenders would require (i) that Cyprus Magadan and the Russian
Shareholders contribute an additional $6 million of equity, $3 million from
Cyprus Magadan (in cash or in kind) and $3 million in roubles from the Russian
Shareholders, (ii) that Cyprus Magadan provide the project with an additional
$14 million in the form of a subordinated loan to Omolon to be guaranteed by
Cyprus Amax, and (iii) that Omolon pay an up front fee of $375,000 upon each
of the Project Lender's board approval of the additional debt. The Project
Lenders also acknowledged that Omolon would be allowed to establish a working
capital line of credit of as much as $20 million to finance operating supplies
for 1997.
During August 1996, the Project Lenders and Cyprus Amax provided term sheets
for the restructuring of the Project Loans. The Project Lenders proposed that
the date by which physical completion of the project must occur would be
extended from June 30, 1997 to December 31, 1997, or an event of default could
be declared. The Project Lenders also proposed to permit Omolon to incur up to
an aggregate of $20 million of additional indebtedness to fund working capital
needs, to increase the amount of required cash collateral and to reduce the
debt service requirement. The Project Lenders and Cyprus Amax are expected to
finalize and execute the amendments to the Project Loan Agreements, the
Subordinated Loan and the collateral documents prior to the closing of the
Acquisition.
The officers and employees of the Company and Cyprus Amax who conducted
negotiations regarding amendments to the original acquisition agreement and
additional financing arrangements, included, on behalf of the Company, two new
officers of the Company, S. Scott Shellhaas, President and Chief Operating
Officer, and Larry D. Clark, Vice President, both formerly of Cyprus Amax or a
subsidiary of Cyprus Amax, and Deborah J. Friedman, Vice President, General
Counsel and Secretary, and, on behalf of Cyprus Amax, Gerald J. Malys, Senior
Vice President and Chief Financial Officer, who also serves as a Director of
the Company, Farokh S. Hakimi, Director of Finance and Assistant Treasurer,
and Dale E. Huffman, General Attorney and Assistant Secretary.
At a meeting of the Special Committee held on August 13, 1996, with its
legal counsel and Salomon Brothers participating, the Special Committee
reviewed the status of the Kubaka Project, including construction activities,
anticipated project completion, additional financing arrangements and project
economics. Representatives of Cyprus Amax management were present during the
report on the status of the Kubaka Project. The Committee and its advisors
then proceeded to discuss the information received, as well as remaining
negotiating points. At the meeting, the Company's management expressed its
continued positive view of the proposed acquisition.
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On August 21, 1996, the Special Committee met to discuss exploration
programs associated with the Kubaka Project and the potential of the area. The
Special Committee also established a schedule for completing the Acquisition
and discussed potential matters for negotiation with Cyprus Amax.
From the end of August to the first week of October, management from the
Company and Cyprus Amax negotiated revised terms for the acquisition. For a
discussion of the terms of the Acquisition Agreement, see "THE ACQUISITION
AGREEMENT."
On August 30, 1996, the Special Committee convened with its legal counsel
and Salomon Brothers by telephone to receive and discuss the presentation of
Salomon Brothers regarding valuation matters. The Committee also received a
status report from management on the Kubaka Project and negotiations with
Cyprus Amax.
During September 1996, the Company and Cyprus Amax executed an extension of
the original acquisition agreement from September 30, 1996 to December 31,
1997.
On September 6, 1996, at a meeting of the Special Committee with Salomon
Brothers participating by telephone, the Special Committee reviewed the status
of the negotiations on the Kubaka Project and discussed the additional
financing and working capital needs of the project. The Special Committee also
considered the developments in the Russian Federation.
At a telephonic meeting of the Special Committee held on October 9, 1996,
with legal counsel for the Special Committee and Salomon Brothers present, the
Committee received an update on the Kubaka Project and a report on the outcome
of negotiations with Cyprus Amax. Then Salomon Brothers presented its opinion
to the Special Committee that, as of such date, the transaction was fair, from
a financial point of view, to the Company's stockholders, exclusive of Cyprus
Amax and its affiliates. The Special Committee recommended that, subject to
the receipt of Salomon Brothers' written fairness opinion, the Company should
proceed with the acquisition of the Kubaka Project pursuant to the terms of
the Acquisition Agreement. Thereafter, Salomon Brothers delivered its written
opinion dated October 9, 1996 and the parties executed the Acquisition
Agreement.
In reaching its conclusions, the Special Committee considered a number of
factors including, without limitation, the written opinion of its financial
advisor and the other factors described below under the caption""--Reasons for
the Acquisition; Recommendation of the Special Committee."
REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE SPECIAL COMMITTEE
On behalf of the Board pursuant to the authority previously delegated to it,
the Special Committee (comprised of Messrs. Taylor, Wood and Block, the three
directors who are neither affiliates of Cyprus Amax nor officers or employees
of the Company) determined the Acquisition Agreement and the transactions
contemplated thereby to be fair to and in the best interests of the Company
and its stockholders (exclusive of Cyprus Amax). This determination was based
on the following material factors (not necessarily in order of importance):
(a) The Acquisition Agreement allows the Company to acquire a substantial
quantity of reserves at a price viewed as attractive. The Acquisition would
increase the Company's reserves by approximately 18%.
(b) The Russian Shareholders of Omolon have made their required capital
contributions in cash and in kind totalling $40 million in the aggregate,
an amount equal to Cyprus Magadan's capital contribution, and have agreed
to contribute an additional $3 million in cash, which the Company believes
is unusual and illustrates the importance of the project in the Magadan
Region and in the Russian Federation and the strong relationship of each of
Cyprus Amax and the Company with the Russian Shareholders.
(c) Project financing is already in place for $100 million; $100 million
has been borrowed and Cyprus Amax has guaranteed, and following the
acquisition by the Company will continue to guarantee, repayment of such
financing until the Kubaka Project meets required completion tests. Loans
of an additional $30 million are being negotiated, which Cyprus Amax has
agreed to guaranty. Cyprus Amax also has arranged the Subordinated Loan for
an additional $14 million of subordinated debt, which loan Cyprus Amax also
has agreed to guaranty.
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(d) The Company will use Common Stock to pay the purchase price rather
than using its cash resources.
(e) The Kubaka Project is at a very advanced stage of development.
(f) The Kubaka Project is expected to become the Company's lowest cost,
highest grade mine. The addition of the Kubaka Project to the Company's
portfolio should reduce significantly the Company's average cash costs in
1997 and 1998.
(g) The favorable characteristics of the Kubaka Project, including its
high grade, good metallurgy, large reserves and relatively advanced stage
of development, are believed to offset the additional risks of doing
business in Russia, the remote location and the adverse climatic
conditions.
(h) Exploration and reserve definition work done at Kubaka was relatively
extensive, with drill hole spacing narrower and underground working and
trenching more extensive than normally would be expected of a Western
development project.
(i) The technical risks of the Kubaka Project appear minimal, as the
project has been planned to use a conventional mill and to operate as a
modestly sized open pit mine.
(j) The Company has been involved with managing the Kubaka Project since
January 1995, is familiar with the operating plan and has built a good
working relationship with the Russian Shareholders of Omolon.
(k) Because the Kubaka Project is a high profile project in the Magadan
Region and the Russian Federation, the likelihood of continued cooperation
and good relations with the federal and local authorities is enhanced.
(l) The Kubaka Project will provide the Company with a relative
exploration advantage in the Magadan Region based on the experience,
contacts and access to information in the Russian Federation that the
Company has currently and will continue to gain as a result of acquiring
the Kubaka Project. The Company believes its experience, contacts and
access to information could prove beneficial as the Company pursues
additional exploration targets that have been identified and seeks to
identify and explore new targets.
(m) The potential availability of an exploration tax credit may provide
Omolon with approximately $8-10 million per year (with the Company's share
being approximately $4-5 million) to fund possible future exploration. The
Company will also receive a management fee equal to 4% of gross sales from
the Kubaka Project.
(n) Although the Company will face political risks as a result of doing
business in Russia, the Company has sought to mitigate its political risks
by requiring Cyprus Amax to assign to the Company the Political Risk
Insurance obtained from OPIC covering up to $36 million of its equity
investment in the Kubaka Project, which amount may be increased based on
the Company's exposure. In addition, the Project Lenders may be deemed to
have assumed the political risks with respect to amounts under the Project
Loans, as Cyprus Magadan and Cyprus Amax may terminate their guaranties
upon the occurrence of a qualified political event.
(o) The Kubaka Project provides the Company with an increased
international profile.
(p) Salomon Brothers has rendered its opinion, dated as of October 9,
1996, to the Special Committee of the Board to the effect that, as of such
date, the Acquisition is fair, from a financial point of view, to the
Company's stockholders, exclusive of Cyprus Amax and its affiliates.
ADDITIONAL CONSIDERATIONS OF THE SPECIAL COMMITTEE
In the course of its deliberations, the Special Committee, on behalf of the
Board, reviewed and considered a number of other material factors relevant to
the Proposal. The Special Committee considered, among other things: (i)
information concerning the Company's business, prospects, reserves, financial
condition, financial performance and operations with and without the Kubaka
Project; (ii) the history of the trading price of the Common Stock; (iii)
premiums to market and multiples paid for other mining projects acquired in
the former
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Soviet Union and elsewhere; (iv) an analysis of the prospects and pro forma
operations of the Company after acquisition of the Kubaka Project; (v) the
material assumptions and valuation methodologies underlying Salomon Brothers'
fairness opinion, including the projections provided by management to Salomon
Brothers; (vi) the terms and conditions of the Acquisition Agreement, the
License, the Project Loan Agreements and collateral documents; (vii) the
obligations of Cyprus Magadan as the Foreign Party under the Charter; (viii)
the limitation (contained in the License) on the ownership of a foreign party
in Omolon to 50%; and (ix) that Cyprus Amax has an interest in the Acquisition
that is in addition to those of the Company's stockholders generally.
In addition to the risks inherent in doing business in Russia (see "--Risks
of Doing Business in Russia"), the Special Committee also carefully considered
the following risks associated with the transaction:
(i) The maximum amount of proceeds that may be received in U.S. dollars
from Omolon's sale of gold produced at the Kubaka Project is limited to
50%, and all proceeds from Omolon's sale of silver produced must be
received in roubles.
(ii) The Offshore Account License from the Central Bank permits the
holding of funds offshore and terminates once obligations under the Project
Loan Agreements have been repaid, and, as a result, no portion of the
proceeds from the sale of gold produced at the Kubaka Project can
thereafter be deposited in accounts outside of the Russian Federation
(unless a new license is obtained, which is not contemplated currently).
(iii) The Project Loan Agreements put contractual constraints on Omolon's
ability to incur other exploration costs and on Omolon's ability to use
exploration tax credits.
(iv) The payment of dividends from Omolon to its shareholders is
prohibited by the Subordinated Loan Agreement until it is repaid and is
prohibited by the Project Loan Agreements until and unless certain required
financial ratios are satisfied, no event of default has occurred or is
likely to occur and certain other requirements are met.
(v) The shareholders of Omolon may not have the financial capability or
the desire to make additional capital contributions to Omolon in the event
that the proceeds from the Project Loans, the Subordinated Loan and prior
capital contributions of the shareholders are insufficient to complete the
Kubaka Project and to develop the Evenskoye deposit.
(vi) The Company will assume the obligations of Cyprus Amax under the
Cyprus Amax Support Agreements and, thus, could face significant financial
liability.
(vii) Additional cost-overruns could occur, which would require the
Company to provide additional capital or issue additional shares of its
Common Stock to Cyprus Amax in the event Cyprus Amax finances the cost
overruns. Omolon has incurred, or will incur, additional indebtedness and
to the extent permitted by the Project Lenders will be required to
reimburse Cyprus Amax for the cost of 1997 operating supplies and to prepay
a portion of the Subordinated Loan under certain circumstances; in the
event Omolon fails to meet these obligations, the Company has agreed to do
so.
(viii) There are inherent risks in operating a new mine.
(ix) Despite the careful planning conducted for Kubaka, the extremely
harsh climatic conditions could cause unanticipated problems.
(x) Certain construction delays regarding electrical and other technical
aspects have occurred due in part to the lack of sufficient skilled
construction labor in certain crafts. Additional problems could result in
the future from reliance on the less experienced workforce available at
Kubaka.
(xi) Roskomnedra and Omolon may be unable to agree to terms for the
development of the Evenskoye deposit, which could result in the loss of the
Evenskoye deposit and an operating mill (or $1 million) and the Company
having to fund $8 million for development of the Evenskoye deposit.
(xii) If Omolon fails in 1999 and thereafter to meet the required average
output of approximately 295,780 ounces, in addition to the royalty payment
Omolon must make for the actual amount extracted, Omolon would be required
to make a penalty payment to the state budget equal to the value of gold
per
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ounce times 20% of the royalty and Mineral Restoration Tax that would have
been payable on the difference between 295,780 ounces and the actual
output, up to an annual maximum of $4 million for the first three years the
penalty applies and rising thereafter if output falls below 75% of 295,780
ounces.
(xiii) The License requires that production at the Kubaka Project
commence in the first quarter of 1997 (unless certain force-majeure events
occur). Omolon must achieve a gold recovery factor of at least 96.3% for
the Kubaka Project and will be assessed a penalty payable to the state
budget based on the shortfall in the recovery rate equal to 20% of the
royalty and Mineral Restoration Tax that would have been payable on the
amount of the shortfall.
Given Cyprus Amax's ownership interest in the Company and that directors and
officers of Cyprus Amax comprise a majority of the Company's Board, the
transaction may be deemed less arms-length than if it had been conducted
between unrelated parties.
Risks of Doing Business in Russia
Foreign companies conducting operations in the Russian Federation face
significant political, economic, currency, legal and social risks. These risks
are highlighted below and discussed further in "THE RUSSIAN FEDERATION."
Political Risks. The Russian Federation emerged in 1991 from the former
Soviet Union as an independent state, and the politics of the Russian
Federation have been characterized by considerable instability and
uncertainty. The institutions of government and the relations between them,
and governmental policies and the political leaders who formulate and
implement them, have been subject to rapid and dramatic change including the
use of military force. Yeltsin's reelection as President of Russia in July
1996 represents a victory for proponents of market reform. Yeltsin's health is
generally viewed as poor, however, and his death in office would trigger new
presidential elections within three months. New personalities could introduce
a change in foreign investment policies. In particular, since gold is of
national monetary significance, policies relating to its purchase by the
government and its export may be viewed as particularly sensitive. Such
changes could include revisions or rejections of current policies, laws or
regulations that may have favored foreign investment, including legislative
and administrative attempts to reverse Presidential decrees, executive
initiatives and administrative interpretations that favored foreign investors
and stringent economic reform measures. There can be no assurance that
economic reforms will continue or that industries deemed of national or
strategic importance like gold production would not be nationalized. Changes
in policy that are hostile to foreign investment or that alter laws regulating
gold could have a material adverse effect on the Kubaka Project. The Company
has sought to reduce its exposure to political risks by obtaining $36 million
of political risk insurance, although such coverage is subject to extensive
procedural and coverage limitations, long waiting periods, burdens of proof
and numerous conditions to recovery. See "THE KUBAKA PROJECT--Political Risk
Insurance."
Currency Risks. The value of the Russian rouble against the US dollar has
fluctuated significantly in the past. In October 1994, for example, the rouble
fell from just under 3,000 per dollar to nearly 4,000 per dollar in two days,
and then rebounded to under 3,000 per dollar in the next two days. However,
the rate of rouble decline against the US dollar, as reflected in the exchange
rate, has decreased significantly since the introduction by the Russian
Federation Central Bank in July 1995 of the so-called "rouble corridor," under
which the rouble/dollar exchange rate was permitted to decline steadily from
4,300 roubles per dollar to 5,150 roubles per dollar in July 1996. Since then,
the rouble corridor has been replaced by a "crawling peg" mechanism with a
similar stabilizing effect on the exchange rate (5,476 roubles per dollar in
mid-November 1996) and on the inflation rate (1.2% for October 1996). During
this period of relative exchange rate stability, prices for goods and services
in Russia have risen in rouble and dollar terms, thereby depressing margins
for export-oriented businesses in Russia. In addition to risks associated with
the rouble exchange rate not keeping pace with inflation, there is also a risk
of inadequate supplies of roubles resulting in delays in payment for rouble
denominated obligations in the Russian Federation.
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The Kubaka Project and its financing arrangements have been structured in an
attempt to mitigate these risks, primarily through terms that require payment
for gold in advance of delivery and at then current London gold prices and
exchange rates, payable 50% in dollars and 50% in roubles (which is expected
to be roughly equivalent to the Kubaka Project's rouble expenses), and terms
that permit Omolon to export gold under certain circumstances. See "THE KUBAKA
PROJECT--Project Financing" and "THE KUBAKA PROJECT--Gold Sales Arrangement."
It is currently government policy to allow the repatriation by foreign
investors of profits earned in Russia, provided that certain banking
procedures are followed and relevant taxes are paid. See "THE RUSSIAN
FEDERATION--Repatriation and Exchange Controls."
The Company's investment in the Kubaka Project does face currency related
risks, which could be significant in the event of inflation in expenses
denominated in roubles exceeding exchange rates or if new restrictions on
rouble convertibility are introduced.
Economic Risks. Until 1991, the economy of Russia was administered by the
central authorities of the former Soviet Union. Confronted with the collapse
of those authorities and the command economy they managed, and the resulting
economic crisis, the government of Russia has been attempting to implement
policies of economic reform and stabilization. These policies have involved
freeing many prices from central control, reducing defense expenditures and
subsidies for state-owned enterprises, privatizing many state-owned
enterprises, reforming the tax system, introducing legal structures designed
to facilitate private, market-based activities, and encouraging foreign trade
and investment. While these policies have met with some success, notably the
implementation of the mass privatization program, the economy of Russia
remains characterized by inflation, unemployment, business failures, high
levels of taxation, unstable fiscal policy and legal uncertainty and the
possibility of widespread bankruptcies, mass unemployment, labor unrest and
the collapse of certain sectors of the economy. High levels of inter-
enterprise business debt (generally resulting from the failure of government
supported enterprises to pay for goods and services) and government borrowing
may also have serious economic ramifications, delay or non-payment by Russian
companies of workers' salaries. In addition, the Russian Government has
supported a large number of Russian companies that are technically insolvent.
Moreover, there is a lack of political consensus as to the scope, content and
pace of economic reform. No assurance can be given that reform policies will
continue to be implemented in Russia and that the country will remain
receptive to foreign trade and investment.
Legal Risks. As part of the effort to transform its command economies into
market economies, the Russian government has introduced rapidly laws
(including Part I and Part II of the new Civil Code adopted in 1995 and 1996,
respectively), regulations and legal structures intended to give participants
in the economy a greater degree of confidence in the legal validity and
enforceability of their obligations. However, the lack of consensus about the
scope, content and pace of economic and political reform and the speed with
which legislation has been drafted, has resulted in legislation that is
ambiguous and, in many instances, has left key issues unresolved. In many
areas, legislation has not been enacted yet, and where it has been enacted, it
often contemplates implementing regulations that have not been promulgated
yet. These factors, combined with the rapid pace of legislation, have led to
conflicting requirements, overlapping jurisdictions and substantive gaps. The
result has been numerous "grey areas," particularly in corporate law,
commercial and contract law, currency law, environmental law, securities law,
foreign trade and investment law, natural resources law and tax law. Moreover,
the absence of definitive administrative or judicial interpretations of many
of the provisions of these new laws is a further source of uncertainty, and
Russian regulators and judges are often unfamiliar with the legal concepts
generally applicable in a market economy. Finally, the absence of a tradition
in Russia of an experienced, independent and impartial judiciary adds a
further element of instability to the application of these new laws. No
assurance can be given that the uncertainties associated with the existing and
future laws and regulations of Russia will not have a material adverse effect
on the Kubaka Project.
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The existing business culture in Russia continues to be influenced by
attitudes formed in the period of the Soviet command economy, in which
survival often depended on implementing instructions from state authorities
and finding ways to avoid application of laws and performance under
agreements. As a result, the commitment of local business people and
government officials and agencies to resolving business disputes within the
judicial system and to abiding by legal requirements and negotiated agreements
is still uncertain. This creates particular concerns with respect to
agreements, licenses and administrative approvals for businesses such as those
of Omolon. In this environment of political and legal volatility,
administrative interpretations and approvals may be susceptible to revision or
cancellation, and legal redress may be uncertain or delayed. Although the
Company will have insurance to protect itself from such events, there can be
no assurance that the scope of coverage or the proceeds from such insurance
would be adequate to compensate the Company for losses it may sustain.
Social Risks. The political and economic changes in Russia in recent years
have resulted in significant dislocations, as existing structures of authority
have collapsed and new ones are only beginning to take shape. Significant
organized criminal activity has arisen, particularly in large metropolitan
centers. This activity is reported to involve demands for protection money,
requirements to work with specific entities controlled by organized crime,
damage or destruction of property belonging to businesses not willing to
cooperate with organized crime and physical violence directed at employees of
such businesses. Moreover, the combination of the sudden loss of the tight
social control that was characteristic of the Soviet Union, a large but poorly
paid police force, an increase in unemployment, an influx of unemployed
persons from outlying areas to metropolitan centers and a decline in real
wages has led to a substantial increase in property crime in large cities and
to labor and political unrest. While the Kubaka Project has not been affected
materially by these factors to date, no assurance can be given that they will
not have a material adverse effect in the future. See "THE RUSSIAN
FEDERATION--Social Conditions" and "THE RUSSIAN FEDERATION--Organized Crime."
THE SPECIAL COMMITTEE, ACTING ON BEHALF OF THE BOARD, HAS APPROVED AND
RECOMMENDS THAT STOCKHOLDERS APPROVE THE PROPOSAL.
OPINION OF FINANCIAL ADVISOR REGARDING THE ACQUISITION
The Board retained Salomon Brothers to render an opinion to its Special
Committee in connection with the Company's proposed purchase of Cyprus Amax's
interest in the Kubaka Project in the Magadan Region of the Russian
Federation. At a meeting of the Special Committee held on October 9, 1996,
Salomon Brothers delivered its oral opinion to the Special Committee that, as
of such date, the "Transaction" (defined for purposes of the Salomon Brothers'
opinion to be the acquisition by the Company of 50% of the common stock of
Omolon from Cyprus Amax) pursuant to the terms and conditions of the
Acquisition Agreement, is fair, from a financial point of view, to the
Company's stockholders, exclusive of Cyprus Amax and its affiliates. Salomon
Brothers confirmed its opinion by delivery of a written opinion to the Special
Committee of the Board, dated October 9, 1996.
A copy of the Salomon Brothers' opinion, dated October 9, 1996, is attached
as Appendix B to this Consent Solicitation Statement and sets forth the
assumptions made, matters considered and limits on the review undertaken.
Stockholders are urged to read the opinion in its entirety. Salomon Brothers'
opinion is directed only to the fairness, from a financial point of view, of
the Transaction to the Company's stockholders, exclusive of Cyprus Amax and
its affiliates, and does not constitute a recommendation to any stockholder of
the Company as to whether such holder should consent. Salomon Brothers had no
role in the determination of the terms of the Acquisition Agreement, the
Transaction or any related agreements or in the negotiation thereof. The terms
of the Acquisition Agreement, the Transaction and related agreements were
determined solely through negotiations between the Company and Cyprus Amax.
The summary of the opinion of Salomon Brothers set forth in this Consent
Solicitation Statement is qualified in its entirety by reference to the full
text of such opinion.
In connection with its opinion, Salomon Brothers reviewed and analyzed,
among other things, the following: (i) the Acquisition Agreement; (ii) a
draft, dated September 30, 1996, of the preliminary consent solicitation
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statement of the Company; (iii) certain publicly available business and
financial information concerning the Company and Cyprus Amax; (iv) certain
internal information primarily financial in nature (including projections,
forecasts, estimates and analyses prepared by or on behalf of the Company's
management), concerning (a) the business, assets, liabilities, operations and
prospects of the Company and (b) the business, assets, liabilities,
mineralization, operations and prospects of Omolon; (v) certain publicly
available and other information concerning the trading of, and the trading
market for, the publicly traded securities of the Company; (vi) certain
publicly available information with respect to other companies that Salomon
Brothers believed to be comparable in certain respects to the Company; (vii)
certain publicly available information with respect to other companies that
Salomon Brothers believed to be comparable in certain respects to the Kubaka
Project; (viii) certain publicly available information with respect to other
merger and acquisition transactions that Salomon Brothers believed to be
comparable in certain respects to the Transaction; and (ix) such other
information that Salomon Brothers considered relevant to its inquiry. Salomon
Brothers also held discussions with certain members of the Company's senior
management and its representatives about the Company's views as to the
financial and other information described above and other matters Salomon
Brothers believed relevant to its inquiry.
In arriving at its opinion, Salomon Brothers assumed and relied upon the
accuracy and completeness of all financial and other information provided to
or reviewed for Salomon Brothers or publicly available and did not attempt
independently to verify any of such information, including, without
limitation, the Company's views discussed above, nor did Salomon Brothers
assume any responsibility for independent verification of any of such
information. Salomon Brothers also relied upon the reasonableness and accuracy
of the financial projections, forecasts, estimates and analyses, including,
without limitation, those projections, forecasts, estimates and analyses
related to the cash flows and value of assets and current and contingent
liabilities of both the Company and Omolon provided to or reviewed by Salomon
Brothers, and Salomon Brothers assumed that they were all reasonably prepared
in accordance with accepted industry practice on bases reflecting the best
currently available estimates and judgment of the Company's management.
To the extent that evaluation of the Transaction required analysis of legal,
as opposed to financial, matters, including, without limitation, all matters
related to foreign laws affecting the economics of the Kubaka Project and
contingent liabilities, Salomon Brothers relied, with the Company's consent,
on the views of the Company and its counsel with respect to these matters.
Without limiting the generality of the foregoing, Salomon Brothers relied
upon, and did not assume any responsibility for an independent verification
of, the assumption that the Company will be entitled upon consummation of the
Transaction to realize the anticipated benefits of its proposed ownership
interest in the Kubaka Project, without regard to any changes in applicable
law or political circumstances.
Salomon Brothers did not make or obtain any independent evaluations or
appraisals of the Kubaka Project or any of the Company's assets, properties,
liabilities or securities, nor was Salomon Brothers furnished with any such
evaluations or appraisals other than certain feasibility studies, reserve
reports and evaluations provided to it by the Company. Salomon Brothers did
not participate in the negotiations between the parties, and was not
authorized to, and Salomon Brothers did not, solicit or investigate
alternative transactions which might be available to the Company.
In conducting its analysis and arriving at its opinion, Salomon Brothers
considered such financial and other information, including the financial and
non-financial judgments and views of the Company's senior management and
representatives, along with other factors including, without limitation, the
information (including the financial projections, forecasts, estimates and
analyses) discussed above, as Salomon Brothers deemed appropriate under the
circumstances. In addition, Salomon Brothers took into account its assessment
of general economic, market and financial conditions generally and the
particular circumstances applicable to the Company and/or the Kubaka Project.
In all cases, Salomon Brothers' opinion necessarily is based upon conditions
and circumstances as they existed and could be evaluated as of the date
thereof and does not address the underlying business decision of the Company
to effect the Transaction or constitute a recommendation to any holder of
Common Stock as to whether such stockholder should consent with respect to the
Transaction. Salomon Brothers' opinion addresses only the fairness of the
Transaction.
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The following is a summary of the material analyses presented by Salomon
Brothers to the Special Committee in connection with its opinion dated October
9, 1996.
(i) Stock Trading History. Salomon Brothers examined the history of trading
prices, volume, relative price performance and volatility for the Company's
Common Stock. Salomon Brothers noted that since June 30, 1989, the Company's
Common Stock had closed as high as $20.250 per share and as low as $4.50 per
share. Over the 52 week period ended September 24, 1996, it had closed between
$9.625 per share and $5.25 per share.
(ii) Discounted Cash Flow Analysis. Salomon Brothers calculated the present
value of the expected cash flows of the Kubaka Project, utilizing a discounted
cash flow ("DCF") methodology. The DCF utilized by Salomon Brothers valued the
Kubaka Project by estimating the present value of future free cash flows
available to the Company from the Kubaka Project over a eight-year period
beginning in 1997 and ending in 2004, plus the present value of the potential
residual value of the mine at the end of such period. Free cash flow
represents the amount of cash generated by the Kubaka Project and available
for dividend payments after providing for the ongoing operations of the
project. In performing its financial analysis, Salomon Brothers assumed a
proven and probable reserve base of approximately 1.294 million contained
ounces of gold would be provided with a 96.5% recovery rate, with production
assumed to commence in 1997. This life-of-mine calculation assumes that no new
ounces of proven and probable reserves are found, although ongoing exploration
expenditures will be incurred. The analysis was based upon forecasts provided
by the Company's senior management for the development and operation of the
Kubaka Project during the 1997-2004 period. Salomon Brothers relied upon the
accuracy and completeness of such forecasts, and assumed that they were all
reasonably prepared in accordance with accepted industry practice on bases
reflecting the best currently available estimate and judgment of the Company's
management. Salomon did not attempt independently to verify any of such
information nor did Salomon Brothers assume any responsibility for independent
verification of any such information. To capture the residual value of the
mine upon depletion of the current assumed reserve base, a "Blue Sky"
coefficient was applied to the present value of the cash flows. The range of
Blue Sky coefficients considered was 5% to 55% for the Kubaka Project and the
discount rates used ranged from 10% to 25%. Such forecasts are based upon many
factors and assumptions, many of which are beyond the control of the Company.
Selecting any particular Blue Sky coefficient or discount rate is necessarily
subject to greater uncertainty than forecasts generally and, accordingly,
Salomon Brothers analyzed a range of Blue Sky coefficients and discount rates
in order to provide a range of present values. Based upon this analysis,
Salomon Brothers calculated implied firm values for 50% of Omolon ranging from
$162 million to $251 million.
Salomon Brothers also calculated the present value of the expected cash
flows of one share of Common Stock utilizing DCF methodology. The DCF utilized
by Salomon Brothers valued one share of the Common Stock by estimating the
present value of future free cash flows available to the common stockholders
over the five-year period ending December 31, 2000, plus the present value of
the Company at that time calculated through a multiple of production of the
Company in fiscal year 2000. The analysis was based upon forecasts provided by
the Company's senior management for operating results during the 1996-2000
period on a stand-alone basis (without giving effect to the Transaction). The
range of terminal multiples of production considered was $1,000/oz to
$2,000/oz and the range of discount rates used was 0% to 8%. Selecting any
particular terminal multiple of production or discount rate is necessarily
subject to greater uncertainty than forecasts generally and, accordingly,
Salomon Brothers analyzed a range of terminal multiples of production and
discount rates in order to provide a range of present values. Based upon this
analysis, Salomon Brothers calculated implied equity values of the Common
Stock ranging from $3.00 to $6.00 per share. The closing price of the Common
Stock on October 8, 1996 was $5.750 per share.
(iii) Comparable Company Analysis. In analyzing the value of Omolon, Salomon
Brothers compared certain selected stock market, production and reserve and
resource base data and financial ratios for groups of selected gold
development companies and selected gold producing companies. The analysis
relied upon Company information that was provided by the Company's senior
management. Salomon Brothers did not attempt independently to verify any of
such information nor did Salomon Brothers assume any responsibility for
51
<PAGE>
independent verification of any such information. Such data and ratios for
gold producing companies included, among other things, (a) equity market
capitalization, (b) firm value capitalization and (c) firm value to (i) proven
and probable reserves and (ii) projected annual production for fiscal years
1996 through 1998. Such data and ratios for gold development companies
included, among other things, (a) projected production for fiscal years 1996
through 1998, (b) equity market capitalization, (c) firm value capitalization
and (d) firm value to (i) proven and probable reserves and (ii) projected
annual production for fiscal years 1996 through 1998. In addition, Salomon
Brothers compared the history of trading prices, volume, relative price
performance of the Common Stock and the common stock of Star Mining
Corporation N.L., a publicly traded gold mining company whose primary asset is
the Sukhui Log Mining Project in Russia. Based upon this analysis, Salomon
Brothers calculated implied firm values for 50% of Omolon ranging from $130
million to $340 million.
In analyzing the value of the Common Stock, Salomon Brothers compared
selected historical stock market, production, reserve and resource base, cash
flow and earnings data and financial ratios for the following groups of
selected publicly traded gold companies and the companies indicated within
each such group: (a) "top-tier" companies: Barrick Gold Corp., Battle Mountain
Gold Company, Echo Bay Mines Ltd., Homestake Mining Company, Newmont Mining
Corporation, Placer Dome Inc. and Santa Fe Pacific Gold Corporation; (b)
"middle-tier" companies: Agnico-Eagle Mines Limited, Cambior Inc., Coeur
d'Alene Mines Corporation, Getchel Gold Inc., Hecla Mining Company, Kinross
Gold Corporation, Pegasus Gold Inc., Royal Oak Mines Inc. and TVX Gold Inc.;
and (c) "junior-tier" companies: Bema Gold Corporation, Canyon Resources
Corporation, Dayton Mining Corporation, Meridian Gold Inc., Glamis Gold Ltd.,
Golden Knight Resources Inc., MK Gold Company, Rayrock Yellowknife Resources,
Inc., Viceroy Resource Corporation and Wharf Resources Ltd. The analysis
relied upon Company information that was provided by the Company's senior
management. Salomon Brothers did not attempt independently to verify any of
such information nor did Salomon Brothers assume any responsibility for
independent verification of any such information. Such data and ratios
included, among other things, (a) equity market capitalization, (b) firm value
capitalization, (c) firm value to (i) proven and probable reserves, (ii)
fiscal year 1995 production, (iii) projected annual production for fiscal
years 1996 through 1998 and (iv) latest twelve month earnings before interest,
taxes, depreciation and amortization ("EBITDA") and (d) current stock prices
to (i) latest twelve month earnings per share, (ii) fiscal year 1996 estimated
earnings per share (as estimated by Institutional Brokers' Estimate System as
of September 19, 1996 ("IBES")) and (iii) fiscal year 1996 estimated earnings
per share (as estimated by IBES). An analysis of firm value to current proven
and probable reserves for top-tier companies, middle-tier companies and
junior-tier companies yielded median multiples of $160 per contained ounce,
$100 per contained ounce and $93 per contained ounce, respectively. This
compares to a firm value to current proven and probable reserves multiple for
the Company of $108 per contained ounce and a purchase price pursuant to the
Acquisition Agreement of $135 per contained ounce. Based upon this analysis,
Salomon Brothers calculated implied equity values of the Common Stock ranging
from $1.30 to $5.09 per share. The closing price of the Common Stock on
October 8, 1996 was $5.750 per share.
No company used in the above analysis as a comparison is identical to the
Kubaka Project, Omolon or the Company. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in companies and other factors that could affect the
public trading value of the companies to which they are being compared.
(iv) Merger and Acquisition Transaction Analysis. In analyzing the value of
Omolon, Salomon Brothers also reviewed the consideration paid or proposed to
be paid in selected acquisition transactions involving gold mining assets.
Salomon Brothers identified and analyzed approximately 500 separate
acquisition transactions involving gold mining assets and segmented this
diverse universe into twelve distinct groups, based upon the geographical
location and stage of development of the target gold mining asset.
Specifically, Salomon Brothers examined acquisition transactions in Russia, as
well as the acquisition of assets in various stages of development, including
exploration, prefeasibility, feasibility, development and production. Salomon
Brothers considered multiples similar to those described above in "(iii)
Comparable Company Analysis." The multiple of firm value to proven and
probable reserves resulting from this analysis yielded a range of median
multiples of $3 per contained ounce to $446 per contained ounce. In
comparison, the purchase price pursuant to the Acquisition Agreement is $135
per contained ounce. Based upon this analysis, Salomon Brothers calculated
implied firm values for 50% of Omolon ranging from $36 million to $262
million.
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<PAGE>
In analyzing the value of the Common Stock, Salomon Brothers reviewed
certain data and ratios, including a firm value to proven and probable
reserves ratio, in certain North American transactions involving gold
producing companies since 1988. Based upon this analysis, Salomon Brothers
calculated implied equity values of the Common Stock ranging from $4.52 to
$7.59 per share. The closing price of the Common Stock on October 8, 1996 was
$5.750 per share.
Based upon the foregoing analyses, Salomon Brothers estimated the present
value of all Common Stock consideration payable by the Company to be
approximately $91.3 million based on the October 8, 1996 closing price of the
Common Stock of $5.750 per share and the value of the Cyprus Magadan common
stock to be received by the Company, utilizing the DCF analysis, one of many
possible evaluation methodologies, to be between $49 million and $169 million.
In arriving at its opinion presented to the Special Committee on October 9,
1996, Salomon Brothers performed certain financial analyses, the material
portions of which are summarized above. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to a partial analysis
or summary description. Accordingly, the summary set forth above does not
purport to be a complete description of Salomon Brothers' analyses. The
preparation of a fairness opinion does not involve a mathematical evaluation
or weighing of the results of the individual analyses performed, but requires
Salomon Brothers to exercise its professional judgement--based on its
experience and expertise--in considering a wide variety of analyses taken as a
whole. Each of the analyses conducted by Salomon Brothers was carried out in
order to provide a different perspective on the transaction and add to the
total mix of information available. Salomon Brothers did not form a conclusion
as to whether any individual analysis, considered in isolation, supported or
failed to support an opinion as to fairness. Rather, in reaching its
conclusion, Salomon Brothers considered the results of the analyses in light
of each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. Salomon Brothers did not place particular reliance
or weight on any individual analysis, but instead concluded that its analyses,
taken as a whole, supported its determination. In addition, with reference to
the comparable company and merger and acquisition analyses, Salomon Brothers
made qualitative judgments as to which companies and transactions were the
most comparable to the Company and the Acquisition with respect to (i)
relative grade of mineable reserves, (ii) relative stage of development, (iii)
the mining technique to be employed (i.e. open pit as opposed to underground),
and (iv) and relative estimates of cash costs of production. The focus on
these factors led Salomon Brothers to discount the low end of the valuation
ranges derived from the merger and acquisition transactions and the discounted
cash flow analyses and to emphasize the mid to upper ends of such valuation
ranges. Salomon Brothers believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its
analyses could create an incomplete view of the process underlying the
analyses. In performing its evaluations and analyses, and in considering such
factors, Salomon Brothers made numerous assumptions with respect to industry
performance, precious metals prices, foreign currency prices, the Company's
existing and future prospects, the Company's working capital needs, general
business and economic conditions and other matters, many of which are beyond
the control of the Company. Among other assumptions, Salomon Brothers
undertook its analysis based upon the following key assumptions: (i) the
Company issued shares of Common Stock to purchase the Stock of Omolon based
upon the 10-day average closing price for the period ended October 16, 1995 of
$5.9375 per share; (ii) the Kubaka Project has proven and probable reserves
(as measured by the Securities and Exchange Commission definition) of 2.588
million contained ounces of gold, 50% of which, or 1.294 million contained
ounces of gold, existed for the account of Cyprus Amax as of October 8, 1996;
and (iii) the Kubaka Project operates consistent with the operating and
financial projections provided to Salomon Brothers by the Company's senior
management. The analyses which Salomon Brothers performed are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. The
evaluations were undertaken and the analyses were prepared solely as a part of
Salomon Brothers' analysis of the fairness, from a financial point of view, of
the Transaction to the stockholders generally (solely in their capacity as
such), exclusive of Cyprus Amax and its affiliates.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes.
53
<PAGE>
Salomon Brothers was retained on the basis of such expertise, its reputation
and knowledge of the Company and its business. Salomon Brothers previously
rendered certain financial advisory and investment banking services to the
Company unrelated to the Transaction for which Salomon Brothers received
customary compensation. In the ordinary course of its securities business,
Salomon Brothers trades the debt and equity securities of the Company and
Cyprus Amax 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.
The Company has agreed to pay Salomon Brothers $770,000 in the aggregate for
its investment banking services in connection with the Transaction. The
Company has also agreed to reimburse Salomon Brothers for its out-of-pocket
expenses, including reasonable fees and disbursements of counsel. The Company
has agreed to indemnify Salomon Brothers and its affiliates, their directors,
officers, partners, agents and employees and each person, if any, controlling
Salomon Brothers or any of its affiliates against certain liabilities,
including certain liabilities under the federal securities laws, relating to
or arising out of its engagement. The Company paid Salomon Brothers $250,000
in April 1995 for its investment banking services in connection with the
Company's option to purchase an interest in another gold exploration prospect
from Cyprus Amax. The Company paid Salomon Brothers $175,000 in March 1995 for
its investment banking services in connection with rendering its opinion in
connection with the DOCLOC I Amendment and DOCLOC II and $150,000 in 1994 for
its investment banking services in connection with rendering an opinion in
connection with the original DOCLOC I. Additionally, Salomon Brothers was the
lead manager (for which it received customary compensation) on a $92 million
convertible preferred stock offering, unrelated to the Transaction, which
closed in August 1994.
The Company has agreed with Salomon Brothers that, if prior to the
Transaction or within two years following the consummation thereof, the
Company or any of its affiliates determines to sell in a public offering or a
private placement, any debt securities (other than senior bank debt) or equity
securities, the Company or such affiliates would afford Salomon Brothers a
reasonable opportunity to compete to be retained as an underwriter (in the
case of a public offering) or as a placement agent (in the case of a private
placement where a placement agent is used) of such debt or equity securities.
Any such sale of securities would be pursuant to an underwriting agreement or
placement agent agreement, as the case may be, containing customary
representations, warranties, covenants, conditions and indemnities and
providing for customary underwriting discounts or placement fees.
CONSENT OF CYPRUS AMAX; INTENTION OF THE DIRECTORS AND EXECUTIVE OFFICERS
As of the Record Date, Cyprus Amax owned approximately 51.2% of the
outstanding shares of Common Stock. The consent of Cyprus Amax will be
sufficient to approve the Proposal without the consent of any other
stockholder. Cyprus Amax has agreed to consent to the Proposal and has advised
the Company that Cyprus Amax will deliver its written consent on December 23,
1996.
The directors and executive officers of the Company (with four of the seven
directors and one of the eight executive officers being directors and/or
executive officers of Cyprus Amax), holding in the aggregate less than 1% of
the shares of Common Stock as of the Record Date, have advised the Company
that they intend to give their written consent to the Proposal.
EFFECTS OF THE PROPOSAL UPON RIGHTS OF EXISTING HOLDERS OF COMMON STOCK
Assuming the issuance of the shares of Common Stock to Cyprus Amax under the
Acquisition Agreement as proposed in this Consent Solicitation Statement
(omitting any Contingent Payment Shares potentially issuable under the
Acquisition Agreement), the percentage of the Company's voting securities
owned of record by existing holders of shares of Common Stock, other than
Cyprus Amax, will be reduced significantly. The Proposal, if approved by
stockholders, would reduce the ownership interest of existing holders of
outstanding shares of Common Stock, other than Cyprus Amax, to approximately
40.9% (assuming issuance of both the Closing Shares and the Production Shares)
or 42.5% (assuming issuance of only the Closing Shares) and increase
54
<PAGE>
Cyprus Amax's record ownership to approximately 59.1% or 57.5%, respectively,
of the outstanding shares of Common Stock.
As a result of Cyprus Amax's rights under existing agreements that permit
the issuance of Common Stock in lieu of outstanding indebtedness and other
obligations, Cyprus Amax is deemed to be the beneficial owner of 64,983,326
shares or approximately 57.9% of the shares of Common Stock. If stockholders
approve the Proposal, Cyprus Amax's beneficial ownership of the shares of
Common Stock would increase to approximately 63.2% (assuming issuance of both
the Closing Shares and the Production Shares) or 61.9% (assuming issuance of
only the Closing Shares), in each case, omitting any Contingent Payment Shares
potentially issuable under the Acquisition Agreement. Cyprus Amax's ownership
is subject to increase in the event the Company elects to satisfy certain
potential obligations to make payments by issuing shares of its Common Stock
pursuant to the Company's agreement to guaranty loans by Cyprus Amax in the
event Omolon has liquidity needs in the future. See "--THE ACQUISITION
AGREEMENT--Project Liquidity Needs."
The percentage of the Company's voting securities owned of record by
existing holders of shares of Common Stock, other than Cyprus Amax, is subject
to significant reduction as a result of the approval of stockholders on
September 19, 1996 of the Fort Knox Financing Arrangement with Cyprus Amax.
The number of shares of Common Stock that may be issued by Cyprus Amax under
the Fort Knox Financing Arrangement will depend on the actual amount borrowed
under the Demand Loan Facility, Cyprus Amax's decision to satisfy borrowings
under the Demand Loan Facility and/or related interest and fee obligations
with shares of Common Stock, whether the Cyprus Amax Guaranty is called and
the price per share of Common Stock at the time payments are requested. The
actual amount borrowed under the Demand Loan Facility will depend on a number
of factors, including, without limitation, the actual cost to complete the
Fort Knox project, the availability of third party debt or equity financing on
attractive terms to fund a portion of such costs and Cyprus Amax's discretion
in making additional funding available under such facility. Accordingly, the
Company can not predict with certainty the number of additional shares of
Common Stock that will be issued to Cyprus Amax under the Fort Knox Financing
Arrangement. The Company would issue to Cyprus Amax between approximately 28.3
million and 46.3 million shares (based on an assumed price per share of Common
Stock of $6.00) under the transactions contemplated by the Proposal, assuming
that Cyprus Amax elects to receive payment in shares of Common Stock, that the
Cyprus Amax Guaranty is not called and that between $150 million and $250
million is borrowed under the Demand Loan Facility (with interest accruing
over the period from November 1, 1996 to December 31, 1997). The Financing
Arrangement could reduce the interest of existing holders of outstanding
shares of Common Stock, other than Cyprus Amax, based on the above assumptions
from approximately 47.5% to between approximately 32.4% and 37.0% and increase
Cyprus Amax's record ownership from approximately 52.5% to between
approximately 67.6% and 63.0% of the outstanding shares of Common Stock.
If all of the shares of Common Stock issuable to Cyprus Amax in connection
with the Acquisition, the Fort Knox Financing Arrangement, DOCLOC I and the
Stock Issuance Agreement were issued to Cyprus Amax, the ownership percentage
of existing holders of outstanding shares of Common Stock, other than Cyprus
Amax, would be reduced to between approximately 27.0% and 30.1% and Cyprus
Amax's ownership would increase to between approximately 69.9% and 73.0%.
Cyprus Amax, as the holder of greater than 50 percent of the outstanding
shares of Common Stock, will continue to be able to elect all the directors of
the Company and to direct corporate policy.
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SELECTED FINANCIAL AND PRO FORMA DATA FOR THE COMPANY(1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table presents selected consolidated financial data for the
year ended December 31, 1995 and the nine months ended September 30, 1996 and
pro forma data to give effect to the Acquisition, including the issuance of
16,000,000 shares of Common Stock to Cyprus Amax pursuant to the Acquisition
Agreement (assuming issuance of both the Closing Shares and the Production
Shares and omitting any Contingent Payment Shares potentially issuable under
the agreement), as if the Acquisition had occurred on December 31, 1995 and
September 30, 1996. The selected consolidated financial information for the
year ended December 31, 1995 is derived from the audited Financial Statements
of the Company. The selected consolidated financial information for the nine
months ended September 30, 1996 is derived from the unaudited Quarterly
Financial Statements of the Company. The selected financial data should be
read in conjunction with the Company's Financial Statements, the related notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" attached as Appendix C to this Consent Solicitation
Statement.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 96.6 $ 74.6
Loss from operations.................... (17.2) (3.6)
Net loss................................ (23.9) (7.7)
Loss attributable to common shares...... (30.8) (12.8)
Loss per common share................... (.36) (.13)
Weighted average common shares
outstanding............................ 86.5 96.5
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------------- -------------------------
PRO FORMA PRO FORMA
ACTUAL AS ADJUSTED(2)(3) ACTUAL AS ADJUSTED(2)(3)
------ ----------------- ------ -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............ $ 65.2 $ 65.2 $ 56.8 $ 56.8
Total assets.............. 611.1 734.5 753.9 877.3
Current liabilities....... 42.8 42.8 150.2 150.2
Long-term debt............ 243.2 315.2 291.5 363.5
Shareholders' equity...... 296.3 347.7 284.1 335.5
Accumulated deficit....... (46.3) (46.3) (59.1) (59.1)
</TABLE>
- --------
(1) Selected financial data for Cyprus Magadan has not been shown, as the
operations of Cyprus Magadan consist only of its investment in Omolon, and
Omolon has had no operations to date and is capitalizing construction
costs (approximately $106 million and $190 million as of December 31, 1995
and September 30, 1996, respectively) in accordance with generally
accepted accounting principles. See "THE KUBAKA PROJECT--Project
Financing."
(2) As adjusted column includes $72.0 million in capital expenditures for the
Company's 50% share of the $130.0 million loan guaranteed by Cyprus Amax
until project completion (as defined in the Project Loan Agreements) of
the Kubaka Project and the $14 million Subordinated Loan.
(3) Purchase of the Kubaka Project from Cyprus Amax recorded at historical
cost of $51.4 million in accordance with required accounting treatment of
transfers between members of a control group. The $51.4 million includes
the $43.2 million capital contribution of Cyprus Magadan to Omolon and
$8.2 million of capitalized interest.
56
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THE RUSSIAN FEDERATION
The information presented in this section has been derived from publicly
available documents which have not been prepared or independently verified by
the Company or any of its affiliates or advisers in connection with the
submission of the Proposal to stockholders.
Established in 1922, the Soviet Union was comprised of fifteen republics, of
which the Russian Federation was the largest. The Russian Federation became an
independent sovereign republic in 1991. It is the largest member of the
Commonwealth of Independent States (the "CIS") and is a member of the United
Nations and the International Monetary Fund (the "IMF"). The Russian
Federation was granted General Agreement on Trade and Tariffs ("GATT")
observer status in 1992. It also has been granted Most Favored Nation status
by some nations of the Organization for Economic Cooperation and Development.
Russia has an area of approximately 17.1 million square kilometers,
approximately 76% of the former Soviet Union's territory. The population of
Russia is approximately 150 million.
The following discussion is presented to provide a general overview of the
political, economic, social and legal environments in the Russian Federation.
Although many events in these arenas will not affect directly the Company's
investment in the Kubaka Project, since gold is a monetary asset, policies
relating to gold production, payment terms by the government, export and
similar matters may be particularly subject to change in the event of
political and economic crisis.
POLITICAL STRUCTURE AND POLITICAL DEVELOPMENTS
There has been a fair degree of political instability in Russia since the
dissolution of the Soviet Union, and recent events have heightened concern
about Russia's future political stability.
During the summer and early fall of 1993, attempts by the Russian
Government, headed by President Yeltsin, to implement an economic reform
program were stymied by bitter political feuding with the generally
conservative Russian Parliament, leading to virtual legislative gridlock. In
October 1993, President Yeltsin dissolved the Parliament, resulting in a
violent confrontation between elements in the Parliament building and the
government, which was supported by the military. A new constitution, drafted
largely by President Yeltsin's Government, was adopted in 1993 by national
referendum. The constitution enhanced the President's powers through the
creation of a presidential republic with a Federal Assembly consisting of an
upper house (the Federation Council) and a lower house (the State Duma) and a
Prime Minister appointed by the President.
In December 1995, the second election for the Federal Assembly was held
under the new constitution. Opposition parties espousing nationalist, anti-
Western and anti-reform views, mainly consisting of the Communist Party and
the Liberal Democratic Party, won a significant number of the seats in the
State Duma, giving such forces considerable influence in the legislative
process.
President Yeltsin won another four year term in the June/July 1996
presidential elections. A number of key personnel changes occurred following
his reelection, with key privatization reformer Anatoly Chubais becoming head
of the President's administration, and Viktor Chernomyrdin retaining his post
as prime minister. The losers were a number of advisers who were widely
perceived as impediments to the reform process.
President Yeltsin's health is generally viewed as poor. In the event of
Yeltsin's death in office, the Russian Constitution provides that he will be
succeeded by the prime minister, who has three months in which to organize new
presidential elections. Yeltsin's government continues to be unpopular for its
prosecution of the war in Chechnya, in which an estimated 30,000 people died,
and for failure of the benefits of economic reform to reach larger sectors of
the population, many of whom have not been paid for months. Legislative
tensions are bound to occur between a Parliament dominated by anti-reform
politicians and a reform-minded government.
57
<PAGE>
The relationship between the Russian central authorities and regional
administrations also has been unstable since the collapse of the Soviet Union.
Regional authorities and the governments of the semiautonomous regions and
republics in the Russian Federation have continued to press for greater
autonomy. The Russian Government has entered into agreements, without
Parliamentary approval, with certain of such regions and republics, granting
them greater political control and control over resources. Events in Chechnya,
though this may be an extreme example, demonstrate the potential for such
conflicts to erupt into violence.
Another element that may have an impact on the political stability of Russia
is the position of the military. The size of Russia's military forces has been
reduced, but Russia retains a large standing army. The military, once one of
Russia's most powerful institutions, has been subjected to budget cuts and
threatened with further cuts. The incomes of members of the military have
fallen faster than those in the private sector. Concerted opposition by the
military to these developments could lead to political instability.
ECONOMIC CONDITIONS
Russia has experienced a number of economic problems since the dissolution
of the Soviet Union in 1991. Official statistics indicate that industrial
production and the gross national product have fallen, prices have increased
and foreign trade has declined, though it has recovered in the last three
years. Russia's foreign debt is expected to increase following the
rescheduling of foreign commercial debt (the principal terms of which were
agreed to at a meeting with the London Club of Commercial Lenders on November
16, 1995), the rescheduling of its sovereign debt at the Paris Club of
Sovereign Lenders earlier this year and the disbursement, over the course of
1996, of a $10 billion IMF loan. While official statistics with respect to
income may be distorted by significant under-reporting, the possibility of
widespread bankruptcies, mass unemployment, labor unrest and the total
collapse of certain sectors of the economy continues to exist.
Despite the dissolution of the Soviet Union, the economic structures that
formed the basic elements of the Soviet command economy, such as the state
enterprises and state control of resources, did not disappear automatically,
and many remain in place for the foreseeable future. In an effort to move
Russia quickly away from the command-administrative system and decentralize
the distribution system, the Russian Government instituted a series of
measures in 1992 with emphasis on financial stabilization and price
liberalization. Since then, Russia has freed prices on 80% of wholesale goods
and 90% of retail goods, reduced expenditures on defense, decreased state
subsidies in order to reduce the budget deficit, introduced a large VAT,
launched privatization programs and loosened foreign trade regulations.
Nevertheless, these reforms have been only partially successful to date.
Significant divisions continue to exist within and among the Government,
Parliament and regional administrations concerning the proper scope, content
and pace of economic and political reform in Russia. President Yeltsin's
administration continues to face political opposition to its market reforms
from the anti-reform dominated Parliament and may suffer from tensions within
the administration as the top figures jockey for influence under an ailing
President. The high level of inter-enterprise debt, the prospect of widespread
insolvency in the banking sector and the low level of tax recovery by the
state remain economic obstacles.
Since the dissolution of the Soviet Union, price liberalization has been
followed by severe inflation. Between December 1991 and December 1992,
consumer prices increased by over 2,300%. Inflation rates continued to be high
in 1994 (approximately 300% for the calendar year) but have fallen
significantly since the introduction of the "rouble corridor" in July 1995
(replaced by the "crawling peg" in July 1996) under which the U.S.
dollar/rouble exchange rate is permitted to fluctuate within a given range
(see below). The monthly inflation rates in 1996 have been in the range of 2-
3%, falling to 0.8% in September 1996 and 1.2% in October 1996.
The value of the rouble has declined significantly against the US dollar in
recent periods, and further declines can be expected. As of January 1, 1993
the rouble/US dollar exchange rate was 414.5 roubles per dollar.
58
<PAGE>
As of January 1, 1994, June 30, 1994 and September 30, 1994 the exchange rates
were 1,247 roubles per dollar, 1,985 roubles per dollar and 2,596 roubles per
dollar, respectively. In October 1994 the value of the rouble against the US
dollar fell by more than 30% in two days, and then rebounded by a greater
amount. This resulted in the dismissal by President Yeltsin of the Minister of
Finance and the resignation of the head of the Central Bank of the Russian
Federation. In April 1995, the exchange rate was 5,100 roubles per dollar, but
since the introduction of the rouble corridor in July 1995, it has settled.
Although the rouble corridor originally was intended to remain in effect until
the end of 1995, President Yeltsin announced on November 30, 1995 its
extension until June 30, 1996 within a range of 4,550 and 5,150 roubles per
dollar. The "rouble corridor" was replaced by the substantially similar
"crawling peg" in July 1996 and as of mid-November 1996, the exchange rate was
5,476 roubles per dollar. There also have been restrictions on the use of
foreign currency in Russia, such as a ban on the use of cash dollars in
commercial transactions.
Russia's external debt is estimated at over $100 billion and has been the
subject of rescheduling negotiations that have been only partially successful.
In November 1995 the London Club of Commercial Lenders and Russia finally
agreed upon the principal terms of a rescheduling, but these terms have not
been finalized or implemented. Early in 1996 the Paris Club of Sovereign
Lenders agreed to a rescheduling of Russia's sovereign debt, which paved the
way for a $10 billion loan from the IMF to Russia, which is being disbursed
over the course of 1996. Such international lending organizations generally
have sought to ensure that Russia's economic reform program remains in place
and is accelerated as a condition for giving credit.
The Russian economy also is characterized by an inter-enterprise payments
crisis. Many major enterprises have been forced to suspend operations
temporarily for lack of cash with which to pay suppliers. Advance payments to
suppliers have become the rule in Russia. In the fall of 1994, the Russian
Government attempted to implement policies to resolve the inter-enterprise
debt crisis, but the extent of the problem and the cost to the Russian
Government of the solutions suggest that there will be no resolution in the
short term. As a result, technical insolvency is widespread, especially among
large industrial enterprises.
The absence of a highly developed and capitalized banking system presents
additional risks for businesses operating in Russia. The transition from the
Soviet to the present system of bank financing entailed the separation of
central banking from commercial banking operations and the creation of a
number of commercial banks out of the state banking system. Many new banks
made their profits from trading in government debt and on the interbank
lending market. They lack expertise in credit evaluation and have continued to
favor the large enterprises that the state banking system had financed under
the old regime, regardless of the creditworthiness of such enterprises. As a
result, some major banks have had their licenses revoked by the Central Bank
and have been declared insolvent as a result of their clients' inability to
repay large amounts of debt. In August 1995, a few banks were unable to
satisfy their obligations on the Moscow interbank market, which caused a
liquidity crisis and resulted in the closure of all banking operations for one
day.
A number of Russian and foreign banks have expanded operations rapidly in
Russia and are beginning to integrate it into the global financial community,
despite the significant government-imposed restrictions on the entry of
foreign banks into the Russian market.
In an effort to facilitate the transition to a market economy and attract
foreign investment, the Russian Government initiated a broad-scale
privatization program of its former state and municipal-owned enterprises and
properties in early 1992. The Russian Federation State Property Management
Committee supervises and controls the privatization process, and local
authorities and the labor staff of the business enterprise also significantly
influence the privatization process.
In 1992, privatization efforts were concentrated on small businesses. In
1993-1994, privatization of about 15,000 medium- and large-scale enterprises
employing more than 80% of the industrial work force occurred mainly through
the mass voucher privatization program. Since then, the privatization process
has continued for cash, although it took the Russian Government until the fall
of 1995 to begin to sell residual federal stakes in
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<PAGE>
major enterprises. In the most important enterprises, such as in the oil and
minerals sectors, the Russian Government has adopted a controversial scheme
(the "loans for shares scheme") of taking credits from Russian banks secured
against federally-owned shareholdings in such enterprise. The results of the
auctions so far in this scheme have shown well-connected Russian banks winning
tenders at surprisingly favorable prices. In a relatively short period, the
private sector has come to represent approximately 60% of gross domestic
product and 80% of industrial employment.
SOCIAL CONDITIONS
According to official statistics, the Russian population's standard of
living generally continues to decline amid the country's severe economic
problems. This decline is concentrated on certain sections of the population,
such as the elderly, who are dependent on state pensions. At the same time, an
entirely new class of population has emerged that has increased purchasing
power. This class comprises individuals involved in banking and trading, as
well as individuals employed by Western businesses. Russia's consumers also
have seen improvements in the range of products, both imported and domestic,
available to them. See "BACKGROUND OF AND REASONS FOR THE ACQUISITION;
RECOMMENDATION OF THE SPECIAL COMMITTEE--Risks of Doing Business in the
Russian Federation--Social Risks."
LEGAL ENVIRONMENT
Russian law has undergone radical change since 1991. Whole bodies of law
unknown in the Soviet period have been adopted, often based on foreign models
having little in common with previously existing Soviet law. At the same time,
where no legislation has been adopted, Soviet legislation remains. The
interaction of old Soviet legislation and new market-oriented laws and
regulations creates significant problems for private businesses, particularly
in such areas as labor law compliance.
Moreover, the current legal framework in Russia is in a state of flux, with
the various parts of the Russian Government struggling to create new laws on a
broad array of topics. For at least three years, the Parliament and Government
have been in conflict concerning fundamental issues of legal reform, with the
result that governmental decrees and laws adopted by Parliament have often
been contradictory. The result is a pattern of conflicting and inconsistent
rules, without clear guidelines as to their priority.
Much business-related legislation remains to be put in place. Part I of the
new Civil Code of the Russian Federation, enacted on January 1, 1995, broadly
regulates different types of legal entities, contracts, property rights and
pledges of security interests, but there is little practical or legal
experience with the operation of the Civil Code in a business context. Part
II, which took effect on March 1, 1996, is intended to regulate various types
of contracts (including loan and banking contracts), as well as intellectual
property and copyright. Where legislation, such as tax and other fiscal
measures and customs and other import regulations, is in place, it is
susceptible to revision in reaction to shifting political winds and the
pressure on the Russian Government to generate revenue or to conserve hard
currency. In addition, much Russian legislation has been adopted based on a
more or less explicit understanding that it would serve as a general
framework, with more detailed issues to be clarified subsequently by
implementing regulations. In many cases, this clarification has not occurred
yet.
Laws and regulations are interpreted and applied with little consistency and
the decisions of one Government official may be overruled or contested by
another. Moreover, many of the new Russian laws never have been interpreted
officially by courts or administrative bodies. Both Soviet experience and
recent Russian practice suggest that the enforcement of legal rights in Russia
will continue to be subject to greater discretion and political influence than
is the case in most Western jurisdictions.
ORGANIZED CRIME
Organized crime is one of the major problems in Russian society. Russia's
police have reported that a substantial number of state-owned enterprises and
private businesses are influenced by organized crime in some
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<PAGE>
way. Businesses are threatened with bombings, attacks on employees and even
murders. The total damages associated with organized crime are estimated in
the trillions of roubles. While the Kubaka Project has not been affected by
organized crime to date, no assurance can be given that organized crime will
not have a material adverse effect in the future.
FOREIGN INVESTMENTS
The Russian Government has undertaken legal and economic reforms in the
areas of corporate regulation and foreign investment in an effort to stimulate
foreign investment. The first major step was the adoption of the Law on
Foreign Investment in July 1991 (as amended in June 1995, the "1991 Investment
Law"), which permits foreign investments in most kinds of property and profit-
making activities in Russia. Although the 1991 Investment Law and subsequent
legislation generally support foreign investment in Russia, conflicting
legislation often creates practical difficulties for foreign investors. Such
conflicting legislation includes the basic corporate, tax, customs, accounting
and other laws applicable to businesses operating in the Russian Federation.
For example, VAT imposes a substantial burden on foreign investments. See "THE
KUBAKA PROJECT--Royalties, Taxes and Other Government Payments." It is
uncertain whether foreign investors will continue to be able to avail
themselves of the rights granted under the 1991 Investment Law and other
foreign investment legislation.
On June 17, 1992, President Bush and President Yeltsin signed the "Treaty
Between the United States of America and the Russian Federation Concerning the
Encouragement and Reciprocal Protection of Investment" (the "Bilateral
Investment Treaty"). The Bilateral Investment Treaty comes into effect thirty
days after ratification by the Russian Supreme Soviet and the U.S. Senate, but
to date only the U.S. Senate has ratified the treaty. The treaty's purpose is
to guarantee nondiscriminatory treatment to investments by parties from the
other country. The Bilateral Investment Treaty exempts from treaty obligations
any action necessary for the protection of a party's "essential security
interests." Whether an action is essential to protect security interests is
self-judging and not subject to judicial or arbitral review.
TAXATION
The Russian taxation system is new, rapidly evolving and subject to frequent
change. Russian authorities have little experience with the tax issues of a
market economy. In order to raise required revenues, various enforcement
agencies, such as the Federal Tax Police, have been established in Russia.
Although the total tax burden on businesses is high, the tax collection rate
remains low. The IMF's October decision to postpone disbursement of the next
tranche of its loan was made primarily out of concern with the low level of
tax collection in the Russian Federation. A new Tax Code is being discussed
and reviewed by legislators and is expected to be adopted next year. For a
discussion of the major taxes impacting the operations of Omolon in the
Russian Federation, see "THE KUBAKA PROJECT--Royalties, Taxes and Other
Government Payments."
REPATRIATION AND EXCHANGE CONTROLS
Payments in US dollars may be made only in limited circumstances between
non-residents and residents of the Russian Federation for current transactions
(generally those where payment is made within 180 days of the provision of
goods or services). Russian residents generally include all Russian companies
and citizens resident in the Russian Federation, and non-residents generally
include all non-Russian companies, even if they have a representative office
or other permanent establishment in Russia. With limited exceptions, payments
between Russian residents must be made in roubles. Russian companies are
required to convert into roubles 50% of all revenues received in US dollars
from non-residents. Russian companies may exchange roubles for US dollars if
they can document dollar-denominated liabilities, such as foreign asset
purchases or foreign loan payments, that are due and payable within specified
periods or in order to pay dividends to foreign stockholders. In addition, any
transactions, other than the current transactions, that are deemed to be
transactions related to the movement of capital require a license from the
Central Bank of Russia.
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<PAGE>
Omolon will receive payment for its gold prior to delivery at the then
current London bullion market price for gold, which is 50% payable in US
dollars and 50% payable in roubles. Because 50% of the gold price and 100% of
the silver price are payable in roubles, the Company could be exposed
significantly in the event of further declines in the value of the rouble or
if new restrictions on rouble convertibility are imposed. Foreign investors
currently are allowed to repatriate dividends earned in Russia if certain
banking procedures are followed and relevant taxes are paid.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The Company is authorized by its Certificate of Incorporation to issue 200.0
million shares of Common Stock and 10.0 million shares of preferred stock. As
of the Record Date, there were approximately 96,519,535 million shares of
Common Stock issued and outstanding and 1,840,000 shares of the Series B
Preferred Stock issued and outstanding. In addition, 2.0 million shares of the
Series A Preferred Stock have been authorized by the Board for issuance. All
of the shares of Series A Preferred Stock are reserved for issuance under
DOCLOC I. See "--Preferred Stock--Series A Preferred Stock."
COMMON STOCK
The Company's Certificate of Incorporation authorizes the issuance of 200
million shares of Common Stock. A summary of the terms and provisions of the
Common Stock is set forth below.
Dividends. The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board out of funds legally available therefor,
provided that if any shares of Series A Preferred Stock, Series B Preferred
Stock or any other shares of preferred stock, are at the time outstanding, the
payment of dividends on Common Stock or other distributions (including Company
repurchases of Common Stock) will be subject to the declaration and payment of
all cumulative dividends on outstanding shares of the Series A Preferred
Stock, Series B Preferred Stock and any other shares of preferred stock which
are then outstanding.
Liquidation. In the event of the dissolution, liquidation or winding up of
the Company, holders of Common Stock are entitled to share ratably in any
assets remaining after the satisfaction in full of the prior rights of
creditors, including holders of the Company's indebtedness, and the payment of
the aggregate liquidation preference of the Series A Preferred Stock, the
Series B Preferred Stock and any other shares of preferred stock then
outstanding.
Voting. The Company's stockholders are entitled to one vote for each share
on all matters voted on by stockholders, including election of directors.
Shares of Common Stock held by the Company or any entity controlled by the
Company do not have voting rights and are not counted in determining the
presence of a quorum. Directors are elected annually. Holders of Common Stock
have no cumulative voting rights.
No Other Rights. The holders of Common Stock do not have any conversion,
redemption or preemptive rights.
Transfer Agent. The transfer agent for the Common Stock is KeyCorp
Shareholder Services, Inc., 1515 Arapahoe Street, Suite 1505, Denver, Colorado
80202.
Listing. Shares of the Company's outstanding Common Stock are listed on the
NYSE and the TSE.
PREFERRED STOCK
The authorized capital stock of the Company includes 10.0 million shares of
preferred stock, $1.00 par value per share. As a result of a public offering
in August 1994, 1,840,000 shares of Series B Preferred Stock are currently
outstanding. In addition, 2.0 million shares of Series A Preferred Stock are
authorized for issuance pursuant to DOCLOC I.
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<PAGE>
Shares of the Company's preferred stock may be issued from time to time in
one or more series. The Company's Board of Directors is authorized, without
stockholder approval, to fix the voting rights, dividend rights and terms, any
conversion rights, rights and terms of redemption (including sinking fund
provisions), liquidation preferences and any other rights, preferences and
restrictions of any series of preferred stock and the number of shares
constituting such series and designation thereof. The terms of such preferred
stock may affect adversely the voting power and other rights of the holders of
Common Stock and may make it more difficult for a third party to gain control
of the Company.
Series A Preferred Stock
The Series A Preferred Stock was designated as a series of preferred stock
in connection with DOCLOC I. The Series A Preferred Stock consists of 2.0
million shares. A summary of the terms and provisions of the Series A
Preferred Stock is set forth below.
Dividends. The holders of shares of Series A Preferred Stock are entitled to
receive dividends at an annual rate of $2.25 per share, which is cumulative,
accrues without interest and is payable in cash in equal semi-annual
installments. The Company may elect to pay any dividend due and payable in
shares of Common Stock in lieu of a dividend payment in cash, unless the
holder of Series A Preferred Stock delivers written notice stating that such
holder elects to receive cash. The Series A Preferred Stock ranks, as to
dividends, on a parity with the Series B Preferred Stock and no dividends may
be made on the Series A Preferred Stock for any period unless full cumulative
dividends have been paid, are paid contemporaneously or are set apart for
payment on the Series B Preferred Stock.
Liquidation Preference. Upon the liquidation, dissolution or winding up of
the Company, the holders of Series A Preferred Stock are entitled to receive
from the assets of the Company an amount equal to the dividends accrued and
unpaid thereon to the date of final distribution to such holders, whether or
not declared, without interest, and a sum equal to $50.00 per share, and no
more. Payment to the holders of shares of Series A Preferred Stock will be
made before any payment is made or any assets distributed to holders of Common
Stock or any other class or series of the Company's capital stock ranking
junior as to liquidation rights to the Series A Preferred Stock. The Series A
Preferred Stock ranks, as to liquidation rights, on a parity with the Series B
Preferred Stock.
Redemption at the Option of the Company. The Company, at its option, may at
any time redeem the Series A Preferred Stock in whole or, from time to time,
in part, for that number of shares of Common Stock obtained by dividing $50.00
by the lesser of (i) the call price (defined below) and (ii) the conversion
price (defined below), plus accrued and unpaid dividends, whether or not
declared or due, to the date fixed for redemption. The Company may issue up to
a maximum of 12,099,213 shares of Common Stock upon redemption and conversion
of and the payment of dividends on the Series A Preferred Stock, subject to
adjustment of the conversion price. In the case of the redemption of shares of
Series A Preferred Stock that would result in the issuance of more than
12,099,213 shares of Common Stock, the Company would pay an amount in cash in
lieu of such shares equal to the lesser of the call price or the conversion
price multiplied by the number of shares in excess of 12,099,213. Such cash
payment will be made in 12 consecutive substantially equal quarterly payments.
The call price with respect to a redemption of Series A Preferred Stock is
equal to the greater of (i) $5.854 (subject to adjustment of the conversion
price) and (ii) the average closing price per share of Common Stock as
calculated for a ten day trading period ending on the fifth trading day prior
to the date the notice of redemption is mailed.
Conversion. The holder of any shares of Series A Preferred Stock will have
the right, at the holder's option, to convert any or all shares of Series A
Preferred Stock held by such holder into Common Stock at any time. Each share
of Series A Preferred Stock is convertible into that number of shares of
Common Stock obtained by dividing $50.00 by the conversion price in effect at
the time. The conversion price is $8.265 and is subject to adjustment upon
payment by the Company of a dividend or the making by the Company of a
distribution on
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Common Stock in shares of Common Stock, upon the subdivision, combination or
issuance by reclassification of Common Stock, or upon the issuance of rights,
options or warrants to purchase shares of Common Stock at a price per share
less than the then current market price. The maximum number of shares of
Common Stock that the Company may issue upon redemption and conversion of and
the payment of dividends on the Series A Preferred Stock is 12,099,213 shares,
subject to adjustment of the conversion price. No fractional shares of Common
Stock will be issued upon conversion but, in lieu thereof, an appropriate
amount will be paid in cash. No adjustment will be made to the conversion
price unless such adjustment would require an increase or decrease of at least
1% of such price.
Voting Rights. The holders of Series A Preferred Stock are not entitled to
vote except as described below or as required by law. Shares of Series A
Preferred Stock held by the Company or any entity controlled by the Company do
not have voting rights and are not counted in determining the presence of a
quorum. If dividends on the Series A Preferred Stock are in arrears in an
amount equal to at least three semi-annual dividend payments (whether or not
consecutive), the number of members of the Board will be increased by two and
the holders of Series A Preferred Stock, voting separately as a class, will
have the right to vote for and elect two additional directors of the Company
during the period that such dividends remain in arrears.
The affirmative vote or consent of the holders of at least 66 2/3% of all
outstanding shares of Series A Preferred Stock is required for the Company (i)
to amend, alter or repeal any provision of the Restated Certificate of
Incorporation or the Bylaws of the Company so as to affect adversely the
relative rights, preferences, qualifications, limitations or restrictions of
the Series A Preferred Stock, (ii) to authorize, issue or increase the
authorized amount of, any additional class or series of stock, or any security
convertible into stock of such class or series ranking senior to the Series A
Preferred Stock as to the payment of dividends or upon liquidation,
dissolution or winding up of the Company or (iii) to effect any
reclassification of the Series A Preferred Stock.
No Preemptive Rights. The Series A Preferred Stock does not have any
preemptive or subscription rights in respect of any securities of the Company.
Cyprus Amax, however, does have the right to convert from time to time all or
a portion of DOCLOC I and any outstanding indebtedness and/or Series A
Preferred Stock into up to 12,099,213 shares of Common Stock at a conversion
price of $8.265 per share (or $100 million if all 12,099,213 shares of Common
Stock are converted).
Series B Convertible Preferred Stock
There are 1,840,000 shares of Series B Preferred Stock currently
outstanding. A summary of the terms and provisions of the Series B Preferred
Stock is set forth below.
Dividends. The holders of shares of Series B Preferred Stock are entitled to
receive dividends at an annual rate of $3.75 per share, which is cumulative,
accrues without interest and is payable in cash in equal quarterly
installments. The Series B Preferred Stock ranks, as to dividends, on a parity
with the Series A Preferred Stock and no dividends may be made on the Series B
Preferred Stock for any period unless full cumulative dividends have been
paid, are paid contemporaneously or are set apart for payment on any Series A
Preferred Stock outstanding.
Liquidation Preference. Upon the liquidation, dissolution or winding up of
the Company, the holders of Series B Preferred Stock are entitled to receive
from the assets of the Company an amount equal to the dividends accrued and
unpaid thereon to the date of final distribution to such holders, whether or
not declared, without interest, and a sum equal to $50.00 per share, and no
more. Payment to the holders of shares of Series B Preferred Stock will be
made before any payment is made or any assets distributed to holders of Common
Stock or any other class or series of the Company's capital stock ranking
junior as to liquidation rights to the Series B Preferred Stock. The Series B
Preferred Stock ranks, as to liquidation rights, on a parity with the Series A
Preferred Stock.
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Redemption at Option of the Company. Shares of Series B Preferred Stock are
not redeemable prior to August 15, 1997. On and after such date, the Series B
Preferred Stock will be redeemable at the option of the Company, in whole or,
from time to time, in part, at the following redemption prices per share, if
redeemed during the 12-month period commencing on August 15, of the year
indicated:
<TABLE>
<CAPTION>
YEARS PRICE PER SHARE
----- ---------------
<S> <C>
1997..................... $52.625
1998..................... 52.250
1999..................... 51.875
2000..................... 51.500
2001..................... 51.125
2002..................... 50.750
2003..................... 50.375
2004 and thereafter...... 50.000
</TABLE>
plus in each case accrued and unpaid dividends to, but excluding, the date of
redemption.
Conversion. The holder of any shares of Series B Preferred Stock will have
the right, at the option of the holder, to convert any and all shares of
Series B Preferred Stock held by such holder into shares of Common Stock at
any time. Each share of Series B Preferred Stock is convertible into that
number of shares of Common Stock obtained by dividing $50.00 by the conversion
price in effect at the time. The conversion price is $8.25 and is subject to
adjustment upon certain events, including (i) the issuance of Common Stock as
a dividend or distribution on the Common Stock; (ii) a combination,
subdivision or reclassification of the Common Stock; (iii) the issuance to all
holders of Common Stock of rights, options or warrants entitling them to
subscribe for or to purchase Common Stock at a price per share less than the
then current market price; and (iv) the distribution to all holders of Common
Stock of capital stock (other than Common Stock), evidences of indebtedness of
the Company, assets (excluding regular periodic cash dividends), or rights,
options or warrants to subscribe for or to purchase securities of the Company.
No adjustment will be made to the conversion price unless such adjustment
would require an increase or decrease of at least 1% of such price.
Voting Rights. The holders of Series B Preferred Stock are not entitled to
vote except as described below or as required by law. Shares of Series B
Preferred Stock held by the Company or any entity controlled by the Company do
not have voting rights and are not counted in determining the presence of a
quorum. If dividends on the Series B Preferred Stock are in arrears in an
amount equal to at least six quarterly dividend payments (whether or not
consecutive), the number of members of the Board will be increased by two and
the holders of Series B Preferred Stock, voting separately as a class, will
have the right to elect two additional directors to the Company's Board of
Directors during that period that such dividends remain in arrears.
The affirmative vote or consent of the holders of at least 66 2/3% of all
outstanding shares of Series B Preferred Stock is required for the Company (i)
to amend, alter or repeal any provision of the Certificate of Incorporation or
By-laws of the Company so as to affect adversely the relative rights,
preferences, qualifications, limitations or restrictions of the Series B
Preferred Stock, (ii) to authorize, issue or increase the authorized amount of
any additional class or series of stock, or any security convertible into
stock of such class or series, ranking senior to the Series B Preferred Stock
as to the payment of dividends or upon liquidation, dissolution or winding up
of the Company or (iii) to effect any reclassification of the Series B
Preferred Stock.
No Preemptive Rights. The Series B Preferred Stock does not have any
preemptive or subscription rights in respect of any securities of the Company.
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PROPOSALS FOR 1997 ANNUAL MEETING
The Company anticipates that the 1997 Annual Meeting of Stockholders will be
held on or about May 6, 1997. The exact date, time and place for such meeting
has yet to be determined. A stockholder who intends to present a proposal at
that Annual Meeting must have submitted the written text of the proposal so
that it was received by the Company at its principal executive offices by
November 27, 1996, in order for the proposal to be considered for inclusion in
the Company's Proxy Statement for that meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the Commission's public reference facilities in the
Commission's regional offices located at: 7 World Trade Center, 13th Floor,
New York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60604. Copies of such material can be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
information regarding the Company's electronic filings with the Commission.
The address of the Commission's Web site is http://www.sec.gov. The Company is
also subject to the information and reporting requirements of the securities
regulatory authorities of certain provinces of Canada and files similar
reports, proxy statements and other information with such authorities. The
Common Stock is listed on the New York and Toronto Stock Exchanges and certain
warrants to purchase Common Stock are listed on the American Stock Exchange.
Such reports, proxy statements and other information can also be inspected and
copied at the respective offices of these exchanges at 20 Broad Street, New
York, New York 10005, 2 First Canadian Place, Toronto, Ontario, Canada M5X
1J2, and 86 Trinity Place, New York, NY 10006-1881.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, as amended, subsequent to the date hereof and prior
to December 23, 1996 shall be deemed to be incorporated herein by reference
and to be a part hereof from the date of such filing. Any statement contained
herein or in an appendix attached hereto shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained in any
other subsequently filed document modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
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INDEX TO APPENDICES
APPENDIX A--Acquisition Agreement
APPENDIX B--Opinion of Salomon Brothers Inc
APPENDIX C--Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operation
<PAGE>
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF OCTOBER 9, 1996
BY AND AMONG
AMAX GOLD INC.,
AMAX RUSSIA CORPORATION,
CYPRUS AMAX MINERALS COMPANY,
CYPRUS GOLD COMPANY
AND
CYPRUS MAGADAN GOLD CORPORATION
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached
but is inserted for convenience only.
<TABLE>
<CAPTION>
PAGE NO.
--------
ARTICLE I
THE MERGER
<C> <S> <C>
1.01 The Merger.................................................... 2
1.02 Effective Time................................................ 2
1.03 Conversion of Shares.......................................... 2
1.04 Closing....................................................... 2
Certificate of Incorporation and Bylaws of the Surviving
1.05 Corporation................................................... 2
1.06 Directors and Officers of the Surviving Corporation........... 3
1.07 Effects of the Merger......................................... 3
1.08 Closing Shares and Production Shares.......................... 3
1.09 Contingent Payment Shares; Additional Deposits................ 3
1.10 Assignment of Right to Receive Additional Consideration....... 3
1.11 Adjustments to Consideration.................................. 4
1.12 Further Assurances............................................ 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CYPRUS
2.01 Organization of Cyprus........................................ 4
2.02 Authority..................................................... 4
2.03 Organization of Cyprus Gold................................... 4
2.04 Organization of Magadan....................................... 4
2.05 Capital Stock................................................. 5
2.06 Financial Statements of Magadan............................... 5
2.07 Ownership of Magadan and Omolon Shares........................ 5
No Agreements Relating to Magadan Common Stock or the Omolon
2.08 Shares........................................................ 5
2.09 Brokers....................................................... 5
2.10 No Conflicts.................................................. 5
2.11 Taxes......................................................... 6
2.12 Certain Information Supplied.................................. 6
2.13 Representations and Warranties with Respect to Omolon......... 6
2.14 Furnishing of Certain Documents............................... 7
2.15 No Default.................................................... 8
2.16 Environmental Matters......................................... 8
2.17 Project Status................................................ 8
2.18 Accuracy of Information....................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AMAX GOLD
3.01 Organization.................................................. 9
3.02 Authority..................................................... 9
3.03 No Conflicts.................................................. 9
3.04 Capital Stock................................................. 10
3.05 Brokers....................................................... 10
</TABLE>
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ARTICLE IV
COVENANTS OF CYPRUS AND AMAX GOLD
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4.01 Regulatory and Other Approvals................................ 10
4.02 Investigation by Cyprus and Amax Gold......................... 10
4.03 Conduct of Business........................................... 10
4.04 Notice and Cure............................................... 11
4.05 Fulfillment of Conditions..................................... 11
ARTICLE V
COVENANTS OF CYPRUS
5.01 Books and Records............................................. 12
5.02 Consent to Issuance of Shares................................. 12
5.03 OPIC Insurance................................................ 12
5.04 Taxes......................................................... 12
5.05 Contribution of Intercompany Debt............................. 12
5.06 Additional Financing Agreements............................... 13
5.07 Additional Equity Contribution................................ 13
5.08 Gold Sales Arrangements....................................... 13
ARTICLE VI
COVENANTS OF AMAX GOLD
6.01 Consent Solicitation Statement................................ 13
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF AMAX GOLD AND AMAX RUSSIA
7.01 Representations and Warranties................................ 14
7.02 Performance................................................... 14
7.03 Officers' Certificates........................................ 14
7.04 Orders and Laws............................................... 14
7.05 Regulatory Consents and Approvals............................. 14
7.06 Third Party Consents.......................................... 14
7.07 Opinions of Counsel........................................... 14
7.08 Good Standing Certificates.................................... 15
7.09 Resignations of Directors and Officers........................ 15
7.10 Proceedings................................................... 15
7.11 Stockholders' Approval........................................ 15
7.12 Financing Agreements.......................................... 15
7.13 OPIC Insurance................................................ 15
7.14 Omolon Shares................................................. 15
7.15 Exploration Funding under Financing Agreements................ 15
Additional Debt Financing and Equity; Gold Sales
7.16 Arrangements.................................................. 16
7.17 North Vein Agreements......................................... 16
7.18 Absence of Material Adverse Effect............................ 16
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CYPRUS AND MAGADAN
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8.01 Representations and Warranties................................ 16
8.02 Performance................................................... 16
8.03 Officers' Certificates........................................ 16
8.04 Orders and Laws............................................... 17
8.05 Regulatory Consents and Approvals............................. 17
8.06 Third Party Consents.......................................... 17
8.07 Proceedings................................................... 17
8.08 Opinions of Counsel........................................... 17
ARTICLE IX
POST-CLOSING AGREEMENTS CONCERNING THE PROJECT
9.01 Intention of the Parties...................................... 17
9.02 Obligations of Amax Gold in Connection With the Financing
Agreements, the Amended Financing Agreements or the
Subordinated Loan Agreement................................... 17
9.03 Obligations of Cyprus in Connection With the Financing
Agreements or the Amended Financing Agreements or the
Subordinated Loan Agreement................................... 18
9.04 Additional Obligations Following Demand By The Project
Lenders....................................................... 18
9.05 Project Liquidity Needs....................................... 20
9.06 Obligations of Omolon......................................... 20
9.07 Termination of Rights and Obligations......................... 20
9.08 Debt Prepayment............................................... 21
9.09 Operating Supplies............................................ 21
ARTICLE X
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
Survival of Representations, Warranties, Covenants and
10.01 Agreements.................................................... 22
ARTICLE XI
INDEMNIFICATION
11.01 Other Indemnification......................................... 23
11.02 Method of Asserting Claims.................................... 23
ARTICLE XII
TERMINATION
12.01 Termination................................................... 25
12.02 Effect of Termination......................................... 25
ARTICLE XIII
DEFINITIONS
13.01 Definitions................................................... 25
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ARTICLE XIV
MISCELLANOUS
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14.01 Notices........................................................ 33
14.02 Entire Agreement............................................... 33
14.03 Expenses....................................................... 33
14.04 Public Announcements........................................... 34
14.05 Confidentiality................................................ 34
14.06 Further Assurances; Post-Closing Cooperation................... 34
14.07 Waiver......................................................... 35
14.08 Amendment...................................................... 35
14.09 No Third Party Beneficiary..................................... 35
14.10 No Assignment; Binding Effect.................................. 35
14.11 Headings....................................................... 35
14.12 Invalid Provisions............................................. 36
14.13 Governing Law.................................................. 36
14.14 Counterparts................................................... 36
14.15 Specific Enforcement........................................... 36
</TABLE>
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This Amended and Restated Agreement and Plan of Reorgainzation dated as of
October 9, 1996 is made and entered into by and among Amax Gold Inc., a
Delaware corporation ("Amax Gold"), Amax Russia Corporation, a Delaware
corporation wholly-owned by Amax Gold ("Amax Russia"), Cyprus Amax Minerals
Company, a Delaware corporation ("Cyprus"), Cyprus Gold Company, a Delaware
corporation and an indirect wholly-owned subsidiary of Cyprus ("Cyprus Gold")
and Cyprus Magadan Gold Corporation, a Delaware corporation wholly-owned by
Cyprus Gold ("Magadan").
Whereas, Magadan has contributed 50% of the authorized capital to, and owns
50% of the shares of common stock ("Omolon Shares") of, Omolon Gold Mining
Company, a closed joint stock company organized under the laws of the Russian
Federation ("Omolon");
Whereas, since November 1993, when Cyprus Minerals Company merged with AMAX
Inc. and acquired its interest in Amax Gold, Cyprus has anticipated
rationalizing its ownership of gold prospects through offering its gold
prospects that became sufficiently attractive for development to Amax Gold,
and Amax Gold has included as part of its growth strategy the possible
acquisition of gold prospects held by Cyprus;
Whereas, in furtherance of these strategies, Amax Gold and Cyprus have
cooperated in the development of the Project by Omolon, and the debt financing
initially anticipated to be necessary to reach Project Completion had been
arranged by means of the Financing Agreements (as such capitalized terms are
defined herein);
Whereas, the Board of Directors of Amax Gold, the Special Committee thereof
and the Board of Directors of Cyprus each determined that it was advisable and
in the best interests of their respective stockholders to consummate, and each
approved the acquisition of Magadan by Amax Gold by means of a merger (the
"Merger") to be effected pursuant to the Agreement and Plan of Merger,
initially executed as of January 24, 1996, among Amax Gold, Amax Russia,
Cyprus, Cyprus Gold and Magadan (the "Merger Agreement");
Whereas, primarily as a result of increased costs for the Project,
finalization of the Merger has been delayed, and Amax Gold and Cyprus have
determined that approximately an additional $48 million for capital costs will
be required;
Whereas, Cyprus is in the process of securing the remaining required
financing from the following sources: $30 million from the proceeds of
additional debt financing under Amended Financing Agreements with the Project
Lenders; $6 million from the Additional Equity Contribution to Omolon and $14
million under a Subordinated Loan Agreement;
Whereas, Magadan is proposed to be acquired by Amax Gold subject to the
terms of the debt financing; and
Whereas, Amax Gold, Amax Russia, Cyprus, Cyprus Gold and Magadan desire to
amend and restate the Merger Agreement primarily to incorporate the terms of
the revised debt financing, which financing is a condition to the Merger;
Now, Therefore, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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ARTICLE I
THE MERGER
1.01 The Merger. At the Effective Time (as defined in Section 1.02), upon
the terms and subject to the conditions of this Agreement, Amax Russia shall
be merged with and into Magadan in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"). Magadan shall be the surviving
corporation in the Merger (the "Surviving Corporation"). Amax Russia and
Magadan are sometimes referred to herein as the "Constituent Corporations". As
a result of the Merger, the outstanding shares of capital stock of the
Constituent Corporations shall be converted or cancelled in the manner
provided in Section 1.03.
1.02 Effective Time. Immediately prior to the Closing (as defined in Section
1.04), a certificate of merger (the "Certificate of Merger") shall be duly
prepared and executed by the Constituent Corporations and delivered to the
Secretary of State of the State of Delaware for filing, as provided in Section
251 of the DGCL. The Merger shall become effective at the time of the filing
of the Certificate of Merger with the Secretary of State of Delaware (the date
and time of such filing being referred to herein as the "Effective Time").
1.03 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Capital Stock of Amax Russia. Each issued and outstanding share of
the common stock, par value $100 per share, of Amax Russia ("Amax Russia
Common Stock") shall be converted into and become one fully paid and
nonassessable share of common stock, par value $1.00 per share, of the
Surviving Corporation (the "Surviving Corporation Common Stock"). Each
certificate representing outstanding shares of Amax Russia Common Stock
shall at the Effective Time represent an equal number of shares of
Surviving Corporation Common Stock.
(b) Magadan Common Stock. The 1,000 issued and outstanding shares of
common stock, par value $1.00 per share, of Magadan (the "Magadan Common
Stock") shall be converted into, in the aggregate, the right to receive, on
the dates, in the manner and to the extent set forth in Sections 1.08 and
1.09, (i) the Closing Shares (as defined in Section 1.08), to be delivered
at Closing, (ii) the Production Shares (as defined in Section 1.08), if
any, to be delivered following the Project Production Date, and (iii) the
Contingent Payment Shares (as defined in Section 1.09), if any, to be
delivered from time to time following each Contingent Payment Event ((i),
(ii) and (iii) collectively, the "Merger Consideration").
1.04 Closing. The closing of the Merger (the "Closing") will take place at
the offices of Amax Gold Inc., 9100 East Mineral Circle, Englewood, Colorado
80112, or at such other place as the parties hereto mutually agree, on a date
and at a time to be specified by the parties, which shall in no event be later
than 10:00 a.m., local time, on the fifth business day following satisfaction
of the condition set forth in Section 7.11, provided that the other closing
conditions set forth in Articles VII and VIII have been satisfied or waived in
accordance with this Agreement, or on such other date as the parties hereto
mutually agree (the "Closing Date"). At the Closing, to evidence the
conversion of shares set forth in Section 1.03 and subject to procedures to be
adopted by the parties to effect a pledge of the Surviving Corporation Common
Stock to the Project Lenders, (a) Cyprus Gold shall deliver to Amax Gold the
certificates that prior to the Merger represented all of the shares of Magadan
Common Stock issued and outstanding immediately prior to the Effective Time,
in genuine and unaltered form, which certificates shall be deemed cancelled at
the Effective Time, and (b) upon receipt of the certificates representing all
of the shares of the Magadan Common Stock, Amax Gold shall deliver to Cyprus
Gold a certificate representing the Closing Shares, duly registered in the
name of Cyprus Gold. At the Closing there also shall be delivered to Amax
Gold, Amax Russia, Cyprus, Cyprus Gold and Magadan the certificates and other
documents and instruments required to be delivered under Articles VII and
VIII.
1.05 Certificate of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, (i) the Certificate of Incorporation of
Magadan shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by law and such Certificate of
Incorporation, and (ii) the Bylaws of Magadan as in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation
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until thereafter amended as provided by law, the Certificate of Incorporation
of the Surviving Corporation and such Bylaws.
1.06 Directors and Officers of the Surviving Corporation. The directors and
officers of Amax Russia immediately prior to the Effective Time shall, from
and after the Effective Time, be the directors and officers of the Surviving
Corporation, until their successors shall have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws.
1.07 Effects of the Merger. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the DGCL.
1.08 Closing Shares and Production Shares.
(a) (i) The Closing Shares shall consist of 11,789,474 fully paid and
nonassessable shares of common stock, par value $.01 per share, of Amax Gold
(the "Amax Gold Common Stock") (such shares of Amax Gold Common Stock being
the "Closing Shares").
(ii) The Production Shares shall consist of 4,210,526 fully paid and
nonassessable shares of Amax Gold Common Stock (the "Production Shares"), the
issuance of which shall be subject to and conditioned upon the occurrence of
the Project Production Date.
(b) Immediately upon the determination by Amax Gold that the Project
Production Date has occurred, Amax Gold shall notify Cyprus Gold in writing
thereof and that Amax Gold has set a date for delivery to Cyprus Gold of the
Production Shares, which date shall be no later than ten (10) days after the
date of such notice. On such date, Amax Gold will deliver to Cyprus Gold a
certificate or certificates representing the Production Shares, duly
registered in the name of Cyprus Gold.
1.09 Contingent Payment Shares; Additional Deposits. (a) In connection with
each Additional Deposit for which Reserve Ounces have been established (the
later to occur of the Acquisition of an Additional Deposit and such
establishment of Reserve Ounces is referred to herein as a "Contingent Payment
Event"), Cyprus Gold shall be entitled to receive, as part of the Merger
Consideration, a number of fully paid and nonassessable shares of Amax Gold
Common Stock equal to (i) $10.00 times the product of (A) the number of
Reserve Ounces in each Additional Deposit times (B) the percentage interest
held by Amax Gold (directly or indirectly) in such Additional Deposit (the
"Reserve Value") (ii) divided by the Average Market Price as of the date of
the delivery of the Contingent Payment Shares (such shares of Amax Gold Common
Stock being referred to herein as "Contingent Payment Shares"); provided that
Amax Gold shall deliver Contingent Payment Shares to Cyprus Gold only to the
extent that the Reserve Value of the Additional Deposit for which such shares
are being delivered, when added to the Reserve Value of all other Additional
Deposits in respect of which Contingent Payment Shares have been issued, does
not exceed $45,000,000, and, provided further, that Amax Gold shall have no
obligation to deliver Contingent Payment Shares with respect to any Additional
Deposit Acquired after June 30, 2004. Amax Gold shall use its Commercially
Reasonable Efforts to cause Omolon to identify and explore Additional
Deposits.
(b) Immediately upon the determination by Amax Gold that the Contingent
Payment Event has occurred with respect to any Additional Deposit, Amax Gold
shall notify Cyprus Gold in writing (i) that such Contingent Payment Event has
occurred and (ii) that Amax Gold has set a date for delivery to Cyprus of the
Contingent Payment Shares with respect to such Additional Deposit, which date
shall be no later than ten (10) days after the date of such notice with
respect to such Additional Deposit. On each such date with respect to an
Additional Deposit, Amax Gold will deliver to Cyprus Gold a certificate or
certificates representing the Contingent Payment Shares with respect to such
Additional Deposit, duly registered in the name of Cyprus Gold.
1.10 Assignment of Right to Receive Additional Consideration. Cyprus Gold
shall have the right, from time to time, with written notice to Amax Gold, to
assign to a Subsidiary of Cyprus its right to receive Production Shares or
Contingent Payment Shares pursuant to Sections 1.08 and 1.09.
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1.11 Adjustments to Consideration. In the event, subsequent to the date of
this Agreement and prior to any other payment date pursuant to Sections 1.08
or 1.09, that any capital stock or other securities are issued in respect of,
in exchange for, or in substitution of, any shares of Amax Gold Common Stock
by reason of any reorganization, recapitalization, reclassification, merger,
consolidation, spin-off, partial or complete liquidation, stock dividend,
split-up, distribution to stockholders or combination of the shares of Amax
Gold Common Stock or any other change in Amax Gold's capital structure, or any
assets (including but not limited to cash, but excluding ordinary cash
dividends) of Amax Gold are distributed to the stockholders of Amax Gold,
appropriate adjustments shall be made to the consideration payable pursuant to
Sections 1.08 and 1.09 so as to fairly and equitably preserve, as far as
practicable, the original rights and obligations of the parties hereto.
1.12 Further Assurances. Each party hereto will execute such further
documents and instruments and take such further actions as reasonably may be
requested by one or more of the others to consummate the Merger, to vest the
Surviving Corporation with full title to all assets, properties, rights,
approvals, immunities and franchises of either of the Constituent Corporations
or to effect the other purposes of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CYPRUS
Cyprus hereby represents and warrants to Amax Gold as follows:
2.01 Organization of Cyprus. Cyprus is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. Cyprus,
Cyprus Gold and Magadan each, with respect to each agreement to which it is a
party, has (and at or prior to Closing Date, with respect to the Amended
Financing Agreements and the Subordinated Loan Guaranties, will have) full
corporate power and authority to execute and deliver this Agreement, the
Financing Agreements, the Subordinated Loan Guaranties and the Amended
Financing Agreements and to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby.
2.02 Authority. The execution and delivery by Cyprus, Cyprus Gold and
Magadan of this Agreement, the Project Agreements, the Financing Agreements,
the Amended Financing Agreements, the Subordinated Loan Guaranties and the
Additional Equity Contribution (to the extent any such Person is a party
thereto), and the performance by Cyprus, Cyprus Gold and Magadan of their
respective obligations hereunder and thereunder, have been (or, with respect
to the Amended Financing Agreements, the Subordinated Loan Guaranties and the
Additional Equity Contribution, at or prior to the Closing Date, will be) duly
and validly authorized by their respective Boards of Directors and
stockholders, to the extent required by applicable law, and no other corporate
action on the part of Cyprus, Cyprus Gold, Magadan or their stockholders is
necessary to approve any such agreement. Each of this Agreement, the Project
Agreements and the Financing Agreements has been (or with respect to the
Amended Financing Agreements, the Subordinated Loan Guaranties and the
Additional Equity Contribution, at or prior to the Closing Date, will be) duly
and validly executed and delivered by Cyprus, Cyprus Gold and Magadan and
constitute (or with respect to such agreements will constitute) legal, valid
and binding obligations of Cyprus, Cyprus Gold and Magadan enforceable against
Cyprus, Cyprus Gold and Magadan in accordance with its terms, in each such
case to the extent they are parties thereto.
2.03 Organization of Cyprus Gold. Cyprus Gold is a corporation duly
organized, validly existing and in good standing under the Laws of the State
of Delaware, and has full corporate power and authority to conduct its
business as and to the extent now conducted and to own, use and lease its
Assets and Properties. Cyprus Gold is duly qualified, licensed or admitted to
do business as a foreign corporation and is in good standing in the State of
Colorado, which is the only jurisdiction in which the ownership, use or
leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary.
2.04 Organization of Magadan. Magadan is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware,
and has full corporate power and authority to conduct its business as and to
the extent now conducted and to own, use and lease its Assets and Properties.
There is no
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jurisdiction in which the ownership, use or leasing of its Assets and
Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission as a foreign corporation necessary.
Magadan has engaged in no operations or activities and has no assets or
liabilities, other than in respect of or in connection with the organization,
activities and operations of Omolon and the interest of Magadan in Omolon.
2.05 Capital Stock. The authorized capital stock of Magadan consists solely
of 1,000 shares of Magadan Common Stock. One hundred shares of Magadan Common
Stock have been issued and are outstanding and no shares are held in the
treasury of Magadan. All of the issued and outstanding shares of Magadan
Common Stock are duly authorized, validly issued and outstanding, fully paid,
nonassessable and free of preemptive rights. Except for this Agreement, there
are no outstanding Options with respect to Magadan.
2.06 Financial Statements of Magadan. The unaudited balance sheet of Magadan
as at December 31, 1993, 1994 and 1995 and June 30, 1996 and statement of cash
flows of Magadan for the years ending on December 31, 1993, 1994 and 1995 and
for the six months ended June 30, 1996 (collectively, the "Magadan Financial
Statements"), certified by a duly authorized financial officer of Magadan,
fairly present the financial condition of Magadan as of the respective dates
thereof and were prepared in conformity with GAAP in the United States.
Magadan had, as of the respective dates of such Magadan Financial Statements,
no material contingent obligations, liabilities for taxes or unusual forward
or long term commitments not disclosed by, or reserved against in, such
Magadan Financial Statements or the notes thereto. Since June 30, 1996,
Magadan has not suffered any change in its business, prospects or financial
condition, nor has it incurred any substantial or unusual loss or liability or
undertaken or agreed to undertake any substantial or unusual obligation
(except under the Financing Agreements, the Project Agreements, the Amended
Financing Agreements, Subordinated Loan Agreement, Subordinated Loan Guaranty
of Magadan and in connection with the Additional Equity Contribution and
agreements entered into pursuant to Section 9.09) that in any such case would
have a Material Adverse Effect.
2.07 Ownership of Magadan and Omolon Shares. Cyprus Gold owns, beneficially
and of record, all the shares of Magadan Common Stock, free and clear of all
Liens other than those created or permitted by the Financing Agreements or
that will be created or permitted under the Amended Financing Agreements and
the Subordinated Loan Agreement, and Magadan owns, beneficially and of record,
50% of all the Omolon Shares, free and clear of all Liens other than those
created or permitted by such agreements.
2.08 No Agreements Relating to Magadan Common Stock or the Omolon
Shares. Except as set forth in the Financing Agreements, the OPIC Insurance
Contracts (and the letter agreement, dated November 9, 1995, between OPIC and
Cyprus), the Omolon Charter, the Foundation Agreement, the Shareholders
Agreement, or as contemplated by the Amended Financing Agreements or the
Additional Equity Contribution, none of Cyprus or any of its Subsidiaries is a
party to or is bound by any agreement, arrangement or understanding relating
to the Magadan Common Stock or the Omolon Shares.
2.09 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Cyprus directly with
Amax Gold without the intervention of any Person on behalf of Cyprus in such
manner as to give rise to any claim by any Person against Amax Gold, Magadan
or Omolon for a finder's fee, brokerage commission or similar payment.
2.10 No Conflicts. The execution and delivery by Cyprus, Cyprus Gold and
Magadan of this Agreement and the Project Agreements and Financing Agreements
to which they are a party do not (and the Amended Financing Agreements,
Subordinated Loan Agreement, the Subordinated Loan Guaranties, Additional
Equity Contribution, the North Vein Agreement and the Gold Sales Arrangements,
at the Closing Date, will not) and the performance by Cyprus, Cyprus Gold and
Magadan of their obligations under this Agreement and such other agreements
and the consummation of the transactions contemplated hereby and thereby will
not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the certificate of incorporation or by-laws (or
comparable organizational documents) of Cyprus, Cyprus Gold, Magadan or
Omolon;
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(b) except as disclosed in Section 2.10(b) of the Disclosure Schedule,
(i) (A) conflict with or result in a violation or breach of, (B) constitute
(with or without notice or lapse of time or both) a default under, (C)
require Cyprus, Cyprus Gold, Magadan or Omolon to obtain any consent,
approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, or (D) result in the creation or
imposition of any Lien (except for Liens created or permitted by the
Financing Agreements, the Amended Financing Agreements, the Subordinated
Loan Agreement and any agreement entered into pursuant to Sections 9.08 or
9.09) upon Magadan or Omolon or any of their respective Assets or
Properties (including, without limitation, the Omolon Shares and the
Magadan Common Stock), under any Contract or License to which Cyprus,
Cyprus Gold, Magadan or Omolon is a party or by which any of their
respective Assets and Properties is bound; or (ii) conflict with or result
in a violation or breach of any term or provision of any Law or Order
applicable to Cyprus, Cyprus Gold, Magadan or Omolon, or any of their
respective Assets and Properties.
2.11 Taxes. All Tax returns and reports of Magadan required by Law (as
presently interpreted and in effect) to be filed have been duly filed and all
tax assessments, fees and other governmental charges upon Magadan (including
any Taxes reportable on any Tax return), its properties and its income, which
are due and payable, have been paid, other than those currently payable
without penalty or interest.
2.12 Certain Information Supplied. None of the information identified in
Section 2.12 of the Disclosure Schedule, which information was supplied in
writing by Cyprus, Cyprus Gold or Magadan for inclusion in the consent
solicitation statement to be provided to the stockholders of Amax Gold with
respect to approval of this Agreement and related matters (the "Consent
Solicitation Statement"), contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
2.13 Representations and Warranties with Respect to Omolon. (a) Omolon is a
closed joint stock company duly organized and validly existing under the laws
of the Russian Federation and, as of the Closing, is or will be registered
with all relevant registration bodies in the Russian Federation and has full
power to own the properties which it owns and proposes to own for the purposes
of the Project and to carry out the business which it carries out and proposes
to carry out for the purposes of the Project. Omolon has no subsidiaries.
(b) Omolon has an authorized capital of Rb. 388,480,000,000 (the equivalent
of approximately U.S. $80,000,000 when contributed) consisting of 80,000
shares with a nominal value of Rb. 4,856,000 each; provided that at or prior
to the Closing Date, the authorized capital of Omolon will have been duly
increased to the equivalent of approximately U.S. $86,000,000 with adjustments
to the number of shares issued or the nominal value of outstanding shares as
necessary to reflect such increase in authorized capital. The first amendment
to the amended and restated Omolon Charter accurately sets forth a list of the
shareholders in Omolon as of the date of this Agreement, together with the
number of Omolon Shares and the percentage of all Omolon Shares that are owned
by each of such shareholders. There are no Options relating to the existing
Omolon Shares or for the issuance of additional shares of Omolon, except
pursuant to the terms of the Foundation Agreement, the Omolon Charter and the
Shareholders Agreement. No person has any right, other than a shareholder or
in respect of the Tranche 2 Loan, the OPIC Tranche 2 Loan (as such terms are
defined in the EBRD Loan Agreement) and the Subordinated Loan Agreement or in
respect of the amount payable by Omolon under the North Vein Agreement, to
share in the profits of Omolon.
(c) The audited balance sheet of Omolon as at December 31, 1995 and the
related audited statement of profit and loss of Omolon for the fiscal year
ending on that date, and the unaudited balance sheet of Omolon as at June 30,
1996 and the related unaudited statement of profit and loss of Omolon for the
portion of the fiscal year then ended (collectively, the "Omolon Financial
Statements"), certified by the General Manager of Omolon, fairly present the
financial condition of Omolon as of the respective dates thereof and were
prepared in conformity with GAAP in the Russian Federation. Omolon had, as of
the respective dates of such Omolon Financial Statements, no material
contingent obligations, liabilities for taxes or unusual forward or long term
commitments not disclosed by, or reserved against in, such Omolon Financial
Statements or the notes thereto.
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To the Knowledge of Cyprus, since June 30, 1996, Omolon has not suffered any
change in its business, prospects or financial condition which has a Material
Adverse Effect, nor has it incurred any substantial or unusual loss or
liability or undertaken or agreed to undertake any substantial or unusual
obligation (except under the Financing Agreements and the Project Agreements,
and, when duly entered into, the Amended Financing Agreements, the
Subordinated Loan Agreement and any agreement entered into under Sections 9.08
and 9.09) that, in any such case, would have a Material Adverse Effect.
(d) Omolon owns, free of all Liens other than those created or permitted by
the Financing Agreements (or to be created or permitted under the Amended
Financing Agreements), all of its Assets and Properties that have a book value
in excess of $10,000 equivalent each (including real property, personal
property, intellectual property and any other assets the ownership of which is
reflected on its most recent balance sheet referred to in Section 2.13(c) or
which are referred to in the Security Documents), and Omolon has the exclusive
right to use (as provided in the license referred to below) the real property
owned by the Russian government that is the subject of the Omolon License and
the Lease Agreement D7E dated June 25, 1995 between the Administration of the
North Evensk District of the Magadan Region and Omolon. Omolon's Assets and
Properties are not subject to any Lien, and Omolon is not subject to any
contract, arrangement or statute, whether conditional or unconditional,
pursuant to which any such Lien may be created, except for Liens created or
permitted by the Financing Agreements (or to be created or permitted under the
Amended Financing Agreements, the Subordinated Loan Agreement or any agreement
entered into by Omolon pursuant to Sections 9.08 and 9.09).
(e) Omolon is not in violation of any material Law or Order (as presently
interpreted and in effect) which is applicable to Omolon or its Assets and
Properties. Except as set forth on Schedule 2.13(e) of the Disclosure
Schedule, to the best of Cyprus' Knowledge, no Law or Order has been proposed
or is expected which may have a Material Adverse Effect. All Tax returns and
reports of Omolon required by Law (as presently interpreted and in effect) to
be filed have been duly filed and all tax assessments, fees and other
governmental charges upon Omolon (including any Taxes reportable on any Tax
return), its properties and its income, which are due and payable, have been
paid, other than those currently payable without penalty or interest.
(f) Omolon is not engaged in nor, to the best of Cyprus' Knowledge,
threatened by, any litigation, arbitration or administrative proceeding, the
outcome of which reasonably may be expected to have a Material Adverse Effect.
(g) The Financing Agreements and Project Agreements (and, at the Closing
Date, the Amended Financing Agreements, the Subordinated Loan Agreement, the
Gold Sales Arrangements and the North Vein Agreement) to which Omolon or
Magadan, as the case may be, is or will be a party constitute and will at
Closing constitute valid and legally binding obligations of Omolon or Magadan,
as the case may be, enforceable in accordance with their respective terms.
(h) Except as set forth on Section 2.10(b) of the Disclosure Schedule there
are no Russian Government Authorizations required in connection with the
Merger. As of the date of this Agreement, Magadan or Omolon has obtained all
Russian Government Authorizations required under applicable Law (as presently
interpreted and in effect) in connection with the Project or the execution,
delivery or performance of any of the Financing Agreements or Project
Agreements, except for (i) Russian Government Authorizations required under
Environmental Law, referred to in Section 2.16 or as required in connection
with the Amended Financing Agreements, the Additional Equity Contribution, the
Subordinated Loan Agreement, the North Vein Agreement or any loan agreement
entered into by Omolon pursuant to Sections 9.08 or 9.09 and (ii) other
construction and operating permits and approvals which are not yet required to
be obtained, which will be routinely issued in the course of designing,
constructing and operating the Project and with respect to which there is no
reason to believe that Omolon will not be able to obtain such permits and
approvals at the time they are needed for the Project.
2.14 Furnishing of Certain Documents. Except for the Financing Agreements
and Project Agreements (and the Amended Financing Agreements, the Subordinated
Loan Agreement, the Subordinated Loan Guaranties and the North Vein Agreement
to be entered into prior to Closing and in connection with Magadan's portion
of
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the Additional Equity Contribution), and the amendments and waivers
thereunder, and the other agreements, contracts, instruments or other
documents each as listed in Section 2.14 of the Disclosure Schedule, (a)
neither Cyprus Gold, Magadan nor Omolon is a party to or is bound by any
agreement, contract, instrument or other document under which it has incurred
or could reasonably be expected to incur liabilities or obligations exceeding
$100,000 (or the equivalent in other currencies) and (b) none of Cyprus,
Cyprus Gold, Magadan or Omolon is a party to or is bound by any material
agreement, arrangement or understanding with or relating to Magadan or Omolon
or the Russian Shareholders. Cyprus has furnished or caused to be furnished to
Amax Gold true and complete copies of each of the Financing Agreements and the
Project Agreements, each as amended, supplemented and modified to and
including, and as in effect on, the date hereof.
2.15 No Default. (a) Except for conditions waived by the Project Lenders, no
event existed at funding that would have entitled the Project Lenders not to
fund the Loans under the EBRD Loan Agreement or the OPIC Finance Agreement or
which would have (or with notice or passage of time would have) entitled
either Project Lender to accelerate the maturity of such Loans, terminate the
commitments thereunder or exercise other remedies. At the Closing Date no
event will have occurred which would entitle any lender not to fund the Loans
under the Amended Financing Agreement or the Subordinated Loan Agreement or
which would (or with notice or the passage of time would) entitle any lender
to accelerate the maturity of any of the Financing Agreements, the Amended
Financing Agreements or the Subordinated Loan Agreement, terminate any
unfunded commitment thereunder or exercise other remedies; provided that, at
the Closing Date, conditions previously waived by any lender pursuant to
certain waiver letters shall be satisfied, waived to a further time or waived
permanently.
(b) Neither Omolon nor Magadan is, and no event has occurred which would (or
with notice or passage of time would) cause either Omolon or Magadan to be, in
default under the certificate of incorporation of Magadan, the Omolon Charter,
the Foundation Agreement, the Shareholders Agreement or the Omolon License.
(c) To the best of Cyprus' Knowledge and except as set forth on Schedule
2.15(c), neither Magadan nor Omolon is (or with notice or passage of time
would be) in material default under any other agreement, obligation or duty to
which it is a party or by which it or any of its Assets and Properties are
bound.
2.16 Environmental Matters. To the Knowledge of Cyprus, there has been no
release or threatened release prior to the date hereof of any pollutants or
hazardous materials at any site or facility owned, operated or leased by
Omolon (or any predecessor or successor in interest to Omolon) which under
applicable Environmental Law could have a Material Adverse Effect. To the
Knowledge of Cyprus, Omolon and its businesses, operations, assets, equipment,
property, leaseholds and other facilities are in compliance with applicable
Environmental Law. As of the date of this Agreement, Omolon has been issued
all permits, licenses, certificates and approvals required under applicable
Environmental Law, except for environmental permits and approvals which are
not yet required to be obtained, which will be routinely issued in the course
of designing, constructing and operating the Project and with respect to which
there is no reason to believe that Omolon will not be able to obtain such
permits and approvals at the time they are needed for the Project, and Omolon
has received no material complaint, order, directive, claim, citation or
notice from any governmental authority with respect to any Environmental Law.
2.17 Project Status. To the Knowledge of Cyprus, there is no fact or
circumstance that leads Cyprus to believe that the Project will not be
completed in all material respects in accordance with the schedule and budget
contained in the Development Plan or that will result in the Project
performing differently in any material respect than as described in the
Development Plan.
2.18 Accuracy of Information. Other than with respect to facts already Known
to Amax Gold as a result of the AGI Activities, all material facts relating to
the Business or Condition of Magadan and Omolon have been disclosed to Amax
Gold in or in connection with this Agreement. No statement made or other
information furnished by Cyprus or on its behalf in this Agreement or in any
other document furnished by it or on its behalf to Amax Gold or any of its
representatives in connection therewith contains any untrue statement of a
material fact or omits to state (as of the date made or furnished) any
material fact necessary to make such statement or
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information not misleading in light of the circumstances under which it was
made or furnished, provided that, to the extent that any such statement or
information was based upon estimates, forecasts or professional opinions, such
estimates, forecasts or opinions (except as otherwise warranted herein or
therein) were made in good faith and based upon the best available
information, but otherwise it does not warrant that such estimates, forecasts
or opinions will ultimately prove to be correct.
ARTICLE III
REPRESENATATIONS AND WARRANTIES OF AMAX GOLD
Amax Gold hereby represents and warrants to Cyprus as follows:
3.01 Organization. Each of Amax Gold and Amax Russia is a corporation duly
organized, validly existing and in good standing under the Laws of the State
of Delaware, and has full corporate power and authority to conduct its
business as and to the extent now conducted and to own, use and lease its
Assets and Properties. Amax Gold is duly qualified, licensed or admitted to do
business and is in good standing in the states of Alaska, Colorado, Nevada,
Utah and Wisconsin, which are the only jurisdictions in which the ownership,
use or leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission as a foreign
corporation necessary. Amax Russia is not required to be qualified, licensed
or admitted as a foreign corporation in any jurisdiction.
3.02 Authority. Amax Gold and Amax Russia have full corporate power and
authority to enter into this Agreement and, subject to obtaining the
affirmative vote or consent of a majority of the outstanding shares of Amax
Gold Common Stock, to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Amax Gold and Amax Russia and the
consummation by Amax Gold and Amax Russia of the transactions contemplated
hereby have been duly and validly approved by the respective Boards of
Directors of Amax Gold and Amax Russia and approved by Amax Gold in its
capacity as the sole stockholder of Amax Russia. The Special Committee of the
Board of Directors of Amax Gold has recommended adoption of this Agreement and
the approval of the Merger by the stockholders of Amax Gold and directed that
this Agreement be submitted to the stockholders of Amax Gold for their
consideration, and no other corporate proceedings on the part of Amax Gold,
Amax Russia or their respective stockholders are necessary, other than such
approval by the stockholders of Amax Gold. This Agreement has been duly and
validly executed and delivered by Amax Gold and Amax Russia and constitutes
legal, valid and binding obligations of Amax Gold and Amax Russia enforceable
against Amax Gold and Amax Russia in accordance with its terms.
3.03 No Conflicts. The execution and delivery by Amax Gold and Amax Russia
of this Agreement do not, and the performance by Amax Gold and Amax Russia of
their respective obligations under this Agreement and the consummation of the
transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the certificate of incorporation or by-laws of
Amax Gold or Amax Russia;
(b) conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Amax Gold, Amax Russia or any
of their respective Assets and Properties; or
(c) (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default
under, (iii) require Amax Gold or Amax Russia to obtain any consent,
approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, or (iv) result in the creation or
imposition of any Lien (except for Liens created or permitted by the
Financing Agreements or contemplated by the Amended Financing Agreements,
the Subordinated Loan Agreement or any agreement entered into pursuant to
Section 9.08 or 9.09) upon Amax Gold, Amax Russia or any of their
respective Assets or Properties under, any Contract or License to which
Amax Gold or Amax Russia is a party or by which any of their respective
Assets and Properties is bound.
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3.04 Capital Stock. The authorized capital stock of Amax Gold consists
solely of (i) 200,000,000 shares of Amax Gold Common Stock, of which
96,509,959 shares are issued and outstanding as of the date hereof and (ii)
10,000,000 shares of preferred stock, of which 1,840,000 shares are issued and
outstanding as of the date hereof. The shares of Amax Gold Common Stock
comprising the Closing Shares have been duly authorized by all necessary
corporate action and, when issued to Cyprus in accordance with this Agreement,
will be validly issued and outstanding, fully paid, nonassessable and free of
preemptive rights. The shares of Amax Gold Common Stock comprising the
Production Shares and the Contingent Payment Shares have been duly authorized
by all necessary corporate action and, if and when issued to Cyprus in
accordance with Sections 1.08 and 1.09, respectively, will be validly issued
and outstanding, fully paid, nonassessable and free of preemptive rights.
3.05 Brokers. Except for Salomon Brothers, whose fees, commissions and
expenses are the sole responsibility of Amax Gold, all negotiations relative
to this Agreement and the transactions contemplated hereby have been carried
out by Amax Gold directly with Cyprus without the intervention of any Person
on behalf of Amax Gold in such manner as to give rise to any claim by any
Person against Cyprus, Magadan or Omolon for a finder's fee, brokerage
commission or similar payment.
ARTICLE IV
COVENANTS OF CYPRUS AND AMAX GOLD
Each of Cyprus and Amax Gold covenants and agrees with respect to itself
and, where applicable, its Transaction Subsidiaries, that at all times from
and after the date hereof through the Closing:
4.01 Regulatory and Other Approvals. Each of Cyprus and Amax Gold will, and
will cause its Transaction Subsidiaries to (a) use all Commercially Reasonable
Efforts and proceed diligently and in good faith as promptly as practicable to
obtain all consents, acknowledgements, approvals or actions of, to make all
filings with and to give all notices to Governmental or Regulatory Authorities
or any other Person required of it or its Transaction Subsidiaries to
consummate the transactions contemplated hereby, (b) provide such other
information and communications to such Governmental or Regulatory Authorities
or other Persons as Amax Gold, Cyprus, or such Governmental or Regulatory
Authorities or other Persons reasonably may request in connection therewith
and (c) cooperate with the other parties hereto as promptly as practicable in
obtaining all consents, approvals or actions of, making all filings with and
giving all notices to Governmental or Regulatory Authorities or other Persons
required of any other party hereto to consummate the transactions contemplated
hereby. Each of Cyprus and Amax Gold will provide prompt notification to the
other when any such consent, approval, action, filing or notice referred to in
clause (a) above is obtained, taken, made or given, as applicable, and will
advise the other of any communications (and, unless precluded by Law, provide
copies of any such communications that are in writing) with any Governmental
or Regulatory Authority or other Person regarding any of the transactions
contemplated by this Agreement.
4.02 Investigation by Cyprus and Amax Gold. Cyprus will, and will cause
Magadan and Omolon to, and Amax Gold to the extent consistent with the AGI
Activities will, (a) provide the other and its officers, directors, employees,
agents, counsel, accountants, financial advisors, consultants and other
representatives (together, "Representatives") with full access, upon
reasonable prior notice and during normal business hours, to all officers,
employees, agents and accountants of Magadan and Omolon and their Assets and
Properties and Books and Records, and (b) furnish the other and such other
Persons with all such information and data (including, without limitation,
copies of Contracts and other Books and Records) concerning the business and
operations of Magadan and Omolon as the other or any of such other Persons
reasonably may request in connection with such investigation.
4.03 Conduct of Business. Cyprus will cause Magadan and Omolon through
Closing to conduct their business only in the ordinary course consistent with
the timely development of the Project. Without limiting the
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generality of the foregoing, Cyprus will, and Amax Gold will, to the extent
consistent with the AGI Activities, use its Commercially Reasonable Efforts
to:
(a) cause Magadan and Omolon to use Commercially Reasonable Efforts to
(i) preserve intact the present business organization and reputation of
Magadan and Omolon, (ii) keep available (subject to dismissals and
retirements in the ordinary course of business consistent with past
practice) the services of the present officers, employees and consultants
of Magadan and Omolon, (iii) maintain the Assets and Properties of Magadan
and Omolon in good working order and condition, ordinary wear and tear
excepted, (iv) maintain the good will of suppliers, lenders and other
Persons with whom Magadan or Omolon has significant business relationships
and (v) continue all current development activities relating to the
business and operations of Magadan and Omolon;
(b) except to the extent required by applicable Law (i) cause the Books
and Records to be maintained in the usual, regular and ordinary manner,
(ii) not permit any material change in (A) any accounting, financial
reporting or Tax practice or policy of Magadan or Omolon, or (B) any method
of calculating any contingency or other reserve of Magadan or Omolon for
accounting, financial reporting or Tax purposes and (iii) not permit any
change in the fiscal year of Magadan or Omolon;
(c) (i) maintain, and cause Magadan and Omolon to use Commercially
Reasonable Efforts to maintain, in full force and effect until the Closing
substantially the same levels of insurance coverage as currently in place,
(ii) use Commercially Reasonable Efforts to cause such insurance coverage
held by any Person (other than Magadan or Omolon) for the benefit of
Magadan or Omolon to continue to be provided at the expense of Magadan and
Omolon for at least sixty (60) days after the Closing on substantially the
same terms and conditions as provided on the date of this Agreement and
(iii) subject to the Financing Agreements, cause any and all benefits under
such Contracts paid or payable (whether before or after the date of this
Agreement) with respect to the business, operations, employees or Assets
and Properties of Magadan and Omolon to be paid to Magadan and Omolon; and
(d) cause Magadan and Omolon to comply, in all material respects, with
all Laws and Orders applicable to the business and operations of Magadan
and Omolon and promptly following receipt thereof to give Amax Gold or
Cyprus, as the case may be, copies of any notice received from any
Governmental or Regulatory Authority or other Person alleging any violation
of any such Law or Order.
4.04 Notice and Cure. Each of Cyprus and Amax Gold will notify the other in
writing of, and contemporaneously will provide the other with true and
complete copies of any and all information or documents relating to, and will
use Commercially Reasonable Efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes Known to
such party, occurring after the date of this Agreement that causes or will
cause any covenant or agreement of such party under this Agreement to be
breached or that renders or will render untrue any representation or warranty
of such party contained in this Agreement as if the same were made on or as of
the date of such event, transaction or circumstance. Each of Cyprus and Amax
Gold also will notify the other in writing of, and will use Commercially
Reasonable Efforts to cure, before the Closing, any violation or breach, as
soon as practicable after it becomes Known to such party, of any
representation, warranty, covenant or agreement made by such party in this
Agreement, whether occurring or arising before, on or after the date of this
Agreement. No notice given pursuant to this Section 4.04 shall have any effect
on the representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining satisfaction of any condition contained
herein or shall in any way limit Cyprus' or Amax Gold's right to seek
indemnity under Article XI.
4.05 Fulfillment of Conditions. Through the Closing, each of Cyprus and Amax
Gold will use all Commercially Reasonable Efforts and proceed diligently and
in good faith to satisfy each condition to the obligations of the other
contained in this Agreement and will use all Commercially Reasonable Efforts
not to permit Magadan or Omolon to take or fail to take any action that could
reasonably be expected to result in the nonfulfillment of any such condition.
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ARTICLE V
COVENANTS OF CYPRUS
Cyprus covenants and agrees with respect to itself and its Transaction
Subsidiaries that at all times from and after the date hereof until the
Closing and, with respect to any covenant or agreement by its terms to be
performed in whole or in part after the Closing, for the period specified in
Article X, it will comply with all covenants and provisions of this Article V,
except to the extent Amax Gold may otherwise consent in writing.
5.01 Books and Records. On the Closing Date, Cyprus will, to the extent not
already in the possession of Amax Gold, deliver or make available to Amax Gold
at the offices of Magadan and Omolon all of the Books and Records, and if at
any time after the Closing Cyprus discovers in its possession or under its
control any other Books and Records, it will forthwith deliver such Books and
Records to Amax Gold.
5.02 Consent to Issuance of Shares. Cyprus will, with respect to all shares
of Amax Gold Common Stock beneficially owned by it (and will cause its
subsidiaries to, with respect to all such shares owned by them) consent to the
issuance of the Closing Shares, the Production Shares and the Contingent
Payment Shares pursuant to the Merger and in accordance with this Agreement
and will (and will cause such subsidiaries to) deliver to the Secretary of
Amax Gold a signed and dated consent with respect to such shares in the form
of the consent attached to the Consent Solicitation Statement.
5.03 OPIC Insurance. Cyprus will assign to Amax Gold at Closing the OPIC
insurance contained in the Contracts of Insurance No. D924 and E381 with OPIC,
dated as of September 29, 1995 and shall obtain and assign to Amax Gold at
Closing additional OPIC insurance with respect to the Additional Equity
Contribution (the "OPIC Insurance Contracts") or assist Amax Gold in obtaining
OPIC insurance on substantially the same terms and conditions as provided in
the OPIC Insurance Contracts at or prior to Closing.
5.04 Taxes. Cyprus will timely pay all Taxes relating to Magadan or its
ownership interest in Magadan and Omolon, or to any Affiliate of Cyprus or
Magadan (other than Omolon), which are attributable to any tax period, to the
extent such tax period ends on or prior to the Closing Date and for that
portion of any tax period including and ending at the Closing Date, computed
as if the books of the relevant taxpayer had been closed on that date, and
will reimburse Magadan or Amax Gold for any of such Taxes paid by either of
them. Taxes other than taxes measured by gross or net income for which the
last day of the taxable period is not the Closing Date will be allocated pro
rata per day between the period ending on the Closing Date and the period
commencing after the Closing Date.
5.05 Contribution of Intercompany Debt. If, as of the Closing Date, the Net
Intercompany Debt (as defined below) shall consist of a net indebtedness of
Magadan to Cyprus or any of its Affiliates (other than Omolon and Magadan),
Cyprus shall, prior to or simultaneously with the Closing, contribute or cause
to be contributed such Net Intercompany Debt to the equity of Magadan. If, as
of the Closing Date, the Net Intercompany Debt shall consist of a net
indebtedness of Cyprus and its Affiliates (other than Omolon and Magadan) to
Magadan, Cyprus shall, prior to or simultaneously with the Closing, cause
Magadan to cancel the obligations of Cyprus and its Affiliates (other than
Omolon and Magadan) under such indebtedness. As used herein, the term "Net
Intercompany Debt'' shall mean (a) all intercompany payables of Magadan to
Cyprus and its Affiliates (other than Omolon and Magadan), other than trade
payables incurred in the ordinary course of business, less (b) the sum of all
intercompany receivables due to Magadan from Cyprus and its Affiliates (other
than Omolon and Magadan), other than trade receivables incurred in the
ordinary course of business. For purposes of this Agreement, intercompany
payables and intercompany receivables shall be deemed (i) to include any
payables and receivables relating to the inclusion of Magadan in the
consolidated federal income tax returns filed by Cyprus and its Affiliates for
periods through the Closing Date and (ii) to exclude the cash in account
number 1001738853 at Pittsburgh National Bank established pursuant to the
letter agreement with the Project Lenders dated April 22, 1996 provided by
Cyprus to Magadan that is used to support the Financing Agreements or the
Amended Financing Agreements (which cash shall remain available to support
such financing after the
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Closing Date so long as may be required by such agreements at which time any
balance remaining shall be repaid to Cyprus).
5.06 Additional Financing Agreements. Cyprus will use all Commercially
Reasonable Efforts to (i) authorize, execute, deliver, satisfy all conditions
to borrowing under, and consummate the Amended Financing Agreements (providing
for borrowing by Omolon of least $30,000,000 from the Project Lenders in
addition to amounts borrowed under the Financing Agreements) and the
Subordinated Loan Agreement (providing for borrowing by Omolon of at least
$14,000,000), including the Subordinated Loan Guaranties at or prior to the
Closing Date, including without limitation the execution of all documents, the
obtaining of all consents, approvals, licenses and permits of third parties
and Governmental or Regulatory Authorities, and the completion of all other
action reasonably necessary or desirable to satisfy its obligations under this
Section 5.06 and (ii) make such agreements valid obligations of Cyprus,
Magadan and Omolon, enforceable in accordance with their terms.
5.07 Additional Equity Contribution. At or prior to the Closing Date, Cyprus
shall cause Magadan to contribute the additional U.S. $3,000,000 required to
make its aggregate equity capital contributed to Omolon equal to U.S.
$43,000,000, and Cyprus shall use all Commercially Reasonable Efforts to cause
the shareholders of Omolon other than Magadan to contribute all amounts of
equity capital not yet paid so that the aggregate capital contributed by such
other shareholders will equal $43,000,000.
5.08 Gold Sales Arrangements. Cyprus shall use all Commercially Reasonable
Efforts to implement and maintain in effect Gold Sales Arrangements for the
Project that are acceptable to the Project Lenders and Amax Gold.
ARTICLE VI
COVENANTS OF AMAX GOLD
Amax Gold covenants and agrees with Cyprus that, at all times from and after
the date hereof through the Closing, Amax Gold will comply with all covenants
and provisions of this Article VI, except to the extent Cyprus may otherwise
consent in writing.
6.01 Consent Solicitation Statement. (a) Amax Gold shall prepare and file
with the SEC the Consent Solicitation Statement as soon as reasonably
practicable after the date hereof, and shall diligently proceed to have the
Consent Solicitation Statement cleared by the SEC. If at any time prior to the
Effective Time any event shall occur that should be set forth in an amendment
of or a supplement to the Consent Solicitation Statement, Amax Gold shall
prepare and file with the SEC such amendment or supplement as soon thereafter
as is reasonably practicable. Cyprus, Magadan and Amax Gold shall cooperate
with each other in the preparation of the Consent Solicitation Statement, and
Amax Gold shall notify Cyprus of the receipt of any comments of the SEC with
respect to the Consent Solicitation Statement and of any requests by the SEC
for any amendment or supplement thereto or for additional information, and
shall provide to Cyprus promptly copies of all correspondence between Amax
Gold or any representative of Amax Gold and the SEC with respect to the
Consent Solicitation Statement. Amax Gold shall give Cyprus and its counsel
the opportunity to review the Consent Solicitation Statement and all responses
to requests for additional information by and replies to comments of the SEC
before any such document is provided to or filed with the SEC. Each of Amax
Gold, Cyprus and Magadan agrees, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC
and to cause the Consent Solicitation Statement to be mailed to the holders of
Amax Gold Common Stock entitled to take action with respect thereto at the
earliest practicable time.
(b) Amax Gold shall commence solicitation of consents from its stockholders
for the purpose of approving the issuance of the Closing Shares, the
Production Shares and the Contingent Payment Shares pursuant to the Merger and
in accordance with the terms of this Agreement as soon as reasonably
practicable after the date hereof, and will notify Cyprus in writing of the
results thereof promptly following the Expiration Time (as defined in the
Consent Solicitation Statement).
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF AMAX GOLD AND AMAX RUSSIA
The obligations of Amax Gold and Amax Russia hereunder to consummate the
Merger are subject to the fulfillment, at or before the Closing, of each of
the following conditions (all or any of which may be waived in whole or in
part by Amax Gold in its sole discretion):
7.01 Representations and Warranties. Each of the representations and
warranties made by Cyprus in this Agreement (other than those made with
respect to a specified date earlier than the Closing Date) shall be true and
correct in all material respects on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date, and any
representation or warranty made with respect to a specified date earlier than
the Closing Date shall have been true and correct in all material respects on
and as of such earlier date.
7.02 Performance. Cyprus and Magadan shall have performed and complied with,
in all material respects, each agreement, covenant and obligation required by
this Agreement to be so performed or complied with by such party at or before
the Closing.
7.03 Officers' Certificates. Cyprus shall have delivered to Amax Gold a
certificate, dated the Closing Date and executed by the Chairman of the Board,
the President or any Vice President of Cyprus, substantially in the form and
to the effect of Exhibit A hereto, and a certificate, dated the Closing Date
and executed by the Secretary or any Assistant Secretary of Cyprus,
substantially in the form and to the effect of Exhibit B hereto.
7.04 Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
which could reasonably be expected to otherwise result in a material
diminution of the benefits of the transactions contemplated by this Agreement
to Amax Gold, and there shall not be pending or threatened on the Closing Date
any action or proceeding or any other action in, before or by any Governmental
or Regulatory Authority which could reasonably be expected to result in the
issuance of any such Order or the enactment, promulgation or deemed
applicability to Amax Gold, Magadan, Omolon or the transactions contemplated
by this Agreement of any such Law.
7.05 Regulatory Consents and Approvals. All consents, acknowledgments,
approvals and actions of, filings with and notices to any Governmental or
Regulatory Authority necessary or desirable to permit Amax Gold, Amax Russia,
Cyprus and Magadan to perform their obligations under this Agreement and to
consummate the transactions contemplated hereby (a) shall have been duly
obtained, made or given, (b) shall be in form and substance reasonably
satisfactory to Amax Gold, (c) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (d) shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement shall have occurred.
7.06 Third Party Consents. The consents and acknowledgments (or in lieu
thereof waivers) listed in Section 2.10(b) of the Disclosure Schedule, and all
other acknowledgments or consents (or in lieu thereof waivers) necessary to
permit the performance by Amax Gold, Amax Russia, Cyprus, Magadan and Omolon
of their obligations under this Agreement or to the consummation of the
transactions contemplated hereby under any Contract to which Amax Gold, Amax
Russia, Cyprus, Magadan or Omolon is a party or by which any of their
respective Assets and Properties are bound (a) shall have been obtained and
(b) shall be in form and substance reasonably satisfactory to Amax Gold.
7.07 Opinions of Counsel. Amax Gold shall have received the opinion of
Philip C. Wolf, Esq., General Counsel of Cyprus, dated the Closing Date and
the opinion of Professor Sirodoev, special Russian counsel to Cyprus and
Omolon, dated the Closing Date, in each case with respect to such matters as
Amax Gold reasonably may request.
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7.08 Good Standing Certificates. Cyprus shall have delivered to Amax Gold
(a) copies of the certificates or articles of incorporation (or other
comparable corporate charter documents), including all amendments thereto, of
Magadan certified by the Secretary of State or other appropriate official of
the jurisdiction of incorporation, (b) certificates from the Secretary of
State or other appropriate official of the respective jurisdictions of
incorporation to the effect that Magadan is in good standing or subsisting in
such jurisdiction, listing all charter documents of Magadan on file and
attesting to its payment of all franchise or similar Taxes, and (c) a
certificate from the Secretary of State or other appropriate official in each
jurisdiction in which Magadan is qualified or admitted to do business to the
effect that Magadan is duly qualified or admitted and in good standing in such
jurisdiction.
7.09 Resignations of Directors and Officers. Each of the directors and
officers of Magadan shall have resigned prior to the Closing Date.
7.10 Proceedings. All proceedings to be taken on the part of Cyprus, Cyprus
Gold, Magadan and Omolon in connection with the transactions contemplated by
this Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to Amax Gold, and Amax Gold shall have
received copies of all such documents and other evidences as Amax Gold
reasonably may request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
7.11 Stockholders' Approval. The affirmative vote or consent of a majority
of the outstanding shares of Amax Gold Common Stock shall have been obtained.
7.12 Financing Agreements. Each of the EBRD Loan Agreement and the OPIC
Finance Agreement shall be in full force and effect, the obligations of the
respective Project Lenders to make loans to Omolon thereunder shall not have
been suspended or terminated, and, except for waivers granted under the
Financing Agreements listed in Section 2.14 of the Disclosure Schedule, Amax
Gold shall have received original or certified copies of the documents
delivered to EBRD or OPIC pursuant to Sections 4.01 and 4.02 of the EBRD Loan
Agreement and of the OPIC Financing Agreement (and originals or certified
copies of all amendments, supplements or other modifications of such
documents), any and all amendments, supplements or modifications since the
date of this Agreement to any of the Financing Agreements or Project
Agreements shall be satisfactory to Amax Gold in form and substance, and no
event or condition shall have occurred or exist which would prevent Omolon
from satisfying any conditions precedent for additional borrowings under the
Amended Financing Agreements or the Subordinated Loan Agreement or the
Subordinated Loan Guaranties. Conditions which have been waived by the Project
Lenders pursuant to certain waiver letters shall have been satisfied, waived
to a future time or waived permanently prior to the Merger.
7.13 OPIC Insurance. Amax Gold shall have been assigned the rights and
obligations of Cyprus and Magadan under the OPIC Insurance Contracts in
accordance with the terms thereof and of the letter agreement, dated November
9, 1995, between OPIC and Cyprus, together with OPIC equity insurance with
respect to the portion of the Additional Equity Contribution made by Magadan
at or prior to the Closing Date or shall have obtained OPIC equity insurance
on substantially the same terms and conditions as provided in the OPIC
Insurance Contracts and such insurance shall be in full force and effect, and
Amax Gold shall have received evidence satisfactory to it that the pledge of
the Omolon Shares and the shares of Surviving Corporation Common Stock under
the Security Documents shall not interfere with the ability to tender such
shares under the OPIC Insurance Contracts.
7.14 Omolon Shares. All of the Omolon Shares referred to in Section 2.13(b)
shall have been duly authorized, validly issued, fully paid and registered
with the Ministry of Finance of the Russian Federation and all state duties
and taxes payable in connection with such issuance and registration shall have
been duly paid by Omolon.
7.15 Exploration Funding under Financing Agreements. Amax Gold shall have
received evidence in form and substance satisfactory to it that Omolon will be
permitted under the terms of the Financing Agreements, the
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Amended Financing Agreements and the Subordinated Loan Agreement to fund
exploration activities as contemplated by Section 1.09.
7.16 Additional Debt Financing and Equity; Gold Sales Arrangements. Each of
the Amended Financing Agreements, Subordinated Loan Agreement and the
Subordinated Loan Guaranties shall be duly authorized, executed and delivered
by the parties thereto in the form and substance satisfactory to both Cyprus
and Amax Gold and shall be in full force and effect (such agreements shall
provide for additional loans aggregating no less than $30 million in the case
of the Amended Financing Agreements and $14 million in the case of the
Subordinated Loan Agreement), and the obligations of the Lenders to make loans
thereunder shall not have been suspended or terminated; Amax Gold shall have
received original or certified copies of the documents delivered to EBRD or
OPIC or the Bank in satisfaction of all conditions precedent to funding
thereunder (and of all amendments, supplements or other modifications of such
documents), any and all further amendments, supplements or modifications since
the date of this Agreement to any of the Amended Financing Agreements or the
Subordinated Loan Agreement or the Subordinated Loan Guaranties shall be
satisfactory to Amax Gold in form and substance, and no event or condition
shall have occurred or exist which would prevent Omolon from satisfying any
conditions precedent for additional borrowings under the Amended Financing
Agreements or the Subordinated Loan Agreement. Conditions which have been
waived by the Project Lenders or the Bank at any time prior to Closing
pursuant to certain waiver letters shall have been satisfied, waived to a
future time acceptable to Cyprus and Amax Gold or waived permanently prior to
the Merger, the Additional Equity Contributions shall have been made, the Gold
Sales Arrangements shall be in effect and all consents, approvals, Licenses
and permits of any third party or any Governmental or Regulatory Authority
necessary for the consummation of the transactions contemplated by the Amended
Financing Agreements, Subordinated Loan Agreement, the Subordinated Loan
Guaranties, the Additional Equity Contributions and the Gold Sales
Arrangements shall have been obtained and be in full force and effect.
7.17 North Vein Agreement. The North Vein Agreement shall have been duly
executed and delivered by the parties thereto in form and substance
satisfactory to Amax Gold and the Project Lenders and such agreement shall be
in full force and effect.
7.18 Absence of Material Adverse Effect. There shall not have occurred
between the date hereof and the Closing any event or circumstance that has had
or reasonably can be expected to have a Material Adverse Effect.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CYPRUS AND MAGADAN
The obligations of Cyprus and Magadan hereunder to consummate the Merger are
subject to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by Cyprus in
its sole discretion):
8.01 Representations and Warranties. Each of the representations and
warranties made by Amax Gold in this Agreement shall be true and correct in
all material respects on and as of the Closing Date as though such
representation or warranty were made on and as of the Closing Date.
8.02 Performance. Amax Gold and Amax Russia shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
such party at or before the Closing.
8.03 Officers' Certificates. Amax Gold shall have delivered to Cyprus a
certificate, dated the Closing Date and executed by the Chairman of the Board,
the President or any Vice President of Amax Gold, substantially in the form
and to the effect of Exhibit C hereto, and a certificate, dated the Closing
Date and executed by the Secretary or any Assistant Secretary of Amax Gold,
substantially in the form and to the effect of Exhibit D hereto.
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8.04 Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law that became effective after the date of this Agreement
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement and
there shall not be pending or threatened on the Closing Date any Action or
Proceeding or any other action in, before or by any Governmental or Regulatory
Authority which could reasonably be expected to result in the issuance of any
such Order or the enactment, promulgation or deemed applicability to Cyprus or
the transactions contemplated by this Agreement of any such Law.
8.05 Regulatory Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Cyprus, Magadan, Amax Gold, Amax Russia and Omolon to
perform their obligations under this Agreement and to consummate the
transactions contemplated hereby (a) shall have been duly obtained, made or
given, (b) shall not be subject to the satisfaction of any condition that has
not been satisfied or waived and (c) shall be in full force and effect, and
all terminations or expirations of waiting periods imposed by any Governmental
or Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement shall have occurred.
8.06 Third Party Consents. All consents (or in lieu thereof waivers)
necessary to permit the performance by Cyprus and Magadan of their respective
obligations hereunder and to the consummation of the transactions contemplated
hereby as are required under the Contracts listed in Section 2.10(b) of the
Disclosure Schedule shall have been obtained.
8.07 Proceedings. All proceedings to be taken on the part of Amax Gold and
Amax Russia in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form
and substance to Cyprus, and Cyprus shall have received copies of all such
documents and other evidences as Cyprus reasonably may request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
8.08 Opinions of Counsel. Cyprus shall have received the opinion of Deborah
J. Friedman, Esq., General Counsel of Amax Gold, dated the Closing Date, with
respect to such matters as Cyprus reasonably may request.
ARTICLE IX
POST-CLOSING AGREEMENTS CONCERNING THE PROJECT
9.01 Intention of the Parties. The consideration to be received by Cyprus
for the transfer of Magadan to Amax Gold has been negotiated in part on the
basis that Magadan will be acquired with the anticipated financing for the
Project in place on the terms and conditions set forth in the EBRD Loan
Agreement, the OPIC Finance Agreement, the Amended Financing Agreements and
the Subordinated Loan Agreement and with credit support provided by Cyprus
under the Cyprus Amax Guaranty, the Cyprus Support Agreement, the Reclamation
Agreement and the Subordinated Loan Guaranties. Cyprus and Amax Gold recognize
(i) that, inasmuch as Cyprus has provided such credit support for the
obligations of Omolon under the EBRD Loan Agreement, the OPIC Finance
Agreement, the Amended Financing Agreements and the Subordinated Loan
Agreement, situations may arise in which Cyprus may be obligated to make
payments under the Cyprus Amax Guaranty or the Subordinated Loan Guaranty of
Cyprus and (ii) that Amax Gold, under certain circumstances, will be entitled
to look to Cyprus to fund demands on Amax Gold or Magadan to pay such lenders.
In the event Cyprus makes any such payment, provision will need to be made for
the repayment of such amounts by Omolon and, under limited circumstances,
Magadan or Amax Gold. Set forth below are the arrangements for dealing with
such obligations should they arise, as well as certain related indemnities and
agreements.
9.02 Obligations of Amax Gold in Connection With the Financing Agreements,
the Amended Financing Agreements or the Subordinated Loan Agreement.
(a) Following the Closing Amax Gold shall use its Commercially Reasonable
Efforts: (i) to cause Omolon (through Magadan pursuant to its status as the
"Foreign Party" under the Omolon Charter) to
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comply with its obligations under the EBRD Loan Agreement, the OPIC Finance
Agreement, the Amended Financing Agreements and the Subordinated Loan
Agreement, including, without limitation, obligations regarding Project
Completion and maintenance of the Loan Life Debt Service Coverage Ratio (as
defined in the Financing Agreements); (ii) to assume and perform, as the
assignee of Cyprus, the obligations of Cyprus under the Cyprus Support
Agreement and the Reclamation Agreement (provided that Amax Gold's
liability for any failure to perform such obligations shall be limited as
provided in Section 9.04(b)); and (iii) to pledge the Surviving Corporation
Common Stock under an agreement reasonably satisfactory to the Project
Lenders.
(b) Following the Closing, Amax Gold shall keep Cyprus informed regarding
the status of the Project (including liquidity needs of the Project and
progress toward Project Completion) and any circumstances regarding the
Project that Amax Gold believes may lead to a demand for payment under the
Cyprus Amax Guaranty or the Subordinated Loan Guaranty of Cyprus. Upon the
request of Cyprus, Amax Gold shall provide Cyprus with access at all
reasonable times to the Project and such employees, documents and
information relating to the Project as Cyprus reasonably may request.
9.03 Obligations of Cyprus in Connection With the Financing Agreements or
the Amended Financing Agreements or the Subordinated Loan Agreement. Following
the Closing, Cyprus (i) shall continue to be obligated under and comply with
the Cyprus Amax Guaranty in the event any payment is due to the Project
Lenders under the Cyprus Amax Guaranty or the Bank under the Subordinated Loan
Guaranties, whether or not such payment is due in respect of the obligations
(or defaults with respect thereto) under the Financing Agreements or the
Amended Financing Agreements or the Subordinated Loan Agreement that have been
assumed by or assigned to Amax Gold; (ii) shall use its Commercially
Reasonable Efforts to prevent a default from occurring with respect to actions
or events with respect to Cyprus or Cyprus Gold that would constitute a
default under Section 5.03(c) of the Cyprus Support Agreement or any of
Sections 7.01(d), 7.01(f), 7.01(g) and 7.01(n) of the EBRD Loan Agreement or
the OPIC Finance Agreement, or under Section 7.01(o) of the EBRD Loan
Agreement or the OPIC Finance Agreement (solely to the extent that such action
or event referred to in Section 7.01(o) prevents, limits or restricts Cyprus'
ability to perform the Cyprus Amax Guaranty); (iii) shall fund any payment
required to be made to the Project Lenders under the Cyprus Magadan Guaranty
or the Cyprus Support Agreement or to the Bank under the Subordinated Loan
Agreement, unless such payment has already been made by Cyprus under the
Cyprus Amax Guaranty or the Subordinated Loan Guaranty of Cyprus; and (iv)
shall indemnify and hold harmless Amax Gold from and against all Losses
arising out of Cyprus' failure to comply with this Section 9.03.
9.04 Additional Obligations Following Demand By The Project Lenders.
(a) In the event the Project Lenders make a demand for payment under the
Cyprus Amax Guaranty or the Bank makes a demand for payment under the
Subordinated Loan Guaranty of Cyprus, then Amax Gold shall use its
Commercially Reasonable Efforts (through Magadan pursuant to its status as
the "Foreign Party" under the Omolon Charter) to cause Omolon to agree to
repay Cyprus for any amounts so paid by Cyprus (under an agreement with
such terms as are reasonably acceptable to Cyprus and Omolon and, if
amounts remain outstanding under the Financing Agreements or the Amended
Financing Agreements or the Subordinated Loan Agreement after giving effect
to such payment, the Project Lenders and the Bank respectively). In the
event Cyprus makes payment under the Cyprus Amax Guaranty or the
Subordinated Loan Guaranty of Cyprus, Cyprus shall be subrogated to the
rights of the Project Lenders and the Bank as the case may be, to the
extent of such payment and to the extent permissible under the Financing
Agreements, the Amended Financing Agreements on the one hand and the
Subordinated Loan Agreement on the other hand, and Cyprus shall not,
without the prior consent of Amax Gold (which shall not be unreasonably
withheld), declare a default or exercise remedies under the Financing
Agreements, the Amended Financing Agreements or the Subordinated Loan
Agreement based on the events or circumstances that gave rise to the demand
for payment under the Cyprus Amax Guaranty or the Subordinated Loan
Guaranty of Cyprus. The parties acknowledge that in such event the
circumstances surrounding the Project
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are likely to have changed materially and agree to negotiate in good faith
with each other and Omolon an amendment to the Financing Agreements, the
Amended Financing Agreements and the Subordinated Loan Agreement to avoid
declaration of a default or the exercise of remedies upon the occurrence of
non-material breaches.
(b) (i) In the event that any default occurs under the Financing
Agreements or the Amended Financing Agreements, resulting in a demand for
payment under the Cyprus Amax Guaranty, and if such default is a result of
the gross negligence or willful misconduct by Amax Gold in the performance
of its obligations assumed under the Cyprus Support Agreement and the
Reclamation Agreement, then in addition to following the procedures set
forth in Section 9.04(a), Amax Gold shall reimburse Cyprus for any portion
of such payment with respect to which Omolon fails to reimburse Cyprus on a
timely basis.
(ii) In the event that any default occurs under the Subordinated Loan
Agreement resulting in a demand for payment under the Subordinated Loan
Guaranty of Cyprus, then in addition to following the procedures set forth
in Section 9.04(a), to the extent Omolon fails to reimburse Cyprus within
30 days of the demand for payment under the Subordinated Loan Guaranty of
Cyprus, then Amax Gold shall reimburse Cyprus within 30 days for any
unreimbursed amount.
(c) In the event the Project Lenders have made (or threatened to make) a
demand for payment under the Cyprus Amax Guaranty, and in the event Amax
Gold determines that continuation of the Project would have a material
adverse effect on the business, condition (financial or otherwise), results
of operations, Assets and Properties, liabilities or prospects of Amax
Gold, Amax Gold shall have the right to offer all of its right, title and
interest in the Surviving Corporation Common Stock to Cyprus and Cyprus
shall have 30 days from receipt of notice of such offer to accept or reject
such offer. Any failure of Cyprus to respond within such time period shall
be deemed a rejection of such offer in accordance with Section 9.04(c)(ii).
(i) If Cyprus accepts Amax Gold's interest in the Surviving
Corporation Common Stock, (A) Amax Gold shall deliver all of its right,
title and interest in such shares to Cyprus; (B) Cyprus shall use its
Commercially Reasonable Efforts to assume, and shall, whether or not
such assumption is permitted by the Project Lenders or the Bank,
indemnify and hold harmless Amax Gold against any Losses suffered or
incurred by Amax Gold in connection with Amax Gold's obligations under
the Cyprus Support Agreement and the Reclamation Agreement and the
pledge by Amax Gold of the Surviving Corporation Common Stock; and (C)
Amax Gold and Cyprus shall indemnify and hold harmless each other (the
"Indemnified" and "Indemnifying" Party, as the case may be) with
respect to any Losses suffered or incurred by the Indemnified Party as
a result of the actions or omissions of the Indemnifying Party in
connection with the Indemnifying Party's operation of the Project;
provided that Amax Gold shall have no liability hereunder to Cyprus
with respect to any Losses arising out of obligations of Amax Gold or
Cyprus to the Project Lenders or the Bank pursuant to the Financing
Agreements, the Amended Financing Agreements, the Subordinated Loan
Agreement or this Agreement, except to the extent such liability arises
under Section 9.04(b)(i); and provided further that Cyprus shall have
no liability hereunder to Amax Gold with respect to any Losses arising
out of payment or other obligations of Cyprus or Amax Gold to the
Project Lenders or the Bank pursuant to the Financing Agreements, the
Amended Financing Agreements, the Subordinated Loan Agreement or this
Agreement, except to the extent such liability arises under Section
9.03, 9.04(c)(i)(B) or 9.04(c)(ii); or
(ii) if Cyprus rejects the Surviving Corporation Common Stock, then
Amax Gold shall retain its obligations under the Reclamation Agreement
and Section 9.04(b)(ii) but shall be released from (A) any obligation
to Cyprus under Section 9.02, including, without limitation,
obligations to continue to operate the Project, to obtain Project
Completion or otherwise perform under the Cyprus Support Agreement; and
(B) any obligations to reimburse Cyprus under Section 9.04(b)(i) in
connection with any payments made under the Cyprus Amax Guaranty,
unless such obligation under Section 9.04(b)(i) arose prior to Amax
Gold's offer of Surviving Corporation Common Stock to Cyprus under
Section 9.04(c).
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9.05 Project Liquidity Needs. If at any time Amax Gold reasonably determines
that the estimated liquidity needs of the Project (including without
limitation cost overruns in the construction and operation of the Project)
will exceed cash projected to be available to the Project, it will promptly
give Cyprus notice of the estimated amount and timing of each such need for
liquidity (a "Liquidity Need"). In the event that Amax Gold gives any such
notice.
(a) Amax Gold shall use its Commercially Reasonable Efforts to cause
Magadan (in its capacity as "Foreign Party" under the Omolon Charter) to
negotiate with (x) the Project Lenders or other financial institutions to
obtain additional loans on commercially reasonable terms to cover such
Liquidity Need, and/or (y) the Russian Shareholders to obtain cash
contributions by the Omolon shareholders of paid-in capital or Subordinated
Shareholder Loans to cover such Liquidity Need. Amax Gold shall keep Cyprus
informed of the progress of such efforts.
(b) If the efforts of Magadan under clause (a) do not result in obtaining
funding sufficient to fund the Liquidity Need, Amax Gold will use
Commercially Reasonable Efforts to arrange for funds to be made available
to Omolon to cover such Liquidity Need on terms reasonably acceptable to
Amax Gold and Omolon. Amax Gold will keep Cyprus informed of the progress
of such efforts.
(c) If Amax Gold gives notice to Cyprus that it will not be able to fund
all or any portion of such Liquidity Need in a timely fashion, then Cyprus
will have the right, but not the obligation, to fund such Liquidity Need
(or portion thereof) by making an advance to Omolon.
(i) In the event such advance or advances do not exceed $5 million in
the aggregate, each such advance shall be repayable in six months and
bear a commercially reasonable interest rate for projects in the
Russian Federation, and be unsecured and subordinated in right of
payment and collection to the obligations owing to the Project Lenders;
and
(ii) To the extent that such unsecured advances exceed or have
exceeded $5 million in the aggregate, or have been outstanding more
than six months, then Cyprus shall make or convert such short term
advances to a term loan on commercially reasonable terms reasonably
satisfactory to Cyprus, Omolon and Amax Gold (with due regard to the
amount thereof, the then current projections of future revenues and
operating costs of the Project, the period for the repayment of the
advance, the cost of funds to projects in the Russian Federation,
subordination in right of payment and collection to the obligations
owing to the Project Lenders, and other relevant factors). Amax Gold
will, subject to the requirements of its then existing financing
obligations and applicable law, guaranty to Cyprus the payment when due
of amounts owing in respect of any such advances. Amax Gold shall be
entitled, subject to its fiduciary duties, contractual obligations and
requirements of applicable law relating to the issuance of stock, to
satisfy its obligation to make any payment under such guaranty either
in cash or, with the consent of Cyprus, by issuing to Cyprus shares of
Amax Gold Common Stock valued at the Average Market Price at the date
payment is made under such guaranty. In the event that Cyprus does not
consent to the payment of guaranty obligations in shares of Amax Gold
Common Stock, Cyprus acknowledges that Amax Gold may fund such guaranty
payment through the public or private sale of equity or debt
securities.
9.06 Obligations of Omolon. Nothing in this Article IX shall be construed as
limiting in any way the liability of Omolon to pay and perform its obligations
under the Financing Agreements, the Amended Financing Agreements, the
Subordinated Loan Agreement, or any loan or other agreement pursuant to
Section 9.08 or 9.09, or the right of Cyprus or Amax Gold to be subrogated to
the rights of any lender against Omolon to the extent of any payment by Cyprus
or Amax Gold to any lender of amounts under the Cyprus Amax Guaranty or the
Subordinated Loan Guaranties, as the case may be.
9.07 Termination of Rights and Obligations. Anything herein to the contrary
notwithstanding, the rights and obligations of Cyprus and Amax Gold under
Sections 9.01 through 9.07 shall terminate automatically upon the termination
in full of the Cyprus Magadan Guaranty in accordance with Section 4.01 thereof
and of the Cyprus Amax Guaranty or the Subordinated Loan Guaranties, as the
case may be, and after such termination,
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Amax Gold shall indemnify Cyprus and hold it harmless from and against any and
all Losses that may be suffered or incurred by Cyprus in relation to the
Reclamation Agreement; provided that the provisions of Sections 9.02(a)(ii),
9.03(ii), (iii) and (iv), 9.04(b), 9.04(c)(i)(C), 9.04(c)(ii), 9.05 and 9.07
shall survive such termination until 60 days following the expiration of any
applicable statute of limitations (including all periods of extension, whether
automatic or permissive).
9.08 Debt Prepayment.
(a) To the extent permitted under the Financing Agreements and the
Amended Financing Agreements without requiring any prepayment of
outstanding loans thereunder, amounts outstanding under the Subordinated
Loan Agreement are to be partially prepaid in an amount equal to the
difference between (i) U.S. $228 million and (ii) the aggregate costs
relating to construction and start up of the Project through the Project
Production Date, which shall include working capital, but which shall
exclude any costs for 1997 Operating Supplies (defined below).
(b) Within 30 days following Project Production Date, Amax Gold shall,
after conferring with Omolon, prepare and deliver to Cyprus a detailed
schedule showing the sums described in Section 9.08(a) above. To the extent
permitted under the Financing Agreements and the Amended Financing
Agreements without requiring any prepayment thereunder, if such sums show
that $228 million exceeds such aggregate costs, Amax Gold shall use
Commercially Reasonable Efforts to cause Omolon to prepay such amount to
the Bank within 30 days of the delivery of such schedule, or if Omolon
fails to make such prepayment, Amax Gold shall make such prepayment no
later than 10 days following the date such prepayment from Omolon was due.
In order to fund such prepayment by Omolon, Amax Gold shall use
Commercially Reasonable Efforts to cause Magadan (as the "Foreign Party"
under the Omolon Charter) to negotiate with the Russian Shareholders to
obtain cash contributions by the Omolon shareholders of paid-in capital or
short-term loans to Omolon sufficient to make such reimbursement, or if
such efforts of Magadan do not result in Omolon obtaining sufficient
funding, to arrange for funds to be made available to Omolon in an amount
sufficient to make such prepayment. In the event Amax Gold makes such
prepayment to the Bank, Amax Gold shall be subrogated to the rights of the
Bank against Omolon with respect to the amount of such reimbursement. In
the event the Finance Agreements and the Amended Finance Agreements do not
permit the prepayment contemplated by Section 9.08 without requiring any
prepayment thereunder, neither Omolon nor Amax Gold shall have any
obligation to make such prepayment.
(c) If Amax Gold notifies Cyprus of a disagreement regarding the amount
of such repayment and if such dispute is not resolved between the parties
within 30 days, either party may submit the matter to binding and final
decision by arbitration pursuant to Section 11.02(c). In the event of such
a disagreement, amounts not in dispute shall be paid within 30 days of the
delivery of the schedule referred to above, and any amount in dispute shall
be paid into an interest bearing escrow account with interest being paid to
the prevailing party.
9.09 Operating Supplies.
(a) The Parties acknowledge that, due to the Project's remote northern
location, the Project's annual requirements for parts, materials and
supplies ("Operating Supplies") can be purchased and delivered to the
Project most cost efficiently in the winter over the ice road. Since the
Project will commence operations in 1997, it is necessary to obtain and
deliver Operating Supplies for 1997 ("1997 Operating Supplies") beginning
in the fall of 1996. Further, through the Closing Date the costs of 1997
Operating Supplies are being funded primarily by Cyprus which is purchasing
supplies and arranging for transport on behalf of Omolon. Any 1997
Operating Supplies that are funded with the proceeds from the Financing
Agreements and the Amended Financing Agreements shall be addressed pursuant
to Section 9.08. In order to facilitate the financing of these costs and
provide reimbursement to Cyprus, Omolon and Cyprus, with the cooperation of
the Russian Shareholders, are seeking a working capital line of credit for
Omolon.
(b) Within 30 days of the Closing Date, Magadan shall, after conferring
with Omolon, prepare and deliver to Cyprus a schedule of expenditures for
1997 Operating Supplies funded by Cyprus. Amax Gold
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shall use Commercially Reasonable Efforts to cause Omolon to reimburse
Cyprus within 30 days of delivery of such schedule of expenditures by
taking the actions called for by the following sentence, or if such efforts
do not result in timely reimbursement of Cyprus, Amax Gold shall make such
reimbursement to Cyprus directly no later than 10 days following the date
reimbursement from Omolon was due. Amax Gold shall use Commercially
Reasonable Efforts (i) to cause Omolon to reimburse Cyprus from the 1997
Line of Credit, (ii) if the 1997 Line of Credit is not available, to cause
Magadan (as the "Foreign Party" under the Omolon Charter) to negotiate with
the Russian Shareholders to obtain cash contributions by the Omolon
shareholders of paid-in capital or short-term loans to Omolon sufficient to
make such reimbursement, or (iii) if such efforts of Magadan do not result
in Omolon obtaining sufficient funding, to arrange for funds to be made
available to Omolon in an amount sufficient to make such reimbursement. In
the event Amax Gold makes such reimbursement to Cyprus, Amax Gold shall be
subrogated to the rights of Cyprus against Omolon with respect to the
amount of such reimbursement.
(c) Amax Gold or Cyprus may notify the other of a disagreement regarding
the contents of such schedule, and if such dispute is not resolved between
Amax Gold and Cyprus within an additional 30 days, either party may submit
the matter to binding and final decision by arbitration pursuant to Section
11.02(c). In the event of such a disagreement, amounts not in dispute shall
be paid as set forth in Section 9.09(b) and any amount in dispute shall be
paid into an interest bearing escrow account with interest being paid to
the prevailing party.
(d) To the extent permitted under the Financing Agreements and the
Amended Financing Agreements, Cyprus shall use its Commercially Reasonable
Efforts to cause Magadan (in its capacity as "Foreign Party under the
Omolon Charter) to seek the assistance and cooperation of the Russian
Shareholders to obtain for Omolon at or before Closing a working capital
bank line of credit of at least U.S. $20 million to finance the acquisition
and delivery of the Project's 1997 Operating Supplies the ("1997 Line of
Credit").
ARTICLE X
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
10.01 Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any right of Amax Gold (whether or not exercised)
to investigate the affairs of Magadan and Omolon or any right of any party
(whether or not exercised) to investigate the accuracy of the representations
and warranties of the other party contained in this Agreement, Cyprus and Amax
Gold have the right to rely fully upon the representations, warranties,
covenants and agreements of the other contained in this Agreement; provided,
however, that for purposes of Articles X and XI hereof, Amax Gold shall be
deemed to have waived the failure of any representation or warranty of Cyprus
to be true and correct in any material respect to the extent Amax Gold had
Knowledge arising from the AGI Activities of such failure to be true and
correct. The representations, warranties, covenants and agreements of Cyprus
and Amax Gold contained in this Agreement will survive the Closing (a) until
sixty (60) days after the expiration of all applicable statutes of limitation
(including all periods of extension, whether automatic or permissive) with
respect to the representations and warranties contained in Sections 2.01,
2.02, 2.03, 2.04, 2.05, 2.09, 2.13(a) and (b), 3.01, 3.02, 3.04, 3.05 and 5.04
(relating to tax matters), and the covenants and agreements contained in
Section 14.03, (b) in the case of all other representations and warranties and
any covenant or agreement to be performed in whole or in part on or prior to
the Closing, until six months following the Closing Date, and (c) with respect
to each other covenant or agreement contained in this Agreement, until sixty
(60) days following the expiration of the applicable statute of limitations
(including all periods of extension whether automatic or permissive) with
respect to any other such covenant or agreement; except that any
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with clause (a), (b) or (c) above will continue to survive (as
to the applicable matter) if a Claim Notice or Indemnity Notice (as
applicable) shall have been timely given under Article XI on or prior to such
termination date, until the related claim for indemnification has been
satisfied or otherwise resolved as provided in Article XI.
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ARTICLE XI
INDEMNIFICATION
11.01 Other Indemnification.
(a) Subject to paragraph (c) of this Section and the other Sections of
this Article XI, Cyprus shall indemnify the Amax Gold Indemnified Parties
in respect of, and hold each of them harmless from and against, any and all
Losses suffered, incurred or sustained by any of them or to which any of
them becomes subject, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to
perform any covenant or agreement on the part of Cyprus (with respect to
itself, Cyprus Gold, Magadan or Omolon) contained in this Agreement.
(b) Subject to paragraph (c) of this Section and the other Sections of
this Article XI, Amax Gold shall indemnify the Cyprus Indemnified Parties
in respect of, and hold each of them harmless from and against, any and all
Losses suffered, incurred or sustained by any of them or to which any of
them becomes subject, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to
perform any covenant or agreement on the part of Amax Gold (with respect to
itself and Amax Russia) contained in this Agreement.
(c) No amounts of indemnity shall be payable in respect of a Loss arising
under Section 11.01(a) or (b) in respect of any breach of warranty by
Cyprus or Amax Gold, as the case may be, unless, until and then only to the
extent that the Indemnified Party thereunder has suffered, incurred,
sustained or become subject to Losses referred to in such Section in excess
of $1,000,000 in the aggregate; provided that the foregoing limitation
shall not apply to a misrepresentation or breach of warranty by Cyprus
contained in Sections 2.02, 2.05, 2.09, 2.10 and 2.14(a) and (b) or by Amax
Gold contained in Sections 3.02, 3.03 and 3.05. Notwithstanding that the
Loss is less than $1,000,000 and therefore not subject to indemnification
hereunder, the procedures set forth in this Article XI shall nonetheless
apply, but such procedures may be prosecuted only at the time that claims
for indemnification in the aggregate then exceed $1,000,000.
11.02 Method of Asserting Claims. All claims for indemnification by any
Indemnified Party under Section 11.01 will be asserted and resolved as
follows:
(a) In the event any claim or demand in respect of which an Indemnified
Party might seek indemnity under Section 11.01 is asserted against or
sought to be collected from such Indemnified Party by a Person other than
Cyprus, Cyprus Gold, Magadan, Omolon, Amax Gold or any Affiliate of Cyprus
or Amax Gold (a "Third Party Claim"), the Indemnified Party shall deliver a
Claim Notice with reasonable promptness to the Indemnifying Party. If the
Indemnified Party fails to provide the Claim Notice with reasonable
promptness after the Indemnified Party receives notice of such Third Party
Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that
the Indemnifying Party's ability to defend has been irreparably prejudiced
by such failure of the Indemnified Party. The Indemnifying Party will
notify the Indemnified Party as soon as practicable within the Dispute
Period whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to
this Section 11.02(a), then the Indemnifying Party will have the right
to defend, with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of the Indemnifying Party such
Third Party Claim by all appropriate proceedings. Settlement of such
Third Party Claim will be at the discretion of the Indemnifying Party
(but only with the consent of the Indemnified Party in the case of any
settlement that provides for any relief other than the payment of
monetary damages or that provides for the payment of monetary damages
as to which the Indemnified Party will not be indemnified in full by
reason of Section 11.01(c)). If requested by the Indemnifying Party,
the Indemnified Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the
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Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this
clause (i), and except as provided in the preceding sentence, the
Indemnified Party will bear its own costs and expenses with respect to
such participation.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 11.02(a), then the
Indemnified Party will have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified
Party pursuant to this clause (ii), and the Indemnifying Party will
bear its own costs and expenses with respect to such participation. If
the Indemnifying Party has notified the Indemnified Party within the
Dispute Period that the Indemnifying Party disputes its liability
hereunder to the Indemnified Party with respect to such Third Party
Claim and if such dispute is resolved in favor of the Indemnifying
Party, the Indemnifying Party will not be required to bear the costs
and expenses of the Indemnified Party's defense pursuant to this clause
(ii) or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party will reimburse
the Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such dispute.
(b) In the event any Indemnified Party should have a claim under Section
11.01 against any Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver an Indemnity Notice with
reasonable promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not impair such
party's rights hereunder except to the extent that an Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party has within the Dispute Period notified the Indemnified
Party that the Indemnifying Party disputes its liability with respect to
such claim, the chief executive officers of Amax Gold and Cyprus (or other
executive officers appointed by them) shall meet for the purpose of
proceeding in good faith to negotiate a resolution of such dispute, and if
not resolved through negotiations within 60 days following receipt by
Indemnified Party of such notice, such dispute shall be resolved by
arbitration in accordance with paragraph (c) of this Section 11.02.
(c) Any dispute submitted to arbitration pursuant to this Article XI
shall be determined in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect, by a panel of three
(3) arbitrators selected in accordance with said Commercial Arbitration
Rules (the "Board of Arbitration"). In the event of conflict between the
provisions of this Agreement and the provisions of said Commercial
Arbitration Rules, the provisions of this Agreement shall prevail. Any
questions of whether a dispute should be arbitrated under this Article XI
shall be decided by the Board of Arbitration. The Board of Arbitration
shall meet in Denver, Colorado or such other place as a majority of the
members of the Board of Arbitration determines more appropriate, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any,
which the Indemnifying Party is required to pay to the Indemnified Party in
respect of a claim filed by the Indemnified Party. To the extent practical,
decisions of the Board of Arbitration shall be rendered no more than thirty
(30) days following commencement of proceedings with respect thereto. Each
party may pursue any method of discovery permitted by the Federal Rules of
Civil Procedure, notwithstanding Rule 81(a)(3) thereof. The Board of
Arbitration may issue a protective order to reasonably protect a
participant's competitive and confidential information. The Board of
Arbitration shall be bound to enforce any applicable statute of
limitations. Any decision made by the Board of Arbitration shall be final
and binding on the parties and may be entered in any court of competent
jurisdiction. If the parties settle the dispute in the course of the
arbitration, such settlement shall be approved by the Board of Arbitration
on request of either party and become the award. Each party to any
arbitration shall bear its own expense in relation thereto, including but
not limited to such party's attorneys' fees, if any; provided, however,
that the expenses and fees of the members of the Board of Arbitration and
any other expenses of the Board of Arbitration not capable of being
attributed to any one member shall be borne in equal parts by the
Indemnifying Party and the Indemnified Party.
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ARTICLE XII
TERMINATION
12.01 Termination. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned:
(a) at any time before the Effective Time, before or after approval of
the stockholders of Amax Gold, by mutual written agreement of Cyprus and
Amax Gold;
(b) at any time before the Effective Time, by Cyprus or Amax Gold, upon
notification of the non-terminating parties by the terminating party that
the satisfaction of any condition to the terminating party's obligations
under this Agreement becomes impossible or impracticable with the use of
Commercially Reasonable Efforts, provided the failure of such condition to
be satisfied is not caused by a breach of this Agreement by the terminating
party;
(c) at any time before the Effective Time (i) by Cyprus if Amax Gold or
Amax Russia shall have failed to comply in any material respect with any of
their respective covenants or agreements contained herein, unless the
breaching party cures such breach on or before 15 days, or within such
longer time as the parties reasonably may agree, after Cyprus notifies the
breaching party of such breach; or (ii) by Amax Gold if Cyprus, Cyprus Gold
or Magadan shall have failed to comply in any material respect with any of
their respective covenants or agreements contained herein, unless the
breaching party cures such breach on or before 15 days, or within such
longer time as the parties reasonably may agree, after Amax Gold notifies
the breaching party of such breach; or
(d) at any time after March 31, 1997 by Cyprus or Amax Gold upon
notification of the non-terminating parties by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating
party.
12.02 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 12.01, this Agreement will forthwith become null and void,
and there will be no liability or obligation on the part of Cyprus or Amax
Gold (or any of their respective officers, directors, employees, agents or
other representatives or Affiliates), except as provided in the next
succeeding sentence and except that the provisions with respect to expenses in
Section 14.03 and confidentiality in Section 14.05 will continue to apply
following any such termination. Notwithstanding any other provision in this
Agreement to the contrary, upon termination of this Agreement pursuant to
Section 12.01(b), (c) or (d), Cyprus will remain liable to Amax Gold for any
willful breach of this Agreement by Cyprus existing at the time of such
termination, and Amax Gold will remain liable to Cyprus for any willful breach
of this Agreement by Amax Gold existing at the time of such termination, and
Cyprus or Amax Gold may seek such remedies, including damages and fees of
attorneys, against the other with respect to any such breach as are provided
in this Agreement or as are otherwise available at Law or in equity.
ARTICLE XIII
DEFINITIONS
13.01 Definitions. (a) Defined Terms. As used in this Agreement, the
following defined terms have the meanings indicated below:
"Acquisition" means, with respect to any Additional Deposit, the acquisition
of the right to develop that deposit in accordance with the Law "On the
Subsoil" of the Russian Federation (No. 2395-1 of February 21, 1992 as amended
on March 3, 1995) or any successor Law (and the terms "Acquire" and "Acquired"
shall be construed accordingly).
"Additional Deposit" means any mineral deposit located in the territory of
the Russian Federation that is Acquired by Amax Gold (or any Person in which
Amax Gold directly or indirectly holds an Ownership Interest) other than (i)
deposits any portion of which are located within the boundaries described in
the Omolon License
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(as from time to time in effect), (ii) deposits acquired pursuant to the
Exploration Joint Venture Agreement, between Amax Gold and Cyprus, effective
January 1, 1994, as amended, and (iii) ore, deposits or other interests of any
kind pursuant to the North Vein Agreement.
"Additional Equity Contribution" means the additional U.S. $6,000,000 to be
contributed by the shareholders of Omolon (U.S. $3,000,000 by Magadan and the
equivalent of U.S. $3,000,000 in roubles by the other shareholders of Omolon)
in connection with the Amended Financing Agreements and the Subordinated Loan
Agreement and all amendments or supplements to the Foundation Agreement or
Omolon Charter and/or other agreements entered into by such shareholders in
relation thereto.
"Affiliate" means any Person (but with respect to Cyprus and Cyprus Gold,
excluding Amax Gold and any subsidiary of Amax Gold; and with respect to Amax
Gold and Amax Russia, excluding Cyprus and any subsidiary of Cyprus which is
not Amax Gold or a subsidiary of Amax Gold) that directly, or indirectly
through one of more intermediaries, controls or is controlled by or is under
common control with the Person specified. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause
the direction of the management and policies of such Person whether by
Contract or otherwise and, in any event and without limitation of the previous
sentence, any Person owning ten percent (10%) or more of the voting securities
of another Person shall be deemed to control that Person.
"AGI Activities" means all work performed by Amax Gold commencing on
February 1, 1995 pursuant to the Services Agreement and with respect to the
Project, as follows: (i) Amax Gold's assumption at the request of Cyprus of
primary management and direction of the Project (and with the assistance of
personnel from the Cyprus' project development group seconded to Amax Gold
since March 1996), including without limitation all day-to-day accounting,
personnel, engineering, construction, procurement, logistics, mining and
metallurgical functions; and (ii) Amax Gold's assumption of joint
responsibility with Cyprus for certain functions, including certain accounting
and tax matters, governmental and shareholder relations and exploration;
provided, however, that Cyprus retained primary responsibility for all matters
relating to financing, tax and insurance and all legal matters.
"Agreement" means the Agreement and Plan of Reorganization, dated January
24, 1996, as amended (and restated for convenience) in this Amended and
Restated Agreement and Plan of Reorganization and the Exhibits, the Disclosure
Schedule and the certificates delivered in accordance with Sections 7.03 and
8.03, as the same shall be amended from time to time.
"Amax Gold Common Stock" has the meaning ascribed to it in Section 1.08(a).
"Amax Gold Indemnified Parties" means Amax Gold and its Affiliates and each
of their respective officers, directors, employees and agents.
"Amax Russia Common Stock" has the meaning ascribed to it in Section
1.03(a).
"Amended Financing Agreements" means those amendments to the Financing
Agreements, to be entered into by the parties thereto at or prior to the
Closing Date on terms substantially the same as those in the Omolon Gold
Mining Company--Summary Terms of Additional Financing provided to Omolon by
the Project Lenders and all related agreements and documents set forth on
Schedule 5.06 of the Disclosure Schedule.
"Assets and Properties" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including without
limitation cash, cash equivalents, investment assets, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and intellectual property.
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"Average Market Price" means, on any date, the average of the daily closing
sales prices of Amax Gold Common Stock as reported on the Composite
Transactions Tape of the NYSE reporting system for the ten consecutive full
trading days in which such shares are traded on the NYSE ending two trading
days prior to such date, subject to appropriate adjustment if any event
described in Section 1.11 occurs, or any ex-dividend date with respect to any
such event occurs, between the beginning of such ten trading day period and
the date Contingent Payment Shares are delivered in connection with such
calculation of the Average Market Price.
"Average Metal Price" means, (i) with respect to gold as of any date, the
one-year average London P.M. fixing ending on the day immediately prior to
such date, (ii) with respect to silver as of any date, the one-year average
Handy & Harmon daily quote ending on the day immediately prior to such date,
(iii) with respect to copper as of any date, the one-year average London
Metals Exchange Grade "A" Settlement quotation as published in Metals Week
ending on the day immediately prior to such date, and (iv) with respect to any
other metal as of any date, the one-year average of the daily closing sales
price of such metal ending on the day immediately prior to such date published
by a mutually agreed upon representative source establishing the market price
for such metals.
"Bank" means a Russian bank owned by non-Russian shareholders licensed to do
banking business in the Russian Federation that is the lender under the
Subordinated Loan Agreement.
"Board of Arbitration" has the meaning ascribed to it in Section 11.02(c).
"Books and Records" means all files, documents, instruments, papers, books
and records relating to the Business or Condition of Magadan and Omolon,
including without limitation financial statements, Tax returns and related
work papers and letters from accountants, budgets, pricing guidelines,
ledgers, journals, deeds, title policies, minute books, stock certificates and
books, stock transfer ledgers, Contracts, Licenses, customer lists, computer
files and programs, retrieval programs, operating data and plans and
environmental studies and plans.
"Business or Condition of Magadan and Omolon" means the business, condition
(financial or otherwise), results of operations, Assets and Properties,
liabilities or prospects of Magadan and Omolon, taken as a whole.
"Certificate of Merger" has the meaning ascribed to it in Section 1.02.
"Claim Notice" means written notification of a Third Party Claim as to which
indemnity under Section 11.02 is sought by an Indemnified Party, enclosing a
copy of all papers served, if any, and specifying the nature of and basis for
such Third Party Claim and for the Indemnified Party's claim against the
Indemnifying Party under Section 11.02, together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined in good faith,
of such Third Party Claim.
"Closing" has the meaning ascribed to it in Section 1.04.
"Closing Date" has the meaning ascribed to it in Section 1.04.
"Closing Shares" has the meaning ascribed to it in Section 1.08(a).
"Commercially Reasonable Efforts" shall mean commercial actions by Amax Gold
or Cyprus, as the case may be, that are reasonable in light of the size of the
Project and its financial requirements, and in any event shall not require
Amax Gold or Cyprus to take any action that would have a material adverse
effect on Amax Gold's or Cyprus' other projects or financing arrangements. Any
obligation of a party to use Commercially Reasonable Efforts to cause another
Person to take action shall be subject to such party's fiduciary duties,
contractual obligations and requirements of applicable law.
"Constituent Corporation" has the meaning ascribed to it in Section 1.01.
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"Contingent Payment Event" means, with respect to any Additional Deposit,
the later of the date on which Amax Gold (or any Person in which Amax Gold
holds directly or indirectly an Ownership Interest) shall have Acquired such
Additional Deposit and the date on which the existence and number of Reserve
Ounces has been established with respect to such Additional Deposit.
"Contingent Payment Shares" has the meaning ascribed to it in Section 1.09.
"Contract" means any agreement, charter, lease, license, evidence of
Indebtedness, mortgage, indenture, permit, security agreement or other
contract (whether written or oral) in relation to any Person or Governmental
Authority.
"Cyprus" has the meaning ascribed to it in the forepart of this Agreement.
"Cyprus Amax Guaranty" means the guaranties, dated as of June 30, 1995, by
Cyprus in favor of each of the Project Lenders, as amended from time to time,
including the guaranty of the Amended Financing Agreements.
"Cyprus Gold" has the meaning ascribed to it in the forepart of this
Agreement.
"Cyprus Indemnified Parties" means Cyprus and its Affiliates and each of
their respective officers, directors, employees and agents.
"Cyprus Magadan Guaranty" means the guaranties, dated as of June 30, 1995,
by Magadan in favor of each of the Project Lenders.
"Cyprus Support Agreement" means the agreement, dated as of August 30, 1995,
among Omolon, Cyprus, Magadan and the Project Lenders.
"Development Plan" means the draft development plan for the Project dated
June 11, 1996.
"DGCL" has the meaning ascribed to it in Section 1.01.
"Disclosure Schedule" means the record delivered to Amax Gold by Cyprus
herewith and dated as of the date hereof, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein by Cyprus pursuant to this Agreement.
"Dispute Period" means the period ending thirty (30) days following receipt
by an Indemnifying Party of either a Claim Notice or an Indemnity Notice.
"EBRD" means the European Bank for Reconstruction and Development.
"EBRD Loan Agreement" means the Loan Agreement dated as of June 30, 1995
between Omolon and EBRD.
"Effective Time" has the meaning ascribed to it in Section 1.02.
"Environmental Law" means any Law or Order relating to the regulation or
protection of human health, safety or the environment or to releases or
threatened releases of pollutants or hazardous materials or wastes into the
environment.
"Financing Agreements" means those agreements set forth on Section 2.14 of
the Disclosure Schedule under the heading "Financing Agreements".
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"Foundation Agreement" means the agreement, dated February 26, 1993, between
Cyprus and the Russian Shareholders, as amended, and as further amended by the
Shareholders Agreement dated June 6, 1996.
"GAAP" means generally accepted accounting principles, consistently applied
throughout the specified period and in the immediately prior comparable
period.
"Gold Sales Arrangements" means the agreement with Roskomdragmet, dated May
29, 1996, or agreements, licenses and related documents providing for the sale
of gold produced by the Project on the same or substantially the same terms as
such agreement with Roskomdragmet.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality
of the United States, the Russian Federation, any other foreign country or any
domestic or foreign state, region, county, city or other political
subdivision.
"Indebtedness" of any Person means all obligations of such Person (i) for
borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the
obligations described in clauses (i) through (iv) above of any other Person.
"Indemnified and Indemnifying Party" means any Person claiming or providing
indemnification under any provision of Article IX or XI.
"Indemnity Notice" means written notification pursuant to Section 11.02(b)
of a claim for indemnity under Article XI by an Indemnified Party, specifying
the nature of and basis for such claim, together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined in good faith,
of such claim.
"Knowledge of" or "Known to" any party hereto, or any party's "Knowledge"
means the knowledge of any officer, director or management-level employee of
such party or its Transaction Subsidiaries and any other employee of such
party listed on Section 13.01 of the Disclosure Schedule.
"Law" means all laws, statutes, decrees, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, the
Russian Federation, any other foreign country or any domestic or foreign
state, region, county, city or other political subdivision or of any
Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other liabilities of a
Person (whether absolute, accrued, contingent, fixed or otherwise, or whether
due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security interest, lease,
lien, adverse claim, levy, charge or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract or other Contract to give
any of the foregoing.
"Liquidity Need" has the meaning ascribed to it in Section 9.05.
"Loss" means any and all damages, fines, fees, penalties, deficiencies,
Liabilities, losses and expenses (including without limitation interest, court
costs, fees of attorneys, accountants and other experts or other expenses of
litigation or arbitration or other proceedings or of any claim, default or
assessment).
"Magadan" has the meaning ascribed to it in the forepart of this Agreement.
"Magadan Common Stock" has the meaning ascribed to it in Section 1.03(b).
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"Magadan Financial Statements" has the meaning ascribed to such term in
Section 2.06.
"Material Adverse Effect" means a material adverse effect on: (a) the
Project, taken as a whole, including, without limitation, the effect on the
costs of construction and operation of the Project in accordance with the
Development Plan, or the anticipated cash flows or profits of the Project or
(b) the Business or Condition of Magadan and Omolon.
"Merger" has the meaning ascribed to it in the forepart of this Agreement.
"Merger Consideration" shall have the meaning ascribed to it in Section
1.03.
"Net Intercompany Debt" shall have the meaning ascribed to it in Section
5.05.
"North Vein Agreement" means the agreement between Omolon and Evenskoye
J.S.C. regarding the purchase and/or processing of certain ore by Omolon with
terms substantially in accordance with a draft letter of intent proposed by
Omolon on October 4, 1996.
"NYSE" means the New York Stock Exchange.
"Omolon" has the meaning ascribed to it in the forepart of this Agreement.
"Omolon Charter" means the Amended and Restated Charter by Omolon, dated
June 6, 1996.
"Omolon Financial Statements" has the meaning ascribed to such term in
Section 2.13(c).
"Omolon License" means the license for the right to use the subsurface,
series MAG, no. 10141, type B3, issued to Omolon by the Committee of the
Russian Federation for Geology and Use of the Subsurface and the Magadan
Regional Soviet of People's Deputies, including all annexes thereto, and the
license agreement between the Magadan Oblast Duma and the Committee of the
Russian Federation for Geology and Use of the Subsurface and Omolon which is
attached as Annex 1 to such license, each as amended and in effect on the date
hereof.
"Omolon Shares" has the meaning ascribed to it in the forepart of this
Agreement.
"OPIC" means the Overseas Private Investment Corporation, an agency of the
United States of America.
"OPIC Insurance Contracts" shall have the meaning ascribed to it in Section
5.03.
"OPIC Finance Agreement" means the agreement, dated as of June 30, 1995,
between Omolon and OPIC.
"Option" with respect to any Person means any security, right, subscription,
warrant, option, "phantom" stock right or other Contract that gives the right
to (i) purchase or otherwise receive or be issued any shares of capital stock
of such Person or any security of any kind convertible into or exchangeable or
exercisable for any shares of capital stock of such Person or (ii) receive or
exercise any benefits or rights similar to any rights enjoyed by or accruing
to the holder of shares of capital stock of such Person, including any rights
to participate in the equity or income of such Person or to participate in or
direct the election of any directors or officers of such Person or the manner
in which any shares of capital stock of such Person are voted.
"Order" means any writ, judgment, decree, injunction or similar order of any
Governmental or Regulatory Authority (in each such case whether preliminary or
final).
"Ownership Interest" means shares of common stock or any other form of
ownership interest in any Person which entitles the holder thereof directly or
indirectly to participate in the profits of such Person.
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"Payment Demand" has the meaning ascribed to it in the Cyprus Amax Guaranty
as in effect on the date hereof.
"Person" means any natural person, corporation, general partnership, limited
partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Production Shares" has the meaning ascribed to it in Section 1.08(a).
"Project" means the commercial development of the Kubaka gold and silver
deposit located in the Magadan Region of the Russian Federation, as further
described in the Development Plan.
"Project Agreements" means those agreements set forth on Section 2.14 of the
Disclosure Schedule under the heading "Project Agreements".
"Project Completion" has the meaning given to it in Schedule Q to the EBRD
Loan Agreement, the OPIC Finance Agreement, and the Amended Finance Agreements
each as in effect on the Closing Date.
"Project Production Date" means the date upon which the Project ceases (in
the ordinary course and consistent with past practice) to capitalize start-up
costs and begins to expense operating costs in accordance with GAAP in the
United States and as determined by Amax Gold in good faith.
"Project Lenders" means EBRD and OPIC, and may include either or both.
"Reclamation Agreement" means the agreement, dated as of August 10, 1995,
among Omolon, Cyprus and Magadan and the Russian Shareholders.
"Replenishment Fees" means fees for the reproduction of the mineral base
payable pursuant to Article 44 of the Law on the Subsoil of the Russian
Federation (No. 2395-1 of February 21, 1992 as amended on March 31, 1995) and
implementing regulations promulgated thereunder (or substantially similar fees
payable pursuant to any successor Law).
"Representatives" has the meaning ascribed to it in Section 4.02.
"Reserve Ounces" means, with respect to any Additional Deposit, (a) the
number of contained ounces of gold constituting proven and probable reserves
in any Additional Deposit, determined by Amax Gold in accordance with the
definitions of ore reserves set forth in the Securities Act Industry Guide 7
promulgated by the SEC from time to time, based on a feasibility study which
is prepared in accordance with industry standards by or under the supervision
of Amax Gold, and (b) the number of gold equivalent ounces for any other metal
that is the primary metal to be developed from such deposit, and (c) the
number of gold equivalent ounces for any other metal that can be developed on
a commercially reasonable basis in conjunction with, and without materially
impairing the profitable production of, the primary metal to be developed from
such deposit. Any number of equivalent ounces shall be calculated by
multiplying the number of units of such metal (whether ounces, pounds, or some
other measure) which are so determined to be proven and probable, times the
Average Metal Price of such metal, and divided by the Average Metal Price for
gold.
"Reserve Value" shall have the meaning ascribed to it in Section 1.09.
"Russian Government Authority" or "Russian Government" means any
Governmental or Regulatory Authority of or in the Russian Federation, or the
Russian Federation or any political subdivision thereof.
"Russian Government Authorizations" means the Omolon License and all other
Licenses and other actions of any Russian Government Authority relating to the
Project or any of the Financing Agreements or Project Agreements.
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<PAGE>
"Russian Shareholders" means the shareholders of Omolon (other than Magadan)
listed in the Fourth Amendment to the Omolon Charter and the Foundation
Agreement.
"SEC" means the Securities and Exchange Commission.
"Security Documents" means those documents listed as Financing Agreements on
Section 2.14 of the Disclosure Schedule under the sub-heading "Security
Documents".
"Services Agreement" means the agreement dated January 1, 1994 between
Cyprus and Amax Gold relating to certain services to be provided by the
parties to each other from time to time as they may agree.
"Subordinated Loan Agreement" means the $14,000,000 Loan Agreement between
Omolon Gold Mining Company and the Bank, to be entered into between Omolon and
the Bank on terms acceptable to both Cyprus and Amax Gold and all related
agreements and documents.
"Subordinated Loan Guaranties" means the respective guaranties by Cyprus and
Magadan in favor of the Bank acting as lender under the Subordinated Loan
Agreement; such guaranties are also referred to separately as the guaranty of
Cyprus or Magadan, as appropriate.
"Subordinated Shareholder Loans" has the meaning ascribed to it in the EBRD
Loan Agreement as in effect on the date hereof.
"Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which at least fifty
percent (50%) of either the equity interests in, or the voting control of,
such corporation or other organization is, directly or indirectly through
Subsidiaries or otherwise, beneficially owned by such party.
"Surviving Corporation" has the meaning ascribed to it in Section 1.01.
"Surviving Corporation Common Stock" has the meaning ascribed to it in
Section 1.03(a).
"Tax" means any income, gross receipts, property, sales, use, capital gain,
transfer, excise, license, production, franchise, employment, social security,
occupation, payroll, registration, governmental pension or insurance,
withholding, royalty, severance, stamp or documentary, value added, or other
tax, charge, assessment, duty, levy, compulsory loan, or other direct or
indirect impost of any nature whatsoever (including any interest, additions to
tax, or civil or criminal penalties thereon) of the United States or any
jurisdiction therein, or of any other nation or any jurisdiction therein.
"Third Party Claim" has the meaning ascribed to it in Section 11.02(a).
"Transaction Subsidiaries" with respect to (a) Cyprus, means Cyprus Gold,
Magadan and Omolon and (b) Amax Gold, means Amax Russia and, with respect to
and to the extent of its performance of the AGI Activities, Omolon.
(b) Construction of Certain Terms and Phrases. Unless the context of this
Agreement otherwise requires, (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; (iii) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; (v) the phrases "ordinary course of business" and "ordinary course
of business consistent with past practice" refer to the business and practice
of Magadan or Omolon; and (vi) unless otherwise defined in Article XIII or
elsewhere herein, any reference to an agreement shall refer to that agreement
as the same may have been amended or modified and as it is then in effect.
Whenever this Agreement refers to a number of days, such number shall refer to
calendar days unless NYSE trading days are specified. All accounting terms
used herein and not expressly defined herein shall have the meanings given to
them under GAAP.
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<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.01 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Amax Gold or Amax Russia, to:
Amax Gold Inc.
9100 East Mineral Circle
Englewood, Colorado 80112
Facsimile No.: (303) 643-5507
Attn: President
with a copy to:
Amax Gold Inc.
9100 East Mineral Circle
Englewood, Colorado 80112
Facsimile No.: (303) 643-5507
Attn: General Counsel
If to Cyprus or Magadan, to:
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Facsimile No.: (303) 643-5269
Attn: General Counsel
with a copy to:
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Facsimile No.: (303) 643-5030
Attn: Director of Finance
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given upon receipt (in each case regardless of whether
such notice, request or other communication is received by any other Person to
whom a copy of such notice, request or other communication is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other party hereto.
14.02 Entire Agreement. This Agreement and the Agreement and Plan of Merger,
dated January 24, 1996, among the parties supersede all prior discussions and
agreements between the parties with respect to the subject matter hereof
between the parties, and contain the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
14.03 Expenses. Except as otherwise expressly provided in this Agreement
(including without limitation as provided in Section 12.02), whether or not
the transactions contemplated hereby are consummated, each party will pay its
own costs and expenses, and Cyprus shall pay the costs and expenses of Magadan
and Omolon and Amax Gold shall pay the costs and expenses of Amax Russia,
incurred in connection with the negotiation, execution and closing of this
Agreement and the transactions contemplated hereby.
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<PAGE>
14.04 Public Announcements. At all times at or before the Closing, Cyprus,
Cyprus Gold, Magadan, Amax Gold and Amax Russia will not issue or make any
reports, statements or releases to the public with respect to this Agreement,
the Closing or the transactions contemplated hereby without the consent of the
other, which consent shall not be withheld unreasonably. If either party is
unable to obtain the approval of its public report, statement or release from
the other party and such report, statement or release is, in the opinion of
legal counsel to such party, required by Law in order to discharge such
party's disclosure obligations, then such party may make or issue the legally
required report, statement or release and promptly furnish the other party
with a copy thereof.
14.05 Confidentiality. Each party hereto will hold, and will use its
Commercially Reasonable Efforts to cause its Affiliates and their respective
Representatives to hold, in strict confidence from any Person (other than any
such Affiliate or Representative), unless (i) compelled to disclose by
judicial or administrative process (including without limitation in connection
with obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Governmental or Regulatory Authorities) or by other
requirements of Law or (ii) disclosed in an Action or Proceeding brought by a
party hereto in pursuit of its rights or in the exercise of its remedies
hereunder, all documents and information concerning the other party or any of
its Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the transactions
contemplated hereby, except to the extent that such documents or information
can be shown to have been (a) previously known by the party receiving such
documents or information, (b) in the public domain (either prior to or after
the furnishing of such documents or information hereunder) through no fault of
such receiving party or (c) later acquired by the receiving party from another
source if the receiving party is not aware that such source is under an
obligation to another party hereto to keep such documents and information
confidential; provided that following the Closing the foregoing restrictions
will not apply to Amax Gold's use of documents and information concerning
Magadan and Omolon furnished by Cyprus hereunder.
14.06 Further Assurances; Post-Closing Cooperation. (a) At any time or from
time to time after the Closing, Cyprus and Magadan shall execute and deliver
to Amax Gold such other documents and instruments, provide such materials and
information and take such other actions as Amax Gold reasonably may request
more effectively to vest title to the Magadan Common Stock in Amax Gold and,
to the full extent permitted by Law, to put Amax Gold in actual possession and
operating control of Magadan and Omolon and their Assets and Properties and
Books and Records, and otherwise to cause Cyprus and Magadan to fulfill their
obligations under this Agreement.
(b) Following the Closing, each party will afford the other party, its
counsel and its accountants, during normal business hours, reasonable access
to the books, records and other data relating to the Business or Condition of
Magadan and Omolon in its possession with respect to periods prior to the
Closing and the right to make copies and extracts therefrom, to the extent
that such access may be reasonably required by the requesting party in
connection with (i) the preparation of Tax returns, (ii) the determination or
enforcement of rights and obligations under this Agreement, (iii) compliance
with the requirements of any Governmental or Regulatory Authority, (iv) the
monitoring of the progress toward Project Completion and compliance with the
Development Plan as amended and in the form approved by the Project Lenders,
(v) the determination or enforcement of the rights and obligations of any
Indemnified Party or (vi) in connection with any actual or threatened Action
or Proceeding. Further, each party agrees for a period extending six (6) years
after the Closing Date not to destroy or otherwise dispose of any such books,
records and other data unless such party shall first offer in writing to
surrender such books, records and other data to the other party and such other
party shall not agree in writing to take possession thereof during the ten
(10) day period after such offer is made.
(c) If, in order properly to prepare its Tax returns, other documents or
reports required to be filed with Governmental or Regulatory Authorities or
its financial statements or to fulfill its obligations hereunder, it is
necessary that a party be furnished with additional information, documents or
records relating to the Business or Condition of Magadan and Omolon not
referred to in paragraph (b) above, and such information, documents or records
are in the possession or control of the other party, such other party shall
use its Commercially Reasonable
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<PAGE>
Efforts to furnish or make available such information, documents or records
(or copies thereof) at the recipient's request, cost and expense. Any
information obtained by any party hereto in accordance with this paragraph
shall be held confidential by such party in accordance with Section 14.05.
(d) Notwithstanding anything to the contrary contained in this Section, if
the parties are in an adversarial relationship in litigation or arbitration,
the furnishing of information, documents or records in accordance with any
provision of this Section solely with respect to the subject matter of such
litigation or arbitration shall be subject to applicable rules relating to
discovery.
(e) From time to time following the Closing Date, at Amax Gold's request,
Cyprus shall, pursuant to the Services Agreement, provide certain transition
services to Amax Gold, Magadan and Omolon, including without limitation loan
administration services and treasury services. In addition, upon the request
of Amax Gold and the agreement of Cyprus, Cyprus shall, pursuant to the
Services Agreement, provide treasury, loan administration, construction
management and start-up services for a mutually agreeable term. Amax Gold
shall be obligated to reimburse Cyprus for the costs of such services in
accordance with the Services Agreement.
(f) From time to time following the date of this Agreement, Cyprus shall
assist Amax Gold in soliciting and securing the employment services of certain
Cyprus employees identified to Cyprus by Amax Gold prior to the date of this
Agreement (and thereafter to the extent consented to by Cyprus, which consent
shall not be withheld unreasonably).
14.07 Waiver.
(a) Any term or condition of this Agreement may be waived at any time by
the party that is entitled to the benefit thereof, but no such waiver shall
be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or
any other term or condition of this Agreement on any future occasion. All
remedies, either under this Agreement or by Law or otherwise afforded, will
be cumulative and not alternative.
(b) Notwithstanding any other term or provision hereof, the parties
hereto agree to waive any claim for breach or any representation, warranty,
covenant or agreement under the Agreement and Plan of Merger, dated January
24, 1996, among the parties, arising out of the facts or circumstances at
the Project that gave rise to the need to implement the Amended Financing
Agreements, the Subordinated Loan Agreement and the Equity Contribution.
14.08 Amendment. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party
hereto.
14.09 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person other than any
Person entitled to indemnity under Article XI.
14.10 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without
the prior written consent of the other party hereto and any attempt to do so
will be void, except (a) for assignments and transfers by operation of Law and
(b) that Amax Gold may assign any or all of its rights, interests and
obligations hereunder (including without limitation its rights under Article
XI) to a wholly-owned subsidiary, provided that any such subsidiary agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein, but no such assignment shall relieve Amax Gold of its obligations
hereunder. Subject to the preceding sentence, this Agreement is binding upon,
inures to the benefit of and is enforceable by the parties hereto and their
respective successors and assigns.
14.11 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions
hereof.
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<PAGE>
14.12 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as a
part of this Agreement a legal, valid and enforceable provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible.
14.13 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware applicable to a Contract
executed and performed in such State, without giving effect to the conflicts
of laws principles thereof.
14.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
14.15 Specific Enforcement. The parties agree that irreparable damage would
occur in the event that any of the covenants and agreements contained in this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States located in the State of Colorado or the State of
Delaware or in Delaware state court; this relief shall be in addition to any
other remedy to which they are entitled at law or in equity.
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<PAGE>
In Witness Whereof, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above
written.
AMAX GOLD INC.
By: /s/ S. SCOTT SHELLHAAS
---------------------------------
Name: S. Scott Shellhaas
Title: President and Chief
Operating Officer
AMAX RUSSIA CORPORATION
By: /s/ S. SCOTT SHELLHAAS
---------------------------------
Name: S. Scott Shellhaas
Title: President
CYPRUS AMAX MINERALS COMPANY
By: /s/ FRANCIS J. KANE
---------------------------------
Name: Francis J. Kane
Title: Vice President
CYPRUS GOLD COMPANY
By: /s/ FRANCIS J. KANE
---------------------------------
Name: Francis J. Kane
Title: Vice President
CYPRUS MAGADAN GOLD CORPORATION
By: /s/ FRANCIS J. KANE
---------------------------------
Name: Francis J. Kane
Title: Vice President
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<PAGE>
APPENDIX B
SALOMON BROTHERS INC
1700 SEARS TOWER
CHICAGO, ILLINOIS 60606
312-876-8700
----------------
SALOMON BROTHERS
---------------
October 9, 1996
Special Committee of the Board of Directors
Amax Gold Inc.
9100 East Mineral Circle
Englewood, Colorado 80112
Gentlemen:
Reference is made to the engagement letter, dated August 4, 1995, between
Amax Gold Inc., a Delaware corporation (the "Company"), and Salomon Brothers
Inc, as supplemented by that letter, dated January 16, 1996 between the
Company and Salomon Brothers Inc. This opinion is delivered to you pursuant to
such engagement.
You have advised us that the Company and Cyprus Amax Minerals Company, a
Delaware corporation ("Cyprus Amax"), propose to enter into an Agreement and
Plan of Reorganization (the "Agreement") whereby the Company, through a wholly
owned subsidiary, will acquire by merger (the "Transaction") Cyprus Magadan
Gold Corporation ("CMGC"), a Delaware corporation and a wholly owned
subsidiary of Cyprus Amax. The Transaction is intended to be a tax-free
reorganization. CMGC owns a fifty-percent interest in Omolon Gold Mining
Company, a Russian closed joint stock company, the other stockholders of which
are Russian entities ("Omolon"), which has been awarded the exclusive license
to develop the Kubaka gold mine and to explore and develop the Evanskoye gold
and silver prospect (the "Project") in the Magadan Oblast of the Russian
Federation. You have also advised us that Cyprus Amax owns 51.1% of the
Company's outstanding stock, $.01 par value per share (the "Common Stock"),
(without taking into account the consummation of the Transaction).
The consideration for CMGC consists of (i) 11,789,474 newly issued shares of
Common Stock payable upon the consummation of the Transaction; (ii) an
additional 4,210,526 newly issued shares of Common Stock payable when the
Project achieves commercial production; and (iii) $10 of Common Stock per
ounce of the Company's pro rata share of proven and probable reserves acquired
by the Company in the Russian Federation on or before June 30, 2004, not to
exceed $45 million of Common Stock in the aggregate, all as set forth in the
Agreement. The number of shares of Common Stock payable pursuant to clause
(iii) will be determined using the average closing price for the ten
consecutive full trading days ending two trading days prior to the date the
payment is required pursuant to the Agreement. You have asked us to advise you
with respect to the fairness, from a financial point of view, to the Company's
stockholders, exclusive of Cyprus Amax and its affiliates, of the
consideration payable by the Company pursuant to the Transaction.
As you are aware, Salomon Brothers Inc is acting as financial advisor to the
Company in connection with the Transaction for which we have received certain
fees. Additionally, Salomon Brothers Inc has previously rendered financial
advisory and investment banking services to the Company for which we have
received customary compensation. In the ordinary course of our securities
business we trade the debt or equity securities of the Company and Cyprus Amax
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.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) an executed copy, dated October 9,
1996, of the Agreement; (ii) a draft, dated September 30, 1996, of the
preliminary consent solicitation statement of the Company; (iii) certain
publicly available business and
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<PAGE>
financial information concerning the Company and Cyprus Amax; (iv) certain
internal information primarily financial in nature (including projections,
forecasts, estimates and analyses prepared by or on behalf of the Company's
management), concerning (a) the business, assets, liabilities, operations and
prospects of the Company and (b) the business, assets, liabilities,
mineralization, operations and prospects of the Project; (v) certain publicly
available and other information concerning the trading of, and the trading
market for, the publicly traded securities of the Company; (vi) certain
publicly available information with respect to other companies that we believe
to be comparable in certain respects to the Company; (vii) certain publicly
available information with respect to other companies that we believe to be
comparable in certain respects to the Project; (viii) certain publicly
available information with respect to other merger and acquisition
transactions that we believe to be comparable in certain respects to the
Transaction; and (ix) such other information that we have considered relevant
to our inquiry. We have held discussions with certain members of the Company's
senior management and its representatives about the Company's views as to the
financial and other information described above and other matters as we
believe relevant to our inquiry. We have been advised by the Company and
Cyprus Amax (i) that execution of final documentation with respect to $100
million of financing for development of the Project by the European Bank for
Reconstruction and Development ("EBRD") and the Overseas Private Investment
Corporation ("OPIC") has occurred, and that execution of final documentation
with respect to an additional $30 million of financing from EBRD and OPIC for
the development of the Project will be obtained, (ii) that Cyprus Amax has
guaranteed or will guarantee such financings, and (iii) that appropriate
licenses of the Central Bank of Russia will be obtained and have assumed these
to be true.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information provided to or reviewed
for us or publicly available and have not attempted independently to verify
any of such information, including, without limitation, the Company's views
discussed above, nor have we assumed any responsibility for any independent
verification of any of such information. We have also relied upon the
reasonableness and accuracy of the financial projections, forecasts, estimates
and analyses, including without limitation, those projections, forecasts,
estimates and analyses relating to the cash flows and value of assets and
current and contingent liabilities of both the Company and the Project
provided to or reviewed by or for us, and we have assumed that they were all
reasonably prepared in accordance with accepted industry practice on bases
reflecting the best currently available estimates and judgment of the
Company's management.
To the extent that evaluation of the Transaction requires analysis of legal,
as opposed to financial, matters including, without limitation, all matters
related to foreign laws affecting the economics of the Project and contingent
liabilities, we have relied, with your consent, on the views of the Company
and its counsel with respect to these matters. Without limiting the generality
of the foregoing, we have relied upon, and have not assumed any responsibility
for an independent verification of, the assumption that the Company will be
entitled upon consummation of the Transaction to realize the anticipated
benefits of its proposed ownership interest in the Project, without regard to
any changes in applicable law or political circumstances.
We have not made or obtained any independent evaluations or appraisals of
the Project or any of the Company's assets, properties, liabilities or
securities, nor have we been furnished with any such evaluations or appraisals
other than certain feasibility studies, reserve reports and evaluations
provided to us by the Company. We did not participate in the negotiations
between the parties, and we have not been authorized to, and we have not,
solicited or investigated alternative transactions which might be available to
the Company.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other information, including the
financial and nonfinancial judgments and views of the Company's management and
representatives, along with other factors, including, without limitation, the
information (including the financial projections, forecasts, estimates and
analyses) discussed above, as we have deemed appropriate under the
circumstances. We have also taken into account our assessment of general
economic, market and financial conditions generally and the particular
circumstances currently applicable to the Company and/or the Project. In all
cases, our opinion necessarily is based upon conditions and circumstances as
they exist and could be evaluated as of the date hereof and does not address
the underlying business decision of the
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<PAGE>
Company to enter into the Transaction. Our opinion does not address the
fairness of any acquisition by the Company of CMGC on terms other than as
specified in the Agreement.
This opinion is for the benefit and use by members of the Special Committee
of the Board of Directors of the Company in connection with their decision
regarding the Transaction and does not constitute a recommendation to any
holder of the Common Stock as to whether such stockholder should consent with
respect to the Transaction. This opinion may not be reproduced, disseminated,
used, quoted or referred to in whole or in part, orally or in any registration
statement, proxy statement or in any other document or any release or public
statement without our prior consent unless required by applicable law or
regulations; provided, however, that we consent to this opinion being
reproduced in full in the Company's consent solicitation statement referred to
above and, subject to the immediately following proviso, referred to in such
consent solicitation statement or in other filings of the Company and Cyprus
Amax with the Securities and Exchange Commission, provided we are given the
reasonable opportunity to review and approve any such proposed reference,
which approval shall not be unreasonably withheld or cause unreasonable delay.
We have not acted as advisor to any party to the Transaction, other than the
Company.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration payable by the Company pursuant to the
Transaction is fair, from a financial point of view, to the Company's
stockholders, exclusive of Cyprus Amax and its affiliates.
Very truly yours,
Salomon Brothers Inc
B-3
<PAGE>
APPENDIX C
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED).......................... C-2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED)................ C-5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1996...................................... C-8
REPORT OF PRICE WATERHOUSE LLP....................................... C-12
REPORT OF COOPERS & LYBRAND LLP...................................... C-13
REPORT OF MANAGEMENT................................................. C-14
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1995.................................................... C-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1995.............................................. C-19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1995.................................................... C-38
</TABLE>
C-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
AMAX GOLD INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE NINE MONTHS
MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues........................................ $ 23.4 $ 23.7 $ 74.6 $ 73.1
------ ------ ------ ------
Costs and operating expenses:
Costs of sales................................ 14.9 17.8 50.1 58.1
Depreciation and depletion.................... 6.6 5.6 19.4 16.3
General and administrative.................... 1.4 1.9 6.4 5.7
Exploration expense........................... 0.9 1.3 2.3 3.5
------ ------ ------ ------
Total costs and operating expenses............ 23.8 26.6 78.2 83.6
------ ------ ------ ------
Loss from operations............................ (0.4) (2.9) (3.6) (10.5)
Interest expense.............................. (7.5) (3.9) (20.0) (9.0)
Capitalized interest.......................... 6.5 1.8 16.7 2.8
Interest income............................... 0.4 1.0 1.3 3.1
Other......................................... (0.7) (0.9) (2.1) (1.8)
------ ------ ------ ------
Loss before income taxes........................ (1.7) (4.9) (7.7) (15.4)
Income tax benefit............................ -- -- -- --
------ ------ ------ ------
Net loss........................................ (1.7) (4.9) (7.7) (15.4)
Preferred stock dividends....................... (1.7) (1.7) (5.1) (5.1)
------ ------ ------ ------
Loss attributable to common shares.............. $ (3.4) $ (6.6) $(12.8) $(20.5)
====== ====== ====== ======
Loss per common share........................... $ (.03) $ (.08) $ (.13) $ (.25)
====== ====== ====== ======
Weighted average common shares outstanding...... 96.5 86.7 96.5 83.1
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
C-2
<PAGE>
AMAX GOLD INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1996 1995
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and equivalents...................................... $ 4.0 $ 25.6
Inventories............................................... 32.5 26.6
Receivables............................................... 3.1 2.7
Other..................................................... 17.2 10.3
------ ------
Current assets.......................................... 56.8 65.2
Property, plant and equipment, net........................ 662.2 510.5
Other..................................................... 34.9 35.4
------ ------
Total assets............................................ $753.9 $611.1
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Cyprus Amax demand loan................................... $ 75.0 $ --
Current maturities of long-term debt...................... 25.4 7.3
Accounts payable, trade................................... 16.8 14.5
Accrued and other current liabilities..................... 28.0 16.2
Reclamation reserve, current portion...................... 5.0 4.8
------ ------
Current liabilities..................................... 150.2 42.8
Long-term debt............................................ 291.5 238.2
Note payable to Cyprus Amax............................... -- 5.0
Reclamation reserve, noncurrent portion................... 11.1 11.1
Deferred income taxes..................................... 10.0 10.0
Other..................................................... 7.0 7.7
------ ------
Total liabilities....................................... 469.8 314.8
Commitments and contingencies............................. -- --
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, of which 2,000,000 shares have been
designated as Series A Convertible Preferred Stock, no
shares issued and outstanding; and 1,840,000 shares
have
been designated as $ 3.75 Series B Convertible
Preferred Stock,
issued and outstanding 1,840,000 shares................ 1.8 1.8
Common stock, par value $.01 per share, authorized
200,000,000 shares, issued and outstanding 96,509,959
shares in 1996 and 96,427,838 shares in 1995........... 1.0 1.0
Paid-in capital........................................... 340.4 339.8
Accumulated deficit....................................... (59.1) (46.3)
------ ------
Total shareholders' equity.............................. 284.1 296.3
------ ------
Total liabilities and shareholders' equity.............. $753.9 $611.1
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
C-3
<PAGE>
AMAX GOLD INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss................................................. $ (7.7) $ (15.4)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and depletion............................. 19.4 16.3
Increase in reclamation reserves....................... 0.2 1.7
Other.................................................. 0.6 (1.0)
Increase in working capital items...................... (0.3) (6.9)
-------- --------
Net cash provided (used) by operating activities........... 12.2 (5.3)
-------- --------
Investing Activities
Capital expenditures..................................... (150.3) (135.2)
Loan to joint venture partner............................ (2.0) (10.0)
Proceeds from repayment of loans......................... -- 1.2
Capitalized interest..................................... (16.7) (2.8)
-------- --------
Net cash used by investing activities...................... (169.0) (146.8)
-------- --------
Financing Activities
Issuance of common stock to Cyprus Amax.................. -- 80.8
Proceeds from financings................................. 149.3 67.9
Repayments of financings................................. (8.1) (13.2)
Deferred financing costs................................. (0.9) (4.5)
Preferred stock dividends................................ (5.1) (5.1)
-------- --------
Net cash provided by financing activities.................. 135.2 125.9
-------- --------
Net decrease in cash and equivalents....................... (21.6) (26.2)
Cash and equivalents at January 1.......................... 25.6 36.7
-------- --------
Cash and equivalents at September 30....................... $ 4.0 $ 10.5
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
C-4
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim unaudited financial statements include all
adjustments which are, in the opinion of management, necessary for a fair
presentation. Results for any interim period are not necessarily indicative of
the results that may be achieved in future periods. The financial information
as of this interim date should be read in conjunction with the financial
statements and notes thereto contained in Amax Gold Inc.'s ("Amax Gold" or the
"Company") Annual Report on Form 10-K for the year ended December 31, 1995.
The Company is currently approximately 52.5 percent owned by Cyprus Amax
Minerals Company ("Cyprus Amax").
2. INVENTORIES
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Gold:
Finished goods.................................. $11.9 $10.0
Work-in-process................................. 13.6 11.7
Materials and supplies............................ 7.0 4.9
----- -----
$32.5 $26.6
===== =====
</TABLE>
3. DEBT
During the third quarter, the Company borrowed $30 million under a demand
loan facility provided by Cyprus Amax in March 1996 in connection with the
restructuring of certain of the Company's financing arrangements. The Company
had borrowed $45 million under this facility during the second quarter of 1996
and borrowed an additional $30 million through November 14, 1996, for a total
of $105 million borrowed. The Company pays interest on funds borrowed under
this facility at LIBOR plus 2.25 percent. Amounts outstanding are payable to
Cyprus Amax on demand in cash or, at the election of Cyprus Amax, in shares of
common stock of the Company, valued at the average closing prices over the
five days before such election. During November 1996, the Company issued
444,171 shares as repayment for $2,431,840 in interest owed to Cyprus Amax
under the demand loan facility through October 31, 1996.
In exchange for Cyprus Amax's guaranty of the Company's $250 million Fort
Knox financing in March 1996 and providing the demand loan facility, the
Company paid Cyprus Amax a financing and guaranty fee of $10 million by
issuing 1,826,484 shares in November 1996. Additionally, interest rate
differential payments of 1.75 percent on amounts outstanding under the Fort
Knox financing are paid to Cyprus Amax in exchange for the guaranty and
500,443 shares were issued in November 1996 as repayment for $2,739,927 due
through October 31, 1996. Cyprus Amax's ownership increased by 2,771,098
shares to approximately 52.5 percent as a result of these transactions.
In August 1996, the Company completed a sale leaseback of Fort Knox mobile
mining equipment for proceeds of $24.3 million, which were used primarily to
fund construction of the Fort Knox mine. Lease payments are due quarterly
beginning in November 1996 with maturity in 2004. Interest rates on the
equipment leases range from 7.7 percent to 8.7 percent with approximately 73
percent of the equipment at 8.4 percent, maturing in 2001.
C-5
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. HEDGE CONTRACTS
Forward sales contracts, generally on a spot deferred basis, put and call
option contracts and compound options are entered into from time to time to
protect the Company from the effect of price changes on precious metals sales.
As of September 30, 1996, the Company's outstanding hedge contracts were as
follows:
<TABLE>
<CAPTION>
AVERAGE
GOLD REALIZED PRICE
OUNCES PER OUNCE PERIOD
------- -------------- ---------------------------
<S> <C> <C> <C>
Forward sales con-
tracts(1)............... 341,230 $439 October 1996-March 1997
Option contracts:
Purchased put options... 676,500 $417 October 1996-December 2001
Sold put options........ 191,900 $388 October 1996-September 1999
Purchased call options.. 150,000 $391 October 1996-December 1997
Sold call options....... 198,450 $447 October 1996-December 1997
</TABLE>
- --------
(1) Represents the net forward sales position made generally on a spot
deferred basis, which allows deferral of the delivery of gold ounces to a
later date at a renegotiated gold price.
The fair market value of the Company's forward contracts and put and call
options at September 30, 1996, was approximately $26.3 million. Future market
valuations for contracts are dependent on gold market prices, option
volatility and interest rates, which can vary significantly. Contracts will be
utilized to hedge against declines in gold market prices for the Company's
future gold production while maintaining benefits in the event of higher gold
market prices.
As a requirement of the Fort Knox financing, the Company entered into
interest rate swap agreements to reduce the impact of changes in interest
rates. At September 30, 1996, the Company had interest rate swaps and swap
option sales contracts that if exercised between October 1996 and April 1998
would obligate the Company to pay a fixed rate of 5.95 percent over an average
term of 1.6 years on a principal amount of $200 million. Swap options expiring
between January 1997 and February 1997 were sold to offset $30 million of swap
contracts that if exercised would reduce the Company's obligation to paying a
fixed rate of 5.96 percent on a principal amount of $170 million. The Company
also purchased swaps and swap options with the right to pay 6.97 percent over
an average term of 1.9 years on a principal amount of $160 million. The fair
market value of the Company's interest rate swap options at September 30,
1996, was approximately $1.1 million.
5. KUBAKA ACQUISITION
In October 1996 the Company finalized an amended agreement to acquire from
Cyprus Amax its indirect 50 percent interest in the Kubaka project, subject to
approval by the Company's stockholders. The Kubaka project, located in far
eastern Russia, is expected to start up in 1997 at an estimated total capital
cost of $228 million. The purchase price is payable in shares of the Company's
common stock with approximately 11.8 million shares payable at closing and 4.2
million paid upon commencement of commercial production, valued at $5.9375 per
share, the average closing price for the ten trading days preceding the
initial public announcement of the acquisition in October 1995.
As of September 30, 1996, the Kubaka project has been funded through $80
million of equity contributions from the partners, on a pro rata basis to
their ownership interests, and project financing of $100 million provided by
the European Bank for Reconstruction and Development and the U.S. Overseas
Private Investment Corporation. Funding to complete the Kubaka project is
expected to be provided through $6 million of additional equity contributions
from the partners, $30 million of additional project financing from the
existing lenders and $14 million of subordinated debt from a bank licensed to
do business in Russia.
C-6
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Reclamation, site restoration and closure costs are accrued on a units-of-
production basis using estimates based upon current federal, state and Chilean
laws and regulations governing the protection of the environment. These laws
and regulations are continually changing and generally becoming more
restrictive. Any changes in these laws and regulations could impact future
estimated reclamation costs. Total reclamation costs for the Company at the
end of current operating mine lives are estimated to be approximately $24
million.
C-7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
The following table sets forth the Company's gold production, production
costs, ounces of gold sold and average realized prices for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
GOLD PRODUCTION (OUNCES)
Guanaco............................... 22,456 18,024 64,695 55,462
Hayden Hill........................... 30,116 23,289 77,547 59,906
Sleeper............................... 6,678 20,180 38,199 61,176
Wind Mountain......................... -- 1,242 -- 4,296
--------- --------- -------- --------
Total Gold Production............... 59,250 62,735 180,441 180,840
========= ========= ======== ========
CASH OPERATING COSTS ($ PER OUNCE OR
GOLD PRODUCED)(1)
Guanaco............................... 302 342 316 336
Hayden Hill........................... 164 215 225 258
Sleeper............................... 319 335 241 336
Wind Mountain......................... -- 191 -- 187
--------- --------- -------- --------
Average Cash Operating Costs........ 234 290 261 307
========= ========= ======== ========
TOTAL CASH COSTS ($ PER OUNCE OF GOLD
PRODUCED(1)
Guanaco............................... 316 355 329 349
Hayden Hill........................... 175 223 234 269
Sleeper............................... 333 341 247 343
Wind Mountain......................... -- 201 -- 209
--------- --------- -------- --------
Average Total Cash Costs............ 246 298 271 317
========= ========= ======== ========
TOTAL PRODUCTION COSTS ($ PER OUNCE OF
GOLD PRODUCED)(1)
Guanaco............................... $ 475 $ 504 $ 488 $ 497
Hayden Hill........................... 291 322 349 371
Sleeper............................... 399 400 333 403
Wind Mountain......................... -- 216 -- 221
--------- --------- -------- --------
Average Total Production Costs...... $ 373 $ 397 $ 395 $ 417
========= ========= ======== ========
Ounces of Gold Sold..................... 56,790 58,485 181,133 180,301
Average Price Per Ounce Sold............ $ 412 $ 405 $ 412 $ 406
========= ========= ======== ========
</TABLE>
- --------
(1) Effective January 1, 1996, the Company adopted the Gold Production Cost
Standard developed by the Gold Institute in order to facilitate comparisons
among companies in the gold industry. Cash production costs reported in
prior periods have been restated as cash operating costs and total cash
costs in accordance with the new standard. Cash operating costs calculated
under the new standard include all operating costs (including overhead) at
the nine sites, but exclude royalties, production taxes and reclamation.
Total cash costs include royalties and production taxes, but exclude
reclamation. Total production costs remain unchanged and include
reclamation and depreciation, depletion and amortization.
C-8
<PAGE>
RESULTS OF OPERATIONS
Amax Gold Inc. reported a third quarter 1996 net loss of $1.7 million, or
$.03 per share, on revenue of $23.4 million, compared with a 1995 third
quarter net loss of $4.9 million, or $0.8 per share, on revenue of $23.7
million. For the third quarter of 1996, the Company's operating loss was $0.4
million versus a $2.9 million loss from operations during the 1995 third
quarter. For the first nine months of 1996, the Company reported a net loss of
$7.7 million, or $.13 per share, compared with a net loss of $15.4 million, or
$.25 per share, for the 1995 period. Improved 1996 third quarter and year-to-
date results were primarily due to lower costs and exploration expenses.
Amax Gold's average realized price for the third quarter and first nine
months of 1996 was $412 per ounce compared with $405 per ounce for the 1995
third quarter and $406 per ounce for the first nine months of 1995. This
compares with the average COMEX gold price of $385 per ounce for both the 1996
and 1995 third quarters. Lower third quarter gold sales of 56,790 ounces,
compared with 58,485 ounces for the 1995 third quarter, primarily resulted
from the completion of operating activities at the Company's sleeper mine.
Third quarter 1996 gold production totaled 59,250 ounces, which is 6 percent
lower than third quarter 1995 production of 62,735 ounces. The decline in gold
production resulted from the completion of production at the Sleeper mine in
September 1996 and the absence of production at Wind Mountain, partially
offset by increased production at Hayden Hill and Guanaco. Hayden Hill set a
quarterly production record by producing 30,116 ounces in the 1996 third
quarter, a 29 percent increase over the 1995 third quarter. Significant
factors in achieving the production record include improved crusher throughput
and higher grades. Guanaco's third quarter 1996 production increased by 25
percent from the third quarter of 1995 due to a substantial increase in
crusher throughput and slightly higher metallurgical recovery rates. The
improved production over the prior year is a trend that is expected to
continue through the fourth quarter at both Hayden Hill and Guanaco.
The Company's cost of sales declined for the third straight quarter,
reflecting sales of low cost Sleeper inventory and lower average cash costs.
Consolidated cash costs were reduced to $246 per ounce for the third quarter
of 1996 from $298 per ounce in the third quarter of 1995 as all three
operating mines achieved lower cash costs compared to the 1995 third quarter.
Hayden Hill's third quarter 1996 cash costs decreased $48 per ounce or 22
percent from the 1995 third quarter primarily due to higher production
discussed above as well as a $0.4 million insurance refund received in the
third quarter. At Guanaco, a $39 per ounce improvement over the prior year's
quarter reflects lower mining costs. Although third quarter 1996 Sleeper
production was 67 percent lower than the 1995 third quarter due to completion
of operations, cash costs were slightly lower than the 1995 quarter as a
result of significant spending reductions.
The Refugio mine in Chile continues its start-up phase and is expected to
achieve commercial production in the fourth quarter of 1996 following
resolution of mechanical problems with the secondary and tertiary crushers.
The fill underlying the fine ore storage bin has been stabilized and placement
of ore on the pad, leaching and gold production continue. As of September 30,
1996, approximately 5 million tons of crushed ore have been placed on the
leach pads at Refugio.
The increase in depreciation and depletion during the quarter of $1.0
million, or approximately 18 percent, was attributed to the mix of production
from the Company's operating mines and higher depreciation rates at Guanaco
and Sleeper. The rate at Guanaco increased in 1996 due to a revised mine plan
which lowered estimated future production, while at Sleeper, the increase
resulted from higher than anticipated capital spending in 1995.
Lower third quarter 1996 general and administrative expenses of $1.4 million
compared with $1.9 million for the 1995 third quarter. The 26 percent
reduction was attributed to a second quarter 1996 corporate reorganization as
will as other corporate cost savings strategies.
Exploration expenses of $0.9 million for the third quarter of 1996 were $0.4
million or 31 percent lower than the 1995 third quarter due to the absence of
costs associated with the Robertson and Cerro Quema projects, which were
relinquished by the Company early in 1996 and late in 1995, respectively.
C-9
<PAGE>
Interest expense increased to $7.5 million in the third quarter of 1996
compared with $3.9 million for the 1995 third quarter, primarily due to higher
average debt balances. Capitalized interest of $6.5 million for the 1996 third
quarter nearly tripled from the third quarter of 1995 due to an increase in
capital spending, the delay in start-up at Refugio and a higher weighted
average interest rate. Interest income of $0.4 million in the third quarter
was $0.6 million lower than the 1995 third quarter due to reduced funds
available for investment.
LIQUIDITY AND CAPITAL RESOURCES
Amax Gold's operating cash flow improved to $12.2 million for the first nine
months of 1996 compared with $5.3 million used by operations in 1995. The
major reason for the improved cash flow was lower cash costs at the Company's
operating mines. The amount due under the Cyprus Amax demand loan facility was
classified as a current liability.
Capital spending, excluding capitalized interest, was $150.3 million for the
first nine months of 1996. At Fort Knox, capital spending excluding
capitalized interest was approximately $142 million for the fist nine months
of 1996 while at Refugio capital spending totaled nearly $7 million. Amax Gold
expects full year 1996 capital spending excluding Kubaka to be over $200
million. The purchase of Kubaka from Cyprus Amax, expected to occur late in
the fourth quarter of 1996, will be funded through the issuance of the
Company's common shares.
During the first quarter of 1996, in connection with restructuring the Fort
Knox financing. Cyprus Amax made available to Amax Gold a $250 million demand
loan facility. The Company borrowed $30 million under the demand loan facility
during the third quarter of 1996, increasing the total borrowed through
September 30, 1996, to $75 million. Through November 14, 1996, an additional
$30 million has been borrowed. In August 1996, the Company completed a sale-
leaseback of Fort Knox mobile mine equipment for proceeds of $24.3 million,
which were used primarily to fund construction of the Fort Knox mine.
Cash flows from operations for the remainder of 1996 are expected to be
sufficient to fund operating, administrative and exploration expenditures and
interest payments on outstanding debt. The Company anticipates borrowing
additional funds under the Cyprus Amax demand loan facility in order to fund
capital expenditures, the Fort Knox working capital build-up, scheduled debt
repayments and for general corporate purposes. Amax Gold continues to consider
additional financing alternatives.
Amax Gold paid regular dividends of $2.1825 on the $3.75 Series B
Convertible Preferred Stock during the first nine months of 1996. At September
30, 1996 approximately 96.5 million shares of the Company's common stock were
outstanding.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this
report are forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from projected results.
Such forward-looking statements include statements regarding expected
commencement dates of mining or precious metals production operations,
projected quantities of future precious metals production, and anticipated
production rates, costs and expenditures as well as projected demand or supply
for the products the Company produces, which will affect both sales levels and
prices realized by the Company. Factors that could cause actual results to
differ materially include, among others; risks and uncertainties relating to
general domestic and international economic and political conditions, the
cyclical and volatile price of gold, the political and economic risks
associated with foreign operations, unanticipated ground and water conditions,
unanticipated grade and geological problems, metallurgical and other
processing problems, availability of material and equipment, the timing of
receipt of necessary governmental permits, the occurrence of unusual weather
or operating conditions, force majeure events, lower than expected ore grades,
the failure of equipment or processes to operate in accordance with
specifications or expectations, labor relations, accidents, delays in
anticipated start-up dates,
C-10
<PAGE>
environmental risks, the results of financing efforts and financial market
conditions and other risk factors detailed in the Company's Securities and
Exchange Commission filings. Many of such factors are beyond the Company's
ability to control or predict. Readers are cautioned not to put undue reliance
on forward-looking statements. The Company disclaims any intent or obligation
to update publicly these forward-looking statements, whether as a result of
new information, future events or otherwise.
C-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Amax Gold Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of Amax
Gold Inc. and its subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for the two years then ended, 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 audits. We conducted our audits of these 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 audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 5 to the consolidated financial statements, the Company
adopted a new method of accounting for heap leach ore costs, effective January
1, 1994.
Price Waterhouse LLP
Denver, Colorado
February 14, 1996, except as to Note
15, which is as of March 19, 1996
C-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of Amax Gold Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Amax Gold Inc. and Subsidiaries (the
Company) for the year ended December 31, 1993. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Amax Gold Inc. and Subsidiaries for the year ended December 31, 1993
in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 9 to the consolidated financial statements,
during 1993 the Company changed its method of accounting for exploration
expenditures and postemployment benefits.
Coopers & Lybrand LLP
Denver, Colorado
February 4, 1994 except for Note 8
for which the date is March 18,
1994
C-13
<PAGE>
REPORT OF MANAGEMENT
The management of Amax Gold Inc. is responsible for the integrity and
objectivity of the financial statements and other financial information
contained in this Annual Report. The financial statements were prepared in
accordance with generally accepted accounting principles and include estimates
that are based on management's best judgment.
Amax Gold maintains an internal control system which includes formal
policies and procedures designed to provide reasonable assurance that assets
are safeguarded and transactions are properly recorded and executed in
accordance with management's authorization. Amax Gold's internal audit
function audits compliance with the internal control system and issues reports
to Amax Gold's management and the Audit Committee of the Board of Directors.
Amax Gold's financial statements have been audited by independent
accountants, whose appointment is ratified yearly by the stockholders at the
annual stockholders' meeting. The independent accountants conducted their
audits in accordance with generally accepted auditing standards. These
standards include an evaluation of the internal accounting controls in
establishing the scope of audit testing necessary to allow them to render an
independent professional opinion on the fairness of Amax Gold's financial
statements.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with representatives of management and the
independent accountants to review their work and ensure that they are properly
discharging their responsibilities.
Milton H. Ward
Chairman and Chief Executive Officer
Roger A. Kauffman
President and Chief Operating Officer
Mark A. Lettes
Vice President and Chief Financial Officer
C-14
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues............................................ $ 96.6 $ 94.6 $ 81.9
Costs and operating expenses:
Cost of sales..................................... 78.3 79.0 79.7
Depreciation and depletion........................ 21.5 25.3 25.7
General and administrative........................ 8.1 6.9 8.4
Exploration......................................... 5.9 6.2 5.2
Asset write-downs................................... -- 21.1 87.7
Gain on Waihi transaction........................... -- -- (8.8)
------- ------- -------
Total costs and operating expenses.................. 113.8 138.5 197.9
------- ------- -------
Loss from operations................................ (17.2) (43.9) (116.0)
Interest expense.................................... (7.4) (8.9) (8.5)
Interest income..................................... 3.0 2.1 0.7
Other............................................... (2.3) 1.1 1.0
------- ------- -------
Loss before income taxes and cumulative effect of
accounting changes................................. (23.9) (49.6) (122.8)
Income tax benefit.................................. -- 6.6 33.8
------- ------- -------
Loss before cumulative effect of accounting
changes............................................ (23.9) (43.0) (89.0)
Cumulative effect of accounting changes, net of
income tax provision of $2.0 in 1994 and benefit of
$5.5 in 1993....................................... -- 7.5 (15.2)
------- ------- -------
Net loss............................................ (23.9) (35.5) (104.2)
Preferred stock dividends........................... (6.9) (1.8) --
------- ------- -------
Loss attributable to common shares.................. $ (30.8) $ (37.3) $(104.2)
======= ======= =======
Per common share:
Loss before cumulative effect of accounting
changes.......................................... $ (.36) $ (.56) $ (1.14)
Cumulative effect of accounting changes........... -- .09 (.20)
------- ------- -------
Net loss............................................ $ (.36) $ (.47) $ (1.34)
======= ======= =======
Dividends declared per common share................. $ -- $ -- $ .08
======= ======= =======
Weighted average common shares outstanding.......... 86.5 79.3 77.8
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
C-15
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
(DOLLARS IN MILLIONS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS.......................................................
Cash and equivalents......................................... $ 25.6 $ 36.7
Inventories.................................................. 26.6 28.6
Receivables.................................................. 2.7 2.9
Other........................................................ 10.3 4.5
------- -------
Total current assets..................................... 65.2 72.7
Property, plant and equipment, net........................... 510.5 313.3
Other........................................................ 35.4 17.2
------- -------
Total assets............................................. $ 611.1 $ 403.2
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY.........................
Accounts payable, trade...................................... $ 14.5 $ 4.6
Accrued and other current liabilities........................ 16.2 15.1
Reclamation reserve, current portion......................... 4.8 2.0
Current maturities of long-term debt......................... 7.3 23.9
------- -------
Total current liabilities................................ 42.8 45.6
Long-term debt............................................... 238.2 83.2
Note payable to Cyprus Amax under line of credit............. 5.0 --
Reclamation reserve, noncurrent portion...................... 11.1 11.1
Deferred income taxes........................................ 10.0 10.0
Other........................................................ 7.7 7.8
------- -------
Total liabilities........................................ 314.8 157.7
Commitments and contingencies (Notes 8 and 14)............... -- --
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, of which 2,000,000 shares have been
designated as $2.25 Series A Convertible Preferred Stock,
no shares issued and outstanding; and 1,840,000 shares
have been designated as $3.75
Series B Convertible Preferred Stock, issued and outstand-
ing 1,840,000 shares...................................... 1.8 1.8
Common stock, par value $.01 per share, authorized
200,000,000 shares, issued and outstanding 96,427,838
shares in 1995 and 81,267,708 shares in 1994.............. 1.0 0.8
Paid-in capital............................................ 339.8 258.4
Accumulated deficit........................................ (46.3) (15.5)
Common stock in treasury, at cost (1,991 shares in 1994)... -- --
------- -------
Total shareholders' equity............................... 296.3 245.5
------- -------
Total liabilities and shareholders' equity............... $ 611.1 $ 403.2
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
C-16
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss........................................... $ (23.9) $(35.5) $(104.2)
Adjustments to reconcile net loss to net cash
provided by (used in)
operating activities:
Depreciation and depletion....................... 21.5 25.3 25.7
Asset write-downs................................ -- 21.1 87.7
Increase in reclamation reserve.................. 2.8 2.5 3.7
Cumulative effect of accounting changes.......... -- (7.5) 15.2
Decrease in deferred taxes....................... -- (6.6) (34.1)
Deferred hedging costs........................... (3.2) (3.9) 1.1
Minority interest................................ -- (1.1) (1.1)
Other, net....................................... 0.8 (0.6) (0.6)
Gain on Waihi transaction........................ -- -- (8.8)
Decrease (increase) in working capital:
Receivables...................................... 0.2 3.7 (3.5)
Accrued and other current liabilities............ (2.0) 0.4 2.7
Inventories...................................... 2.0 (0.8) (2.3)
Other assets..................................... 1.7 (0.4) (1.9)
Accounts payable, trade.......................... 2.7 0.3 (2.8)
------- ------ -------
Net cash provided by (used in) operating activities.. 2.6 (3.1) (23.2)
------- ------ -------
Investing Activities:
Capital expenditures............................... (206.2) (23.0) (24.6)
Loan to joint venture partner...................... (10.0) -- --
Capitalized interest............................... (5.9) (0.2) --
Proceeds from repayment of loans................... 1.2 -- --
Other.............................................. 1.5 (0.8) (0.2)
Net cash received on Waihi transaction............. -- -- 7.8
------- ------ -------
Net cash used in investing activities................ (219.4) (24.0) (17.0)
------- ------ -------
Financing Activities:
Proceeds from financings........................... 242.5 36.0 34.5
Repayments of financings........................... (104.0) (55.8) (31.6)
Issuance of common stock to Cyprus Amax............ 80.8 20.7 --
Advances from Cyprus Amax.......................... 5.0 9.3 24.7
Repayments to Cyprus Amax.......................... -- (34.0) --
Net proceeds from sale of convertible preferred
stock............................................. -- 88.3 --
Deferred financing costs........................... (11.7) (3.4) --
Cash dividends paid:
Preferred........................................ (6.9) (1.8) --
Common........................................... -- -- (2.0)
Other.............................................. -- (3.0) (1.7)
------- ------ -------
Net cash provided by financing activities............ 205.7 56.3 23.9
------- ------ -------
Effect of exchange rate changes on cash and equiva-
lents............................................... -- -- 0.1
------- ------ -------
Net increase (decrease) in cash and equivalents...... (11.1) 29.2 (16.2)
Cash and equivalents at January 1.................... 36.7 7.5 23.7
------- ------ -------
Cash and equivalents at December 31.................. $ 25.6 $ 36.7 $ 7.5
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
C-17
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED COMMON
----------------- ------------- PAID-IN EARNINGS STOCK IN
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TREASURY
------- -------- ------ ------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... -- $ -- 74.5 $ 0.7 $125.5 $132.2 $(0.1)
Net loss................ -- -- -- -- -- (104.2) --
Issuance of common
shares:
Acquisitions.......... -- -- 3.2 0.1 21.0 -- --
Dividend reinvestment
plan................. -- -- 0.5 -- 4.2 (4.2) --
Employee and director
plans................ -- -- -- -- -- -- 0.1
Common stock divi-
dends................ -- -- -- -- -- (2.0) --
------ -------- ---- ----- ------ ------ -----
Balance at December 31,
1993................... -- -- 78.2 0.8 150.7 21.8 --
Net loss................ -- -- -- -- -- (35.5) --
Issuance of common
shares:
Employee and director
plans................ -- -- 0.1 -- 0.5 -- --
Repayment of Cyprus
Amax debt............ -- -- 3.0 -- 20.7 -- --
Issuance of preferred
stock 1.8 1.8 -- -- 86.5 -- --
Preferred stock divi-
dends.................. -- -- -- -- -- (1.8) --
------ -------- ---- ----- ------ ------ -----
Balance at December 31,
1994................... 1.8 1.8 81.3 0.8 258.4 (15.5) --
Net loss................ -- -- -- -- -- (23.9) --
Issuance of common
shares:
Employee and director
plans................ -- -- 0.1 -- 0.7 -- --
Repayment of Cyprus
Amax debt, including
interest............. -- -- 15.0 0.2 80.7 -- --
Preferred stock divi-
dends.................. -- -- -- -- -- (6.9) --
------ -------- ---- ----- ------ ------ -----
Balance at December 31,
1995................... 1.8 $ 1.8 96.4 $ 1.0 $339.8 $(46.3) $ --
====== ======== ==== ===== ====== ====== =====
</TABLE>
The accompanying notes are an integral part of these statements.
C-18
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
1. NATURE OF OPERATIONS
Amax Gold Inc. and its subsidiaries (Amax Gold or the Company) are engaged
in the mining and processing of gold and silver ore and the exploration for,
and acquisition of, gold-bearing properties, principally in the Americas and
Russia. The Company's primary products are gold and silver produced in the
form of dore and then shipped to refiners for final processing. The Company is
currently 51.2 percent owned by Cyprus Amax Minerals Company (Cyprus Amax).
The Company produces gold and silver using both the traditional milling
process and heap leaching. All of the Company's operating properties are open
pit mines. Current operating properties consist of the Sleeper Mine in
Humboldt County, Nevada; the Hayden Hill Mine in Lassen County, California;
the Wind Mountain Mine in Washoe County, Nevada; and, a 90 percent interest in
the Guanaco Mine in Chile. In addition, Amax Gold has completed construction
of its 50-percent owned Refugio Mine in Chile, is building the Fort Knox
Project near Fairbanks, Alaska, and has agreed, subject to the satisfaction of
certain conditions, to acquire the Kubaka Project in the Russian Federation
from Cyprus Amax in 1996, which is currently under construction. The Company
also owns a 62.5 percent interest in the Haile Project in Lancaster County,
South Carolina.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Amax Gold and
the related entities which it controls. Investments in companies over which
the Company can exercise significant influence but not control are accounted
for using the equity method. Investments in joint ventures are accounted for
using proportionate consolidation, consistent with accepted mining industry
practice. All material intercompany balances and transactions have been
eliminated. Certain 1994 and 1993 amounts have been reclassified to conform to
the 1995 presentation.
Cash and Equivalents
Cash and equivalents include cash and highly liquid investments with an
original maturity of three months or less. The Company invests cash in time
deposits maintained in high credit quality financial institutions.
Inventories
Gold inventory is valued at the lower of aggregate cost, computed on a last-
in, first-out (LIFO) basis, or market. Materials and supplies are valued at
average cost less reserves for obsolescence.
Property, Plant and Equipment
Property, plant and equipment, including development expenditures and
capitalized interest, are carried at cost. Expenditures for major improvements
are capitalized. Gains and losses on retirements are included in earnings.
Depreciation and depletion are computed using the units-of-production method
based on the estimated ounces of gold to be recovered and estimated salvage
values. Mobile equipment and assets which have useful lives shorter than the
mine life are depreciated on a straight-line basis over estimated useful lives
of one to five years.
C-19
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
In the third quarter of 1995, Amax Gold adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of". In the event that
facts and circumstances indicate that the carrying amount of an asset may not
be recoverable and an estimate of future undiscounted cash flows is less than
the carrying amount of the asset, an impairment loss will be recognized.
Adoption of SFAS No. 121 had no effect on the Company's results of operations
for the year ended December 31, 1995.
Gold and Currency Financings
The Company uses various gold and currency financings to fund its mining
activities. To finance investments with gold loans the Company borrows gold
from banks and sells the gold on the open market. Gold loans are recorded on
the balance sheet at the price received when the borrowed gold is sold. The
banks are repaid from future gold production at which time revenues are
recorded. Gold loans bear relatively low interest rates, result in a hedge
against future gold price fluctuations and limit realized prices to the
amounts received when the borrowed gold is sold.
Currency financings represent borrowings in hard currency, typically U.S.
dollars. The terms, including interest rates, are negotiated with lenders
based on market conditions at the time the financing is arranged.
Hedging Activities
Forward sale contracts, generally on a spot deferred basis, put and call
option contracts and compound options are entered into from time to time to
hedge the effect of price changes on the Company's precious metals that are
produced and sold. Premiums paid for purchased options and premiums earned on
sold options are deferred and recognized in income over the term of the
related option. The results of gold hedging activities are included in
revenues at the time the hedged production is sold. Silver hedging results are
reflected as a by-product credit.
Interest rate swap options are entered into as a hedge against interest rate
exposure on the Company's floating rate financing facilities in order to fix
the Company's interest costs. The differences to be paid or received on swap
options are included in interest expense as incurred.
Postretirement Benefits
Postretirement benefits other than pensions are calculated in accordance
with the provisions set forth in SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", which requires the expected cost
of postretirement benefits other than pensions to be accrued during the years
the employee renders service.
Postemployment Benefits
Postemployment benefits are calculated in accordance with the provisions set
forth in SFAS No. 112, "Employers Accounting for Postemployment Benefits".
SFAS No. 112 requires the Company to expense postemployment benefits as they
are earned by the employee for services rendered, rather than as they are
paid.
C-20
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", was issued in 1995
and is effective for fiscal years beginning after December 15, 1995. Amax Gold
will adopt SFAS No. 123 in 1996 and has elected to continue to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees".
Amax Gold will make pro forma disclosures of net income and earnings per share
as if the fair value based method of accounting as defined in SFAS No. 123 had
been applied.
Exploration
Exploration expenditures are charged against earnings in the period
incurred.
Reclamation
Reclamation, site restoration and closure costs for each producing mine are
estimated based primarily upon environmental and regulatory requirements and
are accrued over the expected life of each mine using the units-of-production
method. Ongoing environmental and reclamation expenditures are expensed as
incurred.
Income Taxes
Income taxes are calculated in accordance with the provisions set forth in
SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred
income taxes are determined using an asset and liability approach. This method
gives consideration to the future tax consequences associated with differences
between the financial accounting and tax bases of assets and liabilities and
gives immediate effect to changes in income tax laws. The income statement
effect is derived from changes in deferred income taxes on the balance sheet.
Use of Estimates
The preparation of Amax Gold's consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Management's estimates are made
in accordance with mining industry practice. Significant areas requiring the
use of management estimates relate to the determination of mineral reserves,
reclamation and environmental obligations, impairment of assets, post-
retirement and other employee benefits, useful lives for depreciation,
depletion and amortization, and valuation allowances for deferred tax assets.
Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
In November 1993, AMAX Inc. (Amax), a New York corporation which owned
approximately 68 percent of the Company's outstanding common stock, was merged
with and into Cyprus Minerals Company, a Delaware corporation. Immediately
prior to the merger, Amax distributed to Amax shareholders from the shares
then held by Amax approximately 28 percent of the Company's outstanding common
stock. As of December 31, 1995, the merged company, called Cyprus Amax
Minerals Company (Cyprus Amax), owned approximately 49 million common shares,
or approximately 51 percent, of the Company's outstanding common stock. As
discussed below, the increase in Cyprus Amax's ownership resulted from various
financial transactions with Cyprus Amax. See also Notes 6 and 15 for
discussions related to the Kubaka acquisition agreement and certain financing
arrangements, respectively.
C-21
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
In April 1994, Cyprus Amax provided the Company with a $100 million
convertible line of credit. Outstanding amounts under the credit line bear
interest at LIBOR plus 0.3 percent and may be repaid through the issuance of
up to two million shares of $2.25 Series A Convertible Preferred Stock. See
Note 15 for current arrangements regarding interest rates. Amax Gold may
redeem the convertible preferred stock by issuing up to 12,099,213 shares of
common stock at a maximum price of $8.265 per share and a minimum price of
$5.874 per share. Cyprus Amax may convert the line of credit, any outstanding
indebtedness and/or convertible preferred stock to 12,099,213 shares of Amax
Gold common stock valued at $8.265 per share. At December 31, 1995, $5.0
million was outstanding under this arrangement and is due in 2001. The average
annualized interest rate on this borrowing was 6.5 percent for the year ended
December 31, 1995.
In March 1995, Cyprus Amax provided the Company with an additional $80
million convertible line of credit. During 1995, the full amount was borrowed
by the Company and subsequently converted by Cyprus Amax to 14,919,806 shares
of Amax Gold common stock at $5.362 per share, increasing Cyprus Amax
ownership in the Company to 51.2 percent at December 31, 1995.
In September 1995, the Company and Cyprus Amax entered into an agreement
regarding stock issuance pursuant to which obligations owing from the Company
to Cyprus Amax under existing or future contractual arrangements may be paid
in shares of common stock with the consent of both parties. The stock will be
valued based on the most recent 30-day average closing price, and the maximum
number of shares of common stock that may be issued is 879,500 shares. In
September 1995, 128,042 shares of such common stock were issued to Cyprus Amax
as payment for $835,473 due under the $80 million convertible line of credit.
The Company has entered into several additional agreements with Cyprus Amax.
Under an exploration joint venture agreement the two companies pool efforts to
discover and develop new gold properties, with Cyprus Amax providing 75
percent and the Company providing 25 percent of initial funding. Amax Gold was
charged $3.1 million and $1.1 million under this agreement for the years ended
December 31, 1995 and 1994, respectively. Pursuant to a net operating loss
agreement, the Company agreed to allow Cyprus Amax to use the Company's net
operating loss generated in 1993 which would result in a refund of taxes paid
by Cyprus Amax in a prior year and Cyprus Amax agreed to reimburse the Company
at such time that the Company would have received the benefit for the 1993 net
operating loss had the Company elected to carry it forward.
A services agreement governs the provision of and payment for general
administrative services between Cyprus Amax and the Company. For the years
ended December 31, 1995, 1994 and 1993, insurance, management and other
services were supplied to the Company on a full cost reimbursement basis. The
Company was charged $4.3 million, $4.8 million and $4.8 million, for the years
ended December 31, 1995, 1994, and 1993, respectively, for reimbursable costs.
As of December 31, 1995 and 1994, the Company had outstanding amounts due to
Cyprus Amax of $0.5 million and $0.6 million, respectively, relating to such
services. For the year ended December 31, 1993, employee benefit plans
(medical and life insurance benefits) and employee pension and thrift plan
benefits were also provided. In October 1993, the Company established separate
medical and life insurance coverage for its employees. Additionally, on
November 15, 1993, a separate defined benefit pension plan and thrift plan for
Company employees became effective. For the period from January 1, 1993
through November 14, 1993, Amax charged the Company approximately $.4 million
for pension costs. Pursuant to an employee transfer agreement, the Company and
Cyprus Amax have amended their respective benefit plans to allow employees to
transfer from the Company to Cyprus Amax or from Cyprus Amax to the Company
with minimal effect on an employee's benefits.
C-22
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
4. INCOME TAXES
Loss before income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Domestic........................................... $ (5.0) $(32.9) $(108.8)
Foreign............................................ (18.9) (16.7) (14.0)
------ ------ -------
$(23.9) $(49.6) $(122.8)
====== ====== =======
The income tax benefit consists of the following:
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $ --
State............................................ -- -- --
Foreign.......................................... -- -- .3
------ ------ -------
-- -- .3
Deferred:
Federal.......................................... -- (5.3) (36.9)
State............................................ -- .7 (2.3)
Foreign.......................................... -- -- (.4)
------ ------ -------
-- (4.6) (39.6)
------ ------ -------
$ -- $ (4.6) $ (39.3)
====== ====== =======
The total income tax benefit is included in the financial statements as
follows:
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Income tax benefit................................. $ -- $ (6.6) $ (33.8)
Cumulative effect of accounting changes............ -- 2.0 (5.5)
------ ------ -------
$ -- $ (4.6) $ (39.3)
====== ====== =======
</TABLE>
The components of deferred tax (assets) liabilities are as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Deferred Tax Assets:
Reclamation liabilities................................... $ (5.0) $ (4.5)
Postretirement benefits................................... (.8) (.9)
Accrued liabilities....................................... (10.6) (1.2)
Net operating loss carryforwards.......................... (37.3) (29.9)
Minimum tax credit carryforwards.......................... (2.8) (2.8)
Other..................................................... (.5) --
------ ------
Total Deferred Tax Assets................................... (57.0) (39.3)
------ ------
Valuation allowance......................................... 11.4 9.5
Net Deferred Tax Assets..................................... (45.6) (29.8)
Deferred Tax Liabilities:
Properties................................................ 55.6 39.8
------ ------
Net Deferred Tax Liabilities................................ $ 10.0 $ 10.0
====== ======
</TABLE>
C-23
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The following is a reconciliation between the amount determined by applying
the federal statutory rate of 34 percent to the loss before taxes and the
income tax benefit:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Income taxes at statutory rate.................... $ (8.1) $ (16.9) $ (41.7)
Increases (decreases) resulting from:
Losses with no expected tax benefit............. 9.1 10.1 5.1
State income taxes, net of federal benefit...... (.2) (.4) (1.4)
Percentage depletion............................ (.8) (.2) (.5)
Waihi transaction gain.......................... -- -- 3.7
Other........................................... -- .8 1.0
------ ------- -------
Income tax benefit................................ -- (6.6) (33.8)
------ ------- -------
Income tax provision (benefit) of cumulative
effect of accounting changes at statutory rate... -- 3.2 (7.0)
State income taxes, net of federal benefit........ -- -- (.2)
Foreign losses with no expected tax benefit....... -- (1.2) 1.7
------ ------- -------
Income tax provision (benefit) of cumulative
effect of accounting changes..................... -- 2.0 (5.5)
------ ------- -------
$ -- $ (4.6) $ (39.3)
====== ======= =======
</TABLE>
The valuation allowance increased $1.9 million due to uncertainties of
realizing loss carryforwards in the future.
At December 31, 1995, the Company had federal tax net operating loss
carryforwards of $88 million and alternative minimum tax net operating loss
carryforwards of $66 million expiring in the years 2002-2010 and minimum tax
credit carryforwards of $3 million which do not expire. At December 31, 1995,
the Company also had Chilean tax net operating loss carryforwards of $86
million which do not expire.
The Company will file certain state income tax returns for 1995 on a
combined basis with Cyprus Amax. Tax expense and tax related liabilities have
been determined as if the Company filed separate income tax returns. The
Company is not included in the Cyprus Amax federal income tax return. The
Company is in the process of negotiating a tax sharing agreement with Cyprus
Amax.
5. INVENTORIES
Inventories at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Gold:
Finished goods................................................. $10.0 $10.3
Work-in-process................................................ 11.7 11.5
Materials and supplies........................................... 4.9 6.8
----- -----
$26.6 $28.6
===== =====
</TABLE>
C-24
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The market value of the finished goods inventory at December 31, 1995 was
$14.4 million, with an excess replacement cost (at market value) over the LIFO
basis of $2.5 million.
Effective January 1, 1994, the Company changed its method of accounting for
the costs of ore loaded on heap leach pads to record such costs as work-in-
process inventory. Previously, the Company had expensed these costs as
incurred. The cumulative after-tax effect of the change in accounting for
inventory for periods prior to 1994 was a decrease in the net loss of $7.5
million or $.09 per common share. The effect of the accounting change in 1994
was a reduction in cost of sales of $.3 million. Assuming the inventory
accounting change had been applied retroactively, the unaudited pro forma
effect in 1993 would be a reduction of net loss of $2.3 million or $.03 per
share.
6. PROPERTY, PLANT AND EQUIPMENT AND WRITE-DOWNS
The components of property, plant and equipment at December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Mining plant and
equipment.............. $ 167.9 $ 166.7
Mining properties....... 172.0 168.8
Development properties
and construction-in-
progress............... 435.7 224.1
------- -------
775.6 559.6
Less accumulated depre-
ciation, depletion and
write-downs............ (265.1) (246.3)
------- -------
$ 510.5 $ 313.3
======= =======
</TABLE>
Acquisition of Kubaka
The Company has agreed to acquire, subject to certain conditions, from
Cyprus Amax its indirect 50 percent interest in the Kubaka Project, located in
the Magadan Region of the Russian Federation. The remaining 50 percent
interest is held by various Russian entities. The Kubaka Project has proven
and probable reserves of approximately 2.5 million ounces of gold, of which
the Company's share would be 1.25 million ounces. Additional gold and silver
deposits, not classified as reserves, are included in the acquisition.
The purchase price is payable in shares of the Company's common stock with
approximately 11.8 million shares payable at closing and 4.2 million shares
paid upon commencement of commercial production, valued at $5.9375 per share,
the average closing price for the ten trading days preceding the public
announcement of the acquisition. In addition, the Company will pay $10 per
ounce, up to a maximum of $45 million, for the Company's pro rata share of any
new proven and probable gold reserves in the event the Company acquires the
right to mine other deposits in the Russian Federation prior to 2004.
The Kubaka Project is expected to commence commercial production in early
1997 at capital costs in excess of its original estimate of $180 million. The
increase reflects a possible delay in start-up and certain higher local costs
and contingency provisions. Final estimates are currently being developed.
As of December 31, 1995, the Project had been funded through $80 million of
equity contributions from the partners on a pro rata basis to their ownership
interests and borrowings of $30 million. Project financing of $100 million is
being provided by the European Bank for Reconstruction and Development and the
U.S. Overseas Private Investment Corporation. Cyprus Amax has provided a
completion guarantee of the financing which will remain in place until the
Project meets certain completion tests. Amax Gold expects to complete the
acquisition at the Kubaka Project in mid-1996.
C-25
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Asset Write-Downs
A re-evaluation of the Hayden Hill operation completed in July 1993 resulted
in the downward revision of proven and probable ore reserves by approximately
400,000 contained gold ounces. During the last half of 1993, the Hayden Hill
Mine was reconfigured as a heap leach only operation, with the mill maintained
on stand-by status. As a result the Company recorded a $64.1 million pre-tax
write-down of the Hayden Hill assets during 1993. After a successful year of
full-scale heap leach only operation at Hayden Hill in 1994, the Company
determined that a mill operation as originally designed would not be economic
and recognized an additional $18.6 million pre-tax write-down of Hayden Hill
assets during the fourth quarter of 1994. The Company also wrote down $2.5
million pre-tax of other assets in 1994.
Mining experience and a reinterpretation of geologic data at the Sleeper
Mine during the fourth quarter of 1993 led to a reduction in proven and
probable ore reserves by approximately 300,000 contained gold ounces. As a
result, the Company recorded a $23.6 million pre-tax write-down of its Sleeper
assets during the fourth quarter of 1993.
Waihi Transaction
During 1993, the Company realized an $8.8 million gain from the sale of the
future economic benefit of the Company's 33.53 percent interest in the Waihi
Mine in New Zealand. The Company received gross proceeds of $15.4 million and
recorded a receivable of 15,500 ounces of gold to be paid over a 5-year
period. Following the transaction, the Company sold forward, on a spot
deferred forward basis, 15,500 gold ounces at an average price of $365 per
ounce. The spot-deferred forward price of the remaining 7,750 ounces of gold
receivable is $399 per ounce at December 31, 1995.
Exploration Expenditures
During 1993, the Company changed its method of accounting for exploration
expenditures. Previously, the Company capitalized and restored to earnings
prior period exploration expense when a property became exploitable. For the
year ended December 31, 1993, the Company recognized a $13.4 million ($.17 per
common share) after-tax charge (net of a deferred income tax benefit of $4.5
million) relating to the cumulative effect for periods prior to 1993. The
effect of the accounting change was to reduce the 1993 net loss by $4.3
million.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------
1995 1994
------- -------
<S> <C> <C>
Term loan, 8.3% for 1995, due 1997--2001.................... $ 200.0 $ --
Gold loan, 5.4% for 1995, due 1996--2001.................... 42.5 --
Note payable to bank, 5.4% for 1994, due 1997............... -- 40.9
Term loan, 7.7% for 1994, due 1997.......................... -- 35.0
Gold leases, 5.6% for 1994, due 1995........................ -- 23.5
Chilean government agency debt, 8.3% for 1995 and 1994, due
1996....................................................... 3.0 6.1
Gold loan, 0.2% for 1994, due 1995.......................... -- 1.6
------- -------
245.5 107.1
Less current portion........................................ 7.3 23.9
------- -------
Long-term debt.............................................. $ 238.2 $ 83.2
======= =======
</TABLE>
C-26
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Scheduled debt maturities as of December 31, 1995 (in millions) were $7.3,
$36.3, $64.0, $64.0, $64.0 and $9.9 for the years 1996 through 2001,
respectively.
During October 1995, the Company completed a term loan agreement for $250
million (the Fort Knox Loan) to be used for construction of the Fort Knox
Project and repayment of certain existing debt obligations. The loan has a six
year term with repayments beginning in 1997 and up to $125 million may be
drawn in gold. As of December 31, 1995 the Company had borrowed $37 million in
gold at $381 per ounce and $163 million in currency. During January 1996, an
additional $34 million in currency was borrowed. Interest on the loan is
calculated at LIBOR for the dollar portion and at the bank's lease rate for
the gold portion, plus 2.25 or 2.0 percent at certain intervals of
construction or plus 1.75 percent after completion tests are passed.
Collateral for the loan includes the assets and production of the Fort Knox
and Hayden Hill Mines and the stock of the subsidiaries owning the Sleeper and
Guanaco Mines. The loan agreement places restrictions on proceeds of future
equity offerings and borrowings, restricts dividends and requires certain net
worth and cash ratios be maintained. Interest rate protection agreements must
be in place for at least 50 percent of any dollar portion of the borrowing. In
addition, Amax Gold must maintain gold reserve minimums and hedge a portion of
future production in order to obtain specified minimum cash flows. Due to
projected cost increases at the Fort Knox Project, the Fort Knox Loan was
renegotiated in March 1996. See Note 15 for further discussion.
In February 1995, Compania Minera Maricunga (CMM), a 50 percent owned joint
venture of Amax Gold, obtained $85 million in financing to build the Refugio
Mine in Chile (the Refugio Loan). The loan was drawn in 223,684 ounces of gold
which were sold for $380 per ounce. The Company and the other 50 percent owner
are guarantors on a several basis in proportion to their respective ownership
interests until completion tests are passed, at which time the loan becomes
non-recourse to the Company. The loan is a five year amortizing term loan
which can be transferred between gold and U.S. dollars. Interest on the loan
is calculated at LIBOR for any U.S. dollar portion and at the bank's gold base
rate for any gold portion, plus 1.75 percent during the construction phase and
2.5 percent after completion tests are passed.
During 1995, the Company repaid $104 million in third party debt with
proceeds from the Fort Knox Loan and the Cyprus Amax $80 million convertible
line of credit.
8. HEDGE CONTRACTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Precious metal hedge contracts include forward sales contracts, spot
deferred forward sales, put and call options and compound options. Realization
under these contracts is dependent upon the counterparties performing in
accordance with the terms of the contracts. The Company does not anticipate
nonperformance by the counterparties.
Forward sales contracts require the future delivery of gold at a specified
price. Forward sales contracts that are made on a spot deferred basis allow
the Company to defer the delivery of gold under a forward sales contract to a
later date at a renegotiated market price. Various factors influence the
decision to close a spot deferred forward sales contract or to roll the
contract forward to a later date. A put option gives the put buyer the right,
but not the obligation, to sell gold to the put seller at a predetermined
price on or before a predetermined date. A call option gives the call buyer
the right, but not the obligation, to buy gold from the call seller at a
predetermined price on or before a predetermined date. The Company also uses
compound options to protect against decreases in gold prices and to reduce the
initial cash outlay needed to provide this protection. The call portion of a
compound option allows the Company to purchase a put. The Company's risk in
purchasing compound options is limited to the premium paid.
C-27
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
As of December 31, 1995, the Company's outstanding hedge contracts were as
follows:
<TABLE>
<CAPTION>
AVERAGE
REALIZED PRICE
GOLD OUNCES PER OUNCE PERIOD
----------- -------------- ------
<S> <C> <C> <C>
Forward sales con-
tracts(1)................ 453,079 $410 Jan. 1996--April 1996
Option contracts:
Purchased put options... 945,000 $407 Jan. 1996--Dec. 2001
Sold put options........ 202,700 $379 Jan. 1996--Sept. 1999
Purchased call options.. 455,000 $448 Mar. 1996--Dec. 1997
Sold call options....... 306,400 $419 Jan. 1996--Dec. 1996
</TABLE>
- --------
(1) Represents the net forward sales position which was made primarily on a
spot deferred forward basis which allows deferral of the delivery of gold
ounces to a later date at a renegotiated gold price.
The market value of the Company's forward contracts and put and call options
at December 31, 1995 was approximately $22.6 million. Future market valuations
for these contracts are dependent on gold market prices, option volatility and
interest rates, which can vary significantly. These contracts will be utilized
in the future to hedge against declines in gold market prices for the
Company's future gold production while maintaining benefits in the event of
higher gold market prices.
As a requirement of the Fort Knox Loan, the Company has entered into
interest rate swap option agreements to reduce the impact of changes in
interest rates. At December 31, 1995 the Company had purchased interest rate
swap options with the right to pay a fixed rate of 6.58 percent at an average
term of 3.6 years on a principal amount of $160 million and sold interest rate
swap options with the obligation to pay a fixed rate of 5.70 percent at an
average term of 3.4 years on a principal amount of $170 million. Gains or
losses realized on these contracts will be amortized over the term of the
loan. Amax Gold would pay approximately $1.4 million to terminate these
interest rate swap agreements, given market interest rates at December 31,
1995; however, by February 1996, due to changes in market interest rates, this
amount had decreased significantly. Due to the requirements placed on the
Company as a condition of its Fort Knox borrowings, the Company does not
expect to close these contracts.
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated
fair values of the Company's financial instruments, as measured on December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 25.6 $ 25.6 $ 36.7 $ 36.7
Long-term receivables...................... 11.9 11.9 4.2 4.2
Long-term debt............................. 245.5 245.5 107.1 106.9
Hedging contracts.......................... 8.2 22.6 5.0 13.0
Interest rate swap options................. -- (1.4) -- --
</TABLE>
C-28
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Long-term receivables
The fair value is estimated based on expected discounted future cash flows,
including applicable interest.
Long-term debt
The fair value is estimated based on the quoted market prices for the same
or similar issues offered to the Company for debt of similar maturities.
Hedging contracts
The fair value of options is estimated based on the spot price while the
fair value of the forward sales is estimated based on the quoted market price
for the contracts at December 31, 1995.
Interest rate swap options
The fair value of interest rate swap option agreements is estimated by
obtaining quotes from financial institutions and represents the cost to buy
out the swaps at December 31, 1995 and 1994. The Company does not expect to
buy out these agreements.
9. EMPLOYEE BENEFITS
Pension Plan
Substantially all employees in the United States are covered by a non-
contributory defined benefit pension plan. Benefits are based generally on
years of service and compensation levels prior to retirement. The Company
makes annual contributions to the plan in accordance with the requirements of
ERISA. Effective July 1, 1994, the Company amended its plan to a career
average plan from a final pay plan. The change had the effect of reducing the
projected benefit obligation and annual pension expense. Plan assets are
invested in a balanced fund and small capital equity fund.
Net annual pension cost includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
Service cost............................................. $ .5 $ .8 $ 1.0
Interest cost............................................ .3 .4 .4
Actual return on assets.................................. (.5) (.1) (.1)
Deferred gain (loss)..................................... .2 (.2) --
Net amortization of prior service cost and losses........ (.1) .2 .3
---- ----- -----
Net periodic expense..................................... $ .4 $ 1.1 $ 1.6
==== ===== =====
</TABLE>
C-29
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The following table summarizes the funded status of the plan and the related
amounts recognized in the Company's financial statements at December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $4.2 million in 1995 and $2.7
million in 1994............................................ $ 5.1 $ 3.6
====== ======
Projected benefit obligation................................ $ (5.1) $ (3.6)
Plan assets at fair value................................... 3.4 2.1
------ ------
Plan assets less than projected benefit obligation.......... (1.7) (1.5)
Unrecognized prior service cost............................. (.8) (.9)
Unrecognized net loss....................................... 1.6 .9
------ ------
Accrued pension cost........................................ $ (.9) $ (1.5)
====== ======
</TABLE>
The following assumptions were used in calculating the funded status of the
plan at December 31 and the pension cost for the subsequent year:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Expected long-term rate of return on assets...................... 9.0% 9.0%
Discount rate.................................................... 7.25% 8.75%
Rate of increase in compensation levels.......................... 5.25% 5.25%
</TABLE>
Postretirement Benefits Other than Pensions
The Company also provides certain health care and life insurance benefits
for retired employees in the United States. The postretirement health care
plans are contributory in certain cases based upon years of service, age and
retirement date. The Company currently does not fund postretirement benefits
and may modify plan provisions at its discretion. Net periodic postretirement
benefit costs for the years ended December 31, 1995, 1994 and 1993 were
insignificant.
The following table sets forth the status of the plan and the related
amounts recognized in the Company's financial statements at December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ .3 $ .4
Fully eligible active plan participants................... .1 .1
Other active plan participants............................ 1.4 .9
------ ------
Total accumulated postretirement benefit obligation......... 1.8 1.4
Plan assets at fair value................................... -- --
------ ------
Accumulated postretirement benefit obligation in excess of
plan assets................................................. (1.8) (1.4)
Unrecognized prior service cost............................. (1.5) (1.7)
Unrecognized net loss....................................... .5 .3
------ ------
Accrued postretirement benefit cost......................... $ (2.8) $ (2.8)
====== ======
</TABLE>
C-30
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The accumulated postretirement benefit obligation was determined using a
weighted average annual discount rate of 7.25 percent in 1995 and 8.75 percent
in 1994. The assumed health care cost trend rate for 1996 is 11.5 percent
declining gradually to 6 percent for 2007 and thereafter. A one percent
increase in the health care cost trend rate used would have resulted in an
insignificant increase in the 1995 postretirement benefit cost and the
accumulated postretirement benefit obligation at December 31, 1995.
Postemployment Benefits
The Company also has a number of postemployment plans covering severance,
disability income and continuation of health and life insurance for disabled
employees. Effective January 1, 1993, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits". The pre-tax charge to
1993 earnings for the cumulative effect of this accounting change was $2.8
million, with a net earnings effect of $1.8 million. At December 31, 1995, the
Company's liability for postemployment benefits totalled $4.4 million and is
included in other liabilities.
10. PREFERRED STOCK
In August 1994, the Company sold publicly 1.8 million shares of $3.75 Series
B Convertible Preferred Stock (Preferred Stock) for net proceeds of $88.3
million. Preferred Stock is convertible at the option of the holder at any
time at an initial conversion price of $8.25 per share (equivalent to a
conversion rate of 6.061 shares of common stock for each share of Preferred
Stock), subject to adjustment in certain events. If all of the Preferred Stock
were to be converted, an additional 11.2 million common shares would be
issued.
The Preferred Stock is redeemable at the option of the Company at any time
on or after August 15, 1997, in whole or in part, for cash, initially at a
redemption price of $52.625 per share declining ratably annually to $50.00 per
share on or after August 15, 2004, plus accrued and unpaid dividends.
Annual cumulative dividends of $3.75 per share are payable quarterly on each
November 15, February 15, May 15 and August 15, as and if declared by the
Board of Directors.
11. COMMON STOCK
In February 1992, the Company's Board of Directors approved a Dividend
Reinvestment Plan whereby shareholders of the Company may elect to reinvest
any future common stock dividend payments in additional shares of the
Company's common stock. Three million shares of the Company's common stock are
reserved for issuance pursuant to this plan.
In 1994, the Company shareholders approved a plan to grant common shares to
non-employee directors under which 100,000 shares of common stock were
reserved for issuance. In each of June 1995 and August 1994, 7,500 shares were
issued.
The Company issued warrants to purchase approximately 4 million shares of
common stock in connection with the acquisition of the Fort Knox property. The
warrants expired in January 1996.
During 1995, Amax Gold was reincorporated in Delaware and elected not to be
governed by Section 203 of the Delaware General Corporation Law, permitting
the Company to engage in business transactions with Cyprus Amax without
requiring the approval of 66 2/3 percent of all stockholders excluding Cyprus
Amax and its affiliates and associates. As a result of the reincorporation,
Amax Gold's treasury stock was cancelled.
C-31
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Earnings per common share have been calculated on the basis of the average
common shares outstanding. Outstanding Company warrants and stock options were
not considered in the earnings per share calculation as these were anti-
dilutive.
12. STOCK OPTION PLAN
The Company maintains a stock option plan for officers and salaried
employees to purchase common shares. Options are exercisable at prices equal
to the market value on the date of grant. Options vest in two years and remain
exercisable until ten years from date of grant.
The following table summarizes activity under the stock option plan.
<TABLE>
<CAPTION>
NUMBER AVERAGE PRICE
OF OPTIONS PER SHARE
---------- -------------
<S> <C> <C>
Options outstanding at December 31, 1994............ 776,425 $ 7.22
Options granted in 1995............................. 350,400 $ 7.16
Options canceled in 1995............................ 70,525 $ 7.48
Options outstanding at December 31, 1995............ 1,056,300 $ 7.18
Options exercisable at December 31, 1995............ 148,850 $ 8.75
========= ======
</TABLE>
No options were exercised during 1995, 1994 or 1993. As of December 31,
1995, 1.9 million common shares are reserved for future grants.
During 1993, Amax Gold implemented a performance share plan. Under this
plan, officers of the Company may receive restricted stock awards based on the
rate of return received by investors in the Company's common stock, compared
to that of its peers in the gold industry. Such awards may be deferred,
accelerated or otherwise adjusted based upon a strategic and comparative
performance assessment. As of December 31, 1995, 35,400 shares were awarded
and 814,600 shares were reserved for issuance. On December 13, 1995, an
additional 52,550 shares were awarded to be effective January 1, 1996.
C-32
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
13. DOMESTIC AND FOREIGN OPERATIONS
The Company's foreign operations consist of the Guanaco and Refugio Mines in
Chile. The components of the Company's domestic and foreign operations were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues:
United States................................... $ 68.2 $ 74.9 $ 69.2
Foreign......................................... 28.4 19.7 12.7
------- ------- -------
$ 96.6 $ 94.6 $ 81.9
======= ======= =======
Loss from operations:
United States................................... $ (6.6) $ (31.4) $(104.7)
Foreign......................................... (10.6) (12.5) (11.3)
------- ------- -------
$ (17.2) $ (43.9) $(116.0)
======= ======= =======
Net loss:
United States................................... $ (11.9) $ (25.1) $ (84.0)
Foreign......................................... (18.9) (12.2) (20.2)
------- ------- -------
$ (30.8) $ (37.3) $(104.2)
======= ======= =======
Assets:
United States................................... $ 468.0 $ 308.3 $ 294.6
Foreign......................................... 143.1 94.9 86.4
------- ------- -------
$ 611.1 $ 403.2 $ 381.0
======= ======= =======
</TABLE>
Substantially all of the Company's 1995, 1994 and 1993 sales were made in
Europe through a wholly owned subsidiary of the Company. The Company's sales
to major customers which exceeded 10 percent of total sales were $58 million
to two customers in 1995, $65 million to four customers in 1994 and $38
million to two customers during 1993. The Company believes that the loss of
any of these customers would have no material adverse impact on the Company
because of the active worldwide market for gold.
14. COMMITMENTS AND CONTINGENCIES
The Company currently accrues reclamation liabilities for the following
operations:
<TABLE>
<CAPTION>
RECLAMATION
COSTS ACCRUED
-------------------
TOTAL ANTICIPATED
RECLAMATION COST CURRENT NON-CURRENT
----------------- ------- -----------
<S> <C> <C> <C>
Sleeper Mine........................... $10.4 $4.0 $ 5.8
Hayden Hill Mine....................... 6.8 -- 5.3
Wind Mountain Mine..................... .8 .8 --
----- ---- -----
Total................................ $18.0 $4.8 $11.1
===== ==== =====
</TABLE>
The anticipated reclamation costs for the Sleeper, Hayden Hill and Wind
Mountain mines are estimates based on current federal and state laws and
regulations. The anticipated costs of reclamation for the Guanaco Mine, given
current Chilean laws and regulations, are not expected to be significant.
Changes in the federal, state and Chilean laws and regulations could impact
these anticipated reclamation costs.
C-33
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
15. SUBSEQUENT EVENT--RENEGOTIATION OF FORT KNOX LOAN
In March 1996, as a result of projected higher capital costs to complete the
Fort Knox Project and other cash needs anticipated in 1996, the Company
renegotiated the Fort Knox Loan and entered into certain other financial
arrangements with Cyprus Amax. Cyprus Amax has guaranteed the loan until
economic completion of the Fort Knox Project, as defined in the loan
agreement, and the Company has agreed not to borrow without the consent of
Cyprus Amax under the $100 million credit line previously provided by Cyprus
Amax, which forms part of the guaranty.
The renegotiated Fort Knox loan agreement reduces the margin over LIBOR or
the gold lease rate paid as interest to the banks from 2.25 percent to 0.50
percent and eliminates all financial and most other covenants of the Company.
In consideration for the guaranty, the Company will pay Cyprus Amax the
interest differential in addition to a one-time guaranty fee of 2.5 percent of
the guaranteed amount. At the option of Cyprus Amax, these payments may be
made in cash or the Company's common stock (subject to approval of the
Company's shareholders) valued at a per share price equal to the average of
the closing prices over a five day period ending the day before the election
of Cyprus Amax. The Company is obligated to reimburse Cyprus Amax for any
payments it makes under the guaranty; any reimbursement obligation will be
payable to Cyprus Amax on demand and will bear interest at LIBOR plus 3.25
percent.
Cyprus Amax also agreed in March to provide to the Company with a demand
loan facility to be used primarily to fund additional costs at Fort Knox and
for general corporate purposes. Funding will be provided solely at the
discretion of Cyprus Amax. The Company will pay interest on funds borrowed
under this facility at LIBOR plus 2.25 percent, increasing by 1 percent in the
event of a default by the Company, and amounts outstanding will be payable to
Cyprus Amax on demand. The Company also will pay a one-time financing fee
which when added to the guaranty fee will total 2.5 percent of the maximum
amount that can be made available to the Company under these arrangements. All
payments of fees, interest or repayments of loans to Cyprus Amax may be made
in cash or the Company's common stock at the election of Cyprus Amax, valued
as described above.
Amounts outstanding under the guaranty and the demand loan facility are
secured by a first priority interest in the collateral for the Fort Knox Loan
and by such additional security interests in the Company's assets as Cyprus
Amax may request from time to time.
Amax Gold will consider various options for additional funding, including
the possibility of accessing equity markets. In addition, Cyprus Amax has
informed the Company it intends to make additional needed financing available
to the Company.
C-34
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
16. QUARTERLY DATA (UNAUDITED)
Quarterly earnings data for the years ended December 31, 1995 and 1994
follow:
<TABLE>
<CAPTION>
1995 QUARTERS
---------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Revenues..................................... $ 22.7 $ 26.7 $ 23.7 $ 23.5
Loss from operations......................... (4.9) (2.7) (2.9) (6.7)
Net loss..................................... (6.0) (4.5) (4.9) (8.5)
Loss attributable to common shares........... (7.7) (6.2) (6.6) (10.3)
------ ------ ------ ------
Per common share:
Net loss................................... $ (.09) $ (.08) $ (.08) $ (.11)
====== ====== ====== ======
<CAPTION>
1994 QUARTERS(1)
---------------------------------
FIRST SECOND THIRD FOURTH(2)
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Revenues..................................... $ 23.8 $ 27.9 $ 23.7 $ 19.2
Loss from operations......................... (4.7) (1.9) (7.1) (30.2)
Loss before income taxes and cumulative
effect of accounting change................. (6.7) (3.5) (8.2) (31.2)
Net earnings (loss).......................... 2.3 (3.5) (6.9) (27.4)
Earnings (loss) attributable to common
shares...................................... 2.3 (3.5) (6.9) (29.2)
------ ------ ------ ------
Per common share:
Loss before cumulative effect of accounting
change.................................... $ (.07) $ (.05) $ (.09) $ (.36)
Cumulative effect of accounting change..... .09 -- -- --
------ ------ ------ ------
Net earnings (loss)........................ $ .02 $ (.05) $ (.09) $ (.36)
====== ====== ====== ======
</TABLE>
- --------
(1) Restated for the change in inventory accounting policy effective January 1,
1994, which resulted in a net earnings increase of $8.1 million for the
first quarter, $.2 million for the second quarter and $.7 million for the
third quarter.
(2) The Company issued 1.8 million preferred shares in August 1994. Preferred
share dividends were $1.8 million during the fourth quarter of 1994.
C-35
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
17. RESERVE DATA (UNAUDITED)
The following table presents proven and probable ore reserves by property at
December 31. Ore reserves are calculated by the Company.
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------ --------- ---------
CONTAINED CONTAINED CONTAINED
AVERAGE OUNCES OUNCES OUNCES
GRADE CONTAINED (THE (THE (THE
(OUNCES OUNCES COMPANY'S COMPANY'S COMPANY'S
TONS PER TON) (100%) SHARE) SHARE) SHARE)
------- -------- --------- --------- --------- ---------
ORE RESERVES(1) (THOUSANDS, EXCEPT AVERAGE GRADES)
<S> <C> <C> <C> <C> <C> <C>
GOLD
Producing mines:
Guanaco(2)............ 4,858 0.078 378 378 481 570
Hayden Hill........... 10,202 0.027 273 273 381 451
Sleeper............... 867 0.055 48 48 155 250
----- ----- ----- -----
Total producing
mines.............. 699 699 1,017 1,271
----- ----- ----- -----
Properties under con-
struction:
Refugio............... 117,976 0.029 3,343 1,672 1,537 1,537
Fort Knox............. 161,835 0.025 4,094 4,094 4,094 4,117
----- ----- ----- -----
Total properties
under
construction....... 7,437 5,766 5,631 5,654
----- ----- ----- -----
Development proper-
ties(3):
Haile................. 8,736 0.089 780 488 488 431
----- ----- ----- -----
Total gold.......... 8,916 6,953 7,136 7,356
----- ----- ----- -----
</TABLE>
- --------
(1) RESERVE. That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
PROVEN RESERVES. Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed sampling and (b)
the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well-established.
PROBABLE RESERVES. Reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven (measured)
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 (measured) reserves, is high
enough to assume continuity between points of observation.
These definitions comply with those issued by the Securities and Exchange
Commission which are based on definitions used by the United States Bureau
of Mines and the United States Geological Survey.
(2) The Company owns a 90 percent interest in the Guanaco Mine and under
existing shareholder arrangements receives 100 percent of production until
certain conditions are met. Management currently does not believe those
conditions will be met; therefore 100 percent of Guanaco's reserves have
been included in the Company's reserve table for 1995.
(3) The Company's construction and production decision at the Haile
development property is dependent on the issuance of appropriate permits,
the resolution of legal disputes between the Company and its venture
partner and the ability of the Company to obtain required financing.
C-36
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The Company reports extractable (mineable) ore reserves. Reserves do not
reflect losses in the milling or heap leaching processes, but do include
allowance for ore dilution in the mining process.
Recovery rates for 1995 were as follows:
<TABLE>
<CAPTION>
HEAP
LEACH MILL
----- -----
<S> <C> <C>
Guanaco..................................................... 55.30% --
Hayden Hill................................................. 60.10% --
Sleeper..................................................... 55.50% 67.30%
===== =====
</TABLE>
Based on completed feasibility studies and the processes contemplated
therein, the estimated average gold recovery rates at the Company's properties
under construction and development properties are approximately 66 percent at
Refugio, 90 percent at Fort Knox, and 65 to 85 percent at Haile.
As previously discussed, the Company expects to complete the acquisition of
Kubaka in mid-1996. The addition of Kubaka will increase the Company's
reserves by 2.7 million tons with an average grade of 0.460 ounces of gold per
ton and 1.25 million contained ounces of gold. Recovery at Kubaka is
anticipated to average 97 percent.
C-37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
SUMMARY
Amax Gold reported a net loss of $23.9 million in 1995, a year of transition
from mines in the later stages of their producing lives toward three new,
major low-cost projects. The Company's primary focus in 1995 was financing and
constructing the Refugio and Fort Knox Mines and negotiating the acquisition
of the Kubaka Project from Cyprus Amax. The addition of these properties
should nearly triple Amax Gold's annual production over the next two years.
Approximately $330 million borrowed in 1995 was used to repay existing debt
and to fund over $200 million of capital expenditures. The first gold pour at
Refugio is expected in early 1996 while the Fort Knox Project is anticipated
to commence production around the beginning of 1997. In October 1995 the
Company announced that it would acquire, subject to certain conditions, Cyprus
Amax's 50 percent interest in Omolon Gold Mining Company, which is developing
the Kubaka Project in the Russian Federation. The acquisition of Kubaka will
increase Amax Gold's reserves by approximately 18 percent to 8.2 million
contained ounces of gold. These three projects are expected to provide the
Company with a source of low-cost reserves and allow for continued growth.
In the first quarter of 1996, the Company projected certain capital cost
increases at the Fort Knox Project which may exceed $75 million. Final
estimates are being developed. As a result of these projected increases and
other anticipated cash needs in 1996, the Company has renegotiated the Fort
Knox Loan Agreement and entered into certain financing arrangements with
Cyprus Amax. In addition, final project estimates are being developed for the
Kubaka Project, where higher capital costs are now estimated. See "Liquidity
and Capital Resources" and Note 15 to the Company's Consolidated Financial
Statements.
RESULTS OF OPERATIONS
The 1995 net loss of $23.9 million compared to losses of $35.5 million in
1994 and $104.2 million in 1993. The loss attributable to common shares in
1995 was $.36 per share compared to a 1994 loss of $.47 per share, including
dividends on the Company's $3.75 Series B Convertible Preferred Stock issued
in August 1994, and a 1993 loss of $1.34 per share. Results in 1994 included a
$16.5 million after-tax asset writedown, primarily for the Hayden Hill mill,
partially offset by a $7.5 million cumulative after-tax benefit from a change
in accounting for heap leach inventory and a $6.6 million deferred tax
benefit. Results in 1993 reflected an after-tax asset write-down of $57.5
million for reductions in reserves at the Hayden Hill Mine in California and
the Sleeper Mine in Nevada, a $15.2 million after-tax charge for the
cumulative effect of a change in accounting for exploration expenses and the
adoption of a new accounting standard for postemployment benefits, and an
after-tax gain of $2.4 million from the realization of the future economic
benefit in the Waihi Mine in New Zealand.
Revenue improved to $96.6 million in 1995 from $94.6 million in 1994 and
$81.9 million in 1993. The increases are attributed to higher realized prices
and gold sales. Amax Gold's average realized price was $406 per ounce in 1995,
$401 per ounce in 1994 and $392 per ounce in 1993 compared to average COMEX
prices of $384 in 1995 and 1994 and $360 in 1993. The Company sold 238,094
ounces of gold during 1995 compared to 235,664 ounces in 1994 and 209,290
ounces in 1993. The increased sales volumes resulted from increased production
in both 1995 and 1994 at Hayden Hill and Guanaco. Sleeper's gold production
and sales declined in 1995 compared to 1994 as reserves neared depletion.
Lower mill head grades and recovery rates are expected as mining is completed
in early 1996 and residual leaching commences. Production at Sleeper increased
from 1993 to 1994 due to higher mill head grades and recovery rates.
Gold production was 238,255 ounces in 1995 compared to 240,885 ounces in
1994 and 210,880 ounces in 1993. Increases in production at Hayden Hill and
Guanaco were offset by a decline in production at Wind Mountain and Sleeper,
which is nearing the end of its mine life. Significant operating improvements
were made in 1995 at both Hayden Hill and Guanaco. Production at Hayden Hill
increased by 22 percent to 80,031 ounces in 1995 from 65,785 ounces in 1994
while Guanaco's production increased 23 percent to 70,850 ounces in 1995
compared to 57,675 in 1994. The processing of higher grade ores which
increased from .017 ounces per ton in
C-38
<PAGE>
1994 to .024 ounces per ton in 1995 at Hayden Hill and from .050 ounces per
ton in 1994 to .063 ounces per ton in 1995 at Guanaco contributed
significantly to the increase in production. Improved crusher throughput at
Hayden Hill and an increased recovery rate at Guanaco also contributed. The
decline in production at Sleeper was attributed to lower head grades and mill
recovery rates. The 14 percent increase in production from 1993 to 1994 was
primarily due to a full year of operations at Guanaco in 1994 versus only nine
months during 1993, when the Mine commenced production in April, as well as
the successful conversion of Hayden Hill to a heap leach only operation during
the latter part of 1993. Amax Gold expects production to increase
significantly in both 1996 and 1997 as Refugio, Fort Knox and Kubaka are
brought on line.
Cost of sales represents mining and processing costs for gold sold during
the year including labor, materials and supplies, repairs and maintenance,
fuel and utilities, proceeds taxes, royalties and by-product credits. Also
included are estimated reclamation costs at each of the Company's mines, which
are accrued over the expected mine life using the units-of-production method.
Reclamation costs are estimates based on current federal, state and Chilean
laws and regulations. Changes in these laws and regulations could increase
future reclamation costs. Even with slight increases in sales volumes in each
year, cost of sales declined to $78.3 million during 1995 from $79.0 million
in 1994 and $79.7 million in 1993, primarily due to lower cash costs.
Cash production costs declined to $326 per ounce in 1995 from $340 per ounce
in 1994 and $388 in 1993. Cash costs at Hayden Hill were reduced from $406 per
ounce in 1994 to $275 per ounce in 1995, despite the negative impact of
unusually high precipitation during the first part of 1995, due to the use of
existing ore stockpiles, higher silver credits resulting from the processing
of ore with higher silver grades and reduced overhead spending. Mine
management also implemented numerous operational efficiencies during 1995,
resulting in additional savings. Cash costs at Guanaco declined from $420 per
ounce in 1994 to $375 per ounce in 1995 despite lower crusher throughput.
Performance at Guanaco continues to be disappointing and management is
evaluating additional cost saving opportunities and operational efficiencies
which are expected to lower expenses further and increase production during
1996. The decrease in cash costs at Hayden Hill and Guanaco partially was
offset by an increase in cash costs at Sleeper due to 23 percent lower
production in 1995. Lower recoveries of mill ore processed and lower volumes
of leach ore available for processing caused the decline in production at
Sleeper as reserves are depleted during the first half of 1996. Consolidated
cash costs decreased from 1993 to 1994 primarily as a result of a full year of
operations at Guanaco and the reconfiguration of the Hayden Hill Mine to a
heap leach only operation. Management anticipates the decline in cash costs to
continue at the current operating properties as well as company-wide as
Refugio, Fort Knox and Kubaka commence production. The new properties are
expected to be substantially lower cost mines than the Company's currently
producing properties.
Depreciation and depletion decreased to $21.5 million during 1995 mainly as
a result of lower depletion rates at Sleeper and Hayden Hill in 1995,
partially offset by increased production at Guanaco which has a higher
depreciation rate. Increased estimates of future production caused the decline
in the Sleeper depletion rate, while at Hayden Hill the write-off of the mill
during the fourth quarter of 1994 and the reduction in the estimate of capital
expenditures required to produce the remaining ounces resulted in a lower
depletion rate. Depreciation and depletion rates decreased from $105 per ounce
in 1994 to $91 per ounce in 1995. Depreciation and depletion decreased
slightly in 1994 compared with 1993. Significant factors for the decrease were
the write-down of assets at Sleeper in December 1993 and at Hayden Hill in
June 1993, partially offset by the full year of production at Guanaco in 1994.
General and administrative costs increased by $1.2 million in 1995 primarily
as a result of higher litigation, financing, relocation and severance costs.
Staff reductions in 1994 resulted in a decline in general and administrative
costs from $8.4 million in 1993 to $6.9 million in 1994.
Exploration expense was $5.9 million in 1995 compared to $6.2 million in
1994. The primary reason for the decrease in 1995 was reduced exploration
activity at the Cerro Quema property in Panama, an advanced stage exploration
project which the Company had an option to purchase from Cyprus Amax. During
the third quarter
C-39
<PAGE>
of 1995, Amax Gold decided not to acquire Cerro Quema. The decrease in
spending at Cerro Quema partially was offset by higher spending on the
Robertson Project in Nevada relating to exploratory drilling and the
preparation of a feasibility study. Exploration expense increased by $1.0
million in 1994 compared with 1993 due to increased activity in North, Central
and South America, partially offset by savings realized by the Company's
agreement to pool efforts with Cyprus Amax to discover new gold properties.
During 1996, exploration costs are expected to be approximately $5.0 million.
Interest expense decreased by $1.5 million in 1995 as interest costs
associated with higher debt levels related to the Refugio and Fort Knox
financings were capitalized. Capitalized interest was $5.9 million in 1995
compared with $0.2 million in 1994. Interest expense was $8.9 million in 1994
compared with $8.5 million in 1993 due to higher interest rates during 1994,
partially offset by a higher average debt balance in 1993.
Interest income was $3.0 million in 1995 compared with $2.1 million in 1994
and $0.7 million in 1993. The increases are attributed to interest earned on a
$10 million loan to the Company's Refugio joint venture partner and on the
Refugio and Fort Knox borrowings in 1995 and the cash from the preferred share
offering in 1994, held prior to investment in capital projects.
Other income and expense increased to $2.3 million in 1995 primarily as a
result of expensing costs related to the Company's 62.5 percent joint venture
interest in the Haile gold property. Prior to 1995 such costs were
capitalized.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $22.4 million at December 31, 1995 compared to $27.1
million at December 31, 1994. The decrease in working capital was a result of
the drawdown of cash and increase in accounts payable due to spending of
approximately $200 million on the construction of Refugio and Fort Knox which
were funded through external borrowings, partially offset by a decline in the
current portion of debt resulting from refinancing. Cash generated from
operations was $2.6 million during 1995 compared to $3.1 million of cash used
in operations during 1994.
Capital expenditures were nearly ten times higher in 1995 than 1994 due to
the construction of Fort Knox and Refugio. Construction substantially was
completed by year-end at Refugio where the Company's share of capital
spending, excluding capitalized interest, totalled approximately $50 million
in 1995. At Refugio crushing is underway, the leach pads are currently being
loaded with ore and irrigation has commenced. The initial gold pour is
expected early in 1996. At Fort Knox, capital spending during 1995 excluding
capitalized interest was approximately $150 million. Due to more difficult
site conditions, design enhancements and expanded excavation work, the
remaining capital costs estimates at Fort Knox are expected to increase and
could exceed the revised estimate of $331 million. Final estimates for
completion are being developed and the timing of start-up may influence total
costs. A portion of the projected capital increase should reduce cash
operating costs to levels below those in the initial design. In addition,
higher capital costs now are estimated to complete the Kubaka project;
reflecting a possible delay in start-up and certain higher local costs and
contingency provisions. Final project estimates currently are being developed.
Net financing activities in 1995 generated cash of $205.7 million. During
the first quarter, Compania Minera Maricunga, a 50 percent owned subsidiary of
the Company which is developing the Refugio Mine, borrowed $85 million ($42.5
million for the Company's share) drawn in gold under a project financing
arrangement with a group of banks. In addition, the Company loaned $10 million
to its Refugio joint venture partner to be held in escrow as support for the
partner's loan guarantee. Amax Gold borrowed $80 million from Cyprus Amax
under a convertible line of credit to fund initial construction at Fort Knox
and to repay approximately $18 million in outstanding indebtedness during the
second and third quarters of 1995. In the third quarter of 1995, Cyprus Amax
converted the outstanding amount, plus interest, into approximately 15 million
shares of Amax Gold common stock in accordance with the credit agreement. The
Company secured $250 million in project financing from a group of banks for
the Fort Knox Project during the fourth quarter of 1995 and had borrowed $200
million of
C-40
<PAGE>
that amount at year-end. Loans of approximately $86 million were repaid with
proceeds from the Fort Knox financing. In June 1995 the Company borrowed $5
million under the 1994 $100 million convertible line of credit with Cyprus
Amax. Preferred dividends totalling $6.9 million were paid during 1995.
Cash flows from operations during 1996 are expected to be sufficient to fund
operating and administrative expenses, exploration expenditures and interest
payments on outstanding debt. The Company anticipates that further funding
will be necessary for remaining capital expenditures, working capital build-up
associated with start-up at Fort Knox and debt repayments and expects to
complete additional debt and/or equity financings during 1996. Currently $108
million of equity and/or subordinated debt securities are available to Amax
Gold under a universal shelf registration statement.
As a result of projected cost increases in completing the Fort Knox Project
and other projected cash needs in 1996, the Company has renegotiated the $250
million Fort Knox loan which Cyprus Amax has guaranteed until economic
completion. Until economic completion, the Company will not make additional
draws under the $100 million line of credit without Cyprus Amax' prior
consent. Amax Gold will consider various options for additional funding,
including the possibility of accessing the equity markets. In addition, Cyprus
Amax has informed the Company it intends to make additional needed financing
available to Amax Gold. The Company will pay Cyprus Amax a fee of 2.5 percent
based upon the total of financings and guaranties made available. All fees,
interest and repayments of advances from Cyprus Amax may be paid at the
election of Cyprus Amax in cash or, following approval by the Company's
stockholders, in the Company's Common Stock valued at the average closing
price for the five-day period prior to such election. See Note 15 to the
Company's Consolidated Financial Statements for further discussion.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Statements which are not historical facts contained in this report are
forward looking statements that involve risks and uncertainties that could
cause actual results to differ from projected results. Factors that could
cause actual results to differ materially include, among others: general
economic conditions, the market price of gold, political events in the Russian
Federation, the risks associated with foreign operations generally, the timing
of receipt of necessary governmental permits, climatic conditions, labor
relations, availability and cost of material and equipment, the actual
configuration of ore bodies, delays in anticipated start-up dates,
environmental risks, the results of financing efforts and other risk factors
detailed in the Company's Securities and Exchange Commission filings.
C-41
