<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________to ___________
Commission file number 1-9620
AMAX GOLD INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-1199974
- ------------------------------------------------ ----------------------------------
(State or other jurisdiction of incorporation or (IRS Employers Identification No.)
organization)
</TABLE>
<TABLE>
<S> <C>
9100 EAST MINERAL CIRCLE, ENGLEWOOD, COLORADO 80112
- --------------------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 643-5500
--------------------
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X No
--- ---
Common Stock Outstanding, $0.01 par value, as of May 8, 1998 - 114,933,311
shares
Total Pages - 31
Exhibit Index Located on Page 13
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMAX GOLD INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions except per share amounts)
(Unaudited)
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Revenues $ 62.7 $ 38.4
Costs and operating expenses:
Cost of sales 40.5 25.2
Depreciation and depletion 19.6 11.4
General and administrative 0.4 1.9
Exploration 1.1 0.8
- --------------------------------------------------------------------------------
Total costs and operating expenses 61.6 39.3
- --------------------------------------------------------------------------------
Income (loss) from operations 1.1 (0.9)
Interest expense (10.8) (9.4)
Capitalized interest - 4.2
Interest income 0.3 0.3
Other 6.4 (0.3)
- --------------------------------------------------------------------------------
Loss before income taxes and cumulative
effect of accounting change (3.0) (6.1)
Income tax expense - -
- --------------------------------------------------------------------------------
Loss before cumulative effect of
accounting change (3.0) (6.1)
Cumulative effect of accounting change - 4.5
- --------------------------------------------------------------------------------
Net loss (3.0) (1.6)
Preferred stock dividends (1.7) (1.7)
- --------------------------------------------------------------------------------
Loss attributable to common shares $ (4.7) $(3.3)
================================================================================
Per common share:
Loss before cumulative effect of
accounting change $ (.04) $(.08)
Cumulative effect of accounting change - .05
- --------------------------------------------------------------------------------
Net basic and diluted loss $ (.04) $(.03)
================================================================================
Weighted average common shares outstanding 114.9 99.3
================================================================================
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions except par value of stock)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------------
ASSETS
Cash and equivalents $ 9.1 $ 16.0
Restricted cash 3.5 3.5
Inventories 67.3 57.1
Receivables 29.6 32.9
Other 19.5 20.2
- ------------------------------------------------------------------------------------------
Current assets 129.0 129.7
Property, plant and equipment, net 710.9 723.3
Other 16.8 17.6
- ------------------------------------------------------------------------------------------
Total assets $ 856.7 $ 870.6
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Cyprus Amax demand loan $ 73.3 $ 73.3
Current maturities of long-term debt 81.4 81.4
Accrued and other current liabilities 49.8 39.1
Accounts payable, trade 15.5 24.2
Reclamation reserve, current portion 7.6 8.0
- ------------------------------------------------------------------------------------------
Current liabilities 227.6 226.0
Long-term debt 331.1 345.7
Reclamation reserve, non-current portion 18.8 13.8
Other 9.3 11.3
- ------------------------------------------------------------------------------------------
Total liabilities 586.8 596.8
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, 2,000,000 shares designated as
$2.25 Series A Convertible Preferred Stock,
no shares issued and outstanding; and 1,840,000 shares
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 114,917,375
shares in 1998 and 114,850,103 shares in 1997 1.1 1.1
Paid-in capital 408.9 408.6
Accumulated deficit (135.5) (130.8)
Unearned equity - financing costs (6.4) (6.9)
- ------------------------------------------------------------------------------------------
Total shareholders' equity 269.9 273.8
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 856.7 $ 870.6
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (3.0) $ (1.6)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and depletion 19.6 11.4
Cumulative effect of accounting change - (4.5)
Increase (decrease) in reclamation reserve 4.6 (0.4)
Increase (decrease) in working capital items (8.2) 6.8
- --------------------------------------------------------------------------------
Net cash provided by operating activities 13.0 11.7
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (3.5) (5.9)
Capitalized interest - (4.2)
- --------------------------------------------------------------------------------
Net cash used in investing activities (3.5) (10.1)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from financings - 12.3
Repayments of financings (14.6) (0.7)
Deferred financing costs (0.1) (0.8)
Preferred dividends paid (1.7) (1.7)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (16.4) 9.1
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (6.9) 10.7
Cash and equivalents at January 1 16.0 11.1
- --------------------------------------------------------------------------------
Cash and equivalents at March 31 $ 9.1 $ 21.8
================================================================================
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim unaudited financial statements include all adjustments
that 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, 1997. The Company is
currently approximately 58.8 percent owned by Cyprus Amax Minerals Company
(Cyprus Amax).
2. MERGER AGREEMENT
On February 9, 1998, the Company announced that it had entered into a merger
agreement with Kinross Gold Corporation (Kinross) providing for a combination of
their businesses. In the merger, each share of the Company's common stock will
be converted into 0.8004 of a share of Kinross common stock. Cyprus Amax has
agreed to contribute $135 million of cash and indebtedness to Kinross at the
effective time of the merger in exchange for approximately 35 million shares of
Kinross common stock.
3. CHANGE IN ACCOUNTING POLICIES
As of January 1, 1997, the Company changed its accounting policy to include
depreciation and depletion in inventory, which has the effect of recording
depreciation and depletion expense in the statement of operations as gold is
sold rather than as it is produced. The cumulative effect of this accounting
change was a $4.5 million reduction of the net loss as of January 1, 1997.
This accounting change was made in order to better match current costs with
revenues and to conform with prevailing gold industry practice.
4. INVENTORIES
Inventories consist of the following (in millions):
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------------
Gold:
Finished goods $ 27.2 $23.3
Work-in-process 2.9 3.6
Materials and supplies 37.2 30.2
- --------------------------------------------------------------------------------
$ 67.3 $ 57.1
================================================================================
5. LONG-TERM DEBT
The Company did not borrow any additional amounts during the first quarter of
1998 under the Cyprus Amax demand loan facility. During April 1998, an
additional $5 million was borrowed for a total of $78.3 million outstanding
under this facility as of May 8, 1998. The Company pays interest on amounts
outstanding at LIBOR plus 2.25 percent. Any outstanding amount at the effective
date of the Kinross merger will be transferred to Kinross in exchange for
Kinross common shares. See Note 2 for further discussion.
5
<PAGE>
6. HEDGE CONTRACTS
Forward sales contracts, generally on a spot deferred basis, put 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. During the
first quarter of 1998, the Company's realized price was $338 per ounce on
185,452 ounces of gold compared with an average spot price of $294 per ounce.
As of March 31, 1998, the Company's outstanding hedge contracts were as follows:
Average
Realized Price
Gold Ounces Per Ounce Period
- --------------------------------------------------------------------------------
Forward sales/(1)/ 521,350 $362 Apr. 1998 - Mar. 2002
Purchased put options 295,100 $357 Apr. 1998 - Dec. 2000
/(1)/ Primarily on a spot deferred forward basis, which allows for deferral of
the delivery of gold ounces to a later date at a renegotiated gold price.
The market value of the Company's hedge contracts at March 31, 1998, was
approximately $45.0 million. Market valuations are dependent on gold prices,
option volatility and interest rates, which can vary significantly. Forward
sales contracts and purchased put options will be utilized to hedge against
declines in gold prices for the Company's future gold production while
maintaining benefits in the event of higher gold prices.
As of March 31, 1998, the Company's outstanding commodity derivative contracts,
which are marked to market, are as follows:
<TABLE>
<CAPTION>
Average
Realized Price
Gold Ounces Per Ounce Period
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Forward purchases 760,253 $312 Apr. 1998 - Mar. 1999
Purchased put options 463,700 $341 Apr. 1998 - Dec. 1998
Purchased compound put options 138,000 $322 Dec. 1998 - Dec. 2000
Sold put options 442,892 $299 Apr. 1998 - Dec. 1999
Purchased compound call options 38,000 $285 Dec. 1998
Sold call options 74,100 $317 Apr. 1998 - Aug. 1998
</TABLE>
The decline in the mark to market gain on the Company's commodity derivative
contract from $5.0 million at December 31, 1997, to $4.0 million at March 31,
1998, has been reflected in the consolidated statement of operations.
As a requirement of the Fort Knox financing, the Company entered into interest
rate swaps and swap option agreements to reduce the impact of changes in
interest rates. At March 31, 1998, the Company had interest rate swaps and swap
option sales contracts that if exercised between April 1998 and June 1998 would
obligate the Company to pay a fixed rate of 6.0 percent over an average term of
0.5 years on a principal amount of $165 million. The Company also purchased
swap options with the right to pay 6.7 percent over an average term of 1.5 years
on a principal amount of $70 million. In connection with the Kinross merger,
the Fort Knox financing is expected to be repaid. The market value of the
Company's interest rate swap options at March 31, 1998, was not significant.
6
<PAGE>
7. 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
applicable foreign 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 $49.5 million.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRODUCTION RESULTS
The following table sets forth the Company's ounces of gold production,
production costs, ounces of gold sold and average realized prices for the three
months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- -------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
GOLD PRODUCTION (OUNCES)/(1)/
Fort Knox 87,232 29,224
Kubaka 60,417 -
Refugio 24,273 25,930
Hayden Hill 15,082 22,211
Guanaco 10,542 25,869
- -------------------------------------------------------------------------------------
Consolidated gold production 197,546 103,234
- -------------------------------------------------------------------------------------
CASH OPERATING COSTS ($ PER OUNCE OF GOLD PRODUCED)/(1)//(2)/
Fort Knox $ 189 $ 181
Kubaka 143 -
Refugio 290 248
Hayden Hill 108 236
Guanaco 132 251
- -------------------------------------------------------------------------------------
Consolidated average cash operating costs $ 178 $ 227
- -------------------------------------------------------------------------------------
TOTAL CASH COSTS ($ PER OUNCE OF GOLD PRODUCED)/(1)//(2)/
Fort Knox $ 189 $ 181
Kubaka 169 -
Refugio 304 265
Hayden Hill 121 245
Guanaco 152 263
- -------------------------------------------------------------------------------------
Consolidated total cash costs $ 190 $ 236
- -------------------------------------------------------------------------------------
TOTAL PRODUCTION COSTS ($ PER OUNCE OF GOLD PRODUCED)/(1)//(2)/
Fort Knox $ 340 $ 353
Kubaka 274 -
Refugio 415 360
Hayden Hill 330 340
Guanaco 152 397
- -------------------------------------------------------------------------------------
Consolidated total production costs $ 318 $ 363
=====================================================================================
Ounces of gold sold 185,452 99,078
Average realized price per ounce sold $ 338 $ 388
=====================================================================================
</TABLE>
/(1)/ Commercial production commenced at Kubaka on June 1, 1997, and at Fort
Knox on March 1, 1997. Consolidated total cash costs exclude the impact of
the write-down of heap leach inventories at Guanaco in 1996. Mining at
Guanaco was completed during the second quarter of 1997, and mining at
Hayden Hill was completed in the fourth quarter of 1997, with residual
leaching at both mines continuing during 1998.
/(2)/ Cash operating costs at the mine sites include overhead, net of credits
for silver by-products. Total cash costs include cash operating costs plus
royalties and applicable production taxes. Total production costs include
total cash costs plus reclamation and depreciation and depletion.
8
<PAGE>
RESULTS OF OPERATIONS
Amax Gold Inc. reported a first quarter 1998 net loss of $3.0 million, or $.04
per share, on revenue of $62.7 million compared with a 1997 first quarter net
loss of $1.6 million, or $.03 per share on revenue of $38.4 million. The 1998
first quarter results included a $6.7 million gain on the sale of certain
Guanaco assets while the 1997 first quarter results included a $4.5 million
benefit for a first quarter inventory accounting change. Excluding the special
items, the 1998 first quarter net loss was $9.7 million, or $.08 per share,
compared with the 1997 first quarter net loss of $6.1 million, or $.08 per
share. Operating income improved to $1.1 million for the first quarter of 1998
compared with an operating loss of $0.9 million for the 1997 first quarter.
Significantly higher gold production of 197,546 ounces and lower cash costs of
$190 per ounce for the first quarter of 1998, substantially offset by lower gold
realizations, resulted in the improved operating income.
During February 1998, the Company announced that it had agreed to merge with
Kinross Gold Corporation. The combination of these two companies will result in
the fifth largest gold producer in North America with annual production of
approximately 1.2 million ounces. It is expected that the merger will be
completed during the second quarter.
Amax Gold's average realized price for the first quarter of 1998 was $338 per
ounce, compared with $388 per ounce for the 1997 first quarter and compared with
an average spot gold price of $294 per ounce for the first quarter of 1998.
Gold sales of 185,452 ounces in the first quarter of 1998 nearly doubled
compared with the first quarter of 1997 due to the commencement of commercial
production at Kubaka and a full quarter of production at Fort Knox, offset by
lower production at Hayden Hill and Guanaco as those mines transitioned into
residual heap leaching.
The Company's first quarter 1998 gold production increased more than 91 percent
to 197,546 ounces compared with 103,234 ounces in the 1997 first quarter.
Commencement of commercial production at Kubaka and a full quarter of production
at Fort Knox were responsible for the increase. The 50 percent owned Kubaka
mine reported record production of 60,417 ounces for Amax Gold's account during
the first quarter of 1998 due to higher mill recovery and head grade. Fort
Knox's production of 87,232 ounces was lower than the previous quarter's due to
the effects of frozen ore in January, a liner change during February and lower
mill head grades in March. Fort Knox's production and grade have returned to
normal levels during the second quarter of 1998. Operations at Refugio in the
first quarter were affected by material handling problems, which were resolved,
but resulted in a slight decrease in production compared with the prior year's
quarter. The Company's 50 percent share of quarterly production was 24,273
ounces compared with 25,930 ounces for the 1997 first quarter. Due to
winterization of the plant and construction of an alternate access road, the
Refugio mine is also now better prepared to enter the winter months and is not
expected to experience the significant declines in production rates that
occurred during the unusually harsh winter of 1997. Mining was completed at
both Hayden Hill and Guanaco during 1997, which resulted in the decrease in
production at each mine. Production at Hayden Hill and Guanaco will continue
to decline during 1998 as residual leaching continues.
The Company's first quarter 1998 cost of sales increased nearly 61 percent to
$40.5 million compared with $25.2 million in the first quarter of 1997 as a
result of the increased production and sales. However, cost of sales did not
increase proportionately to the increased production and sales due to lower cash
costs. Consolidated total cash costs fell by more than 19 percent to $190 per
ounce for the first quarter of 1998 from $236 per ounce in the first quarter of
1997. Fort Knox's cash costs of $189 per ounce for the 1998 first quarter were
slightly higher than the first quarter of 1997 due to lower production levels,
which have returned to normal in the second quarter. As a result of higher
recovery and head grade, Kubaka's first
9
<PAGE>
quarter 1998 cash costs of $169 per ounce were lower than any previous full
quarter. Refugio's cash costs for the 1998 first quarter were $304 per ounce,
primarily due to the operational difficulties previously discussed. Hayden Hill
and Guanaco's first quarter 1998 cash costs of $121 per ounce and $152 per
ounce, respectively, were significantly lower than 1997 first quarter cash costs
at each mine due to the absence of mining costs. Hayden Hill's full costs for
the first quarter of 1998 include a $209 per ounce charge for reclamation costs
reflecting an increase of the Company's current estimate of final closure costs.
First quarter 1998 depreciation and depletion increased to $19.6 million from
$11.4 million in the first quarter of 1997, primarily as a result of the
increase in production, partially offset by a slightly lower depreciation and
depletion rate resulting from the addition in December 1997 of approximately
450,000 contained ounces to the Fort Knox reserves.
General and administrative expenses of $0.4 million for the first quarter of
1998 are significantly lower than the 1997 first quarter expense of $1.9
million. The decrease is mainly attributed to crediting approximately $0.8
million to general and administrative expenses for the fee the Company earns
managing the Kubaka project.
The $0.3 million increase in exploration expense to $1.1 million for the first
quarter of 1998 resulted from the absence of a payment received during the first
quarter of 1997 relating to the sale of the Robertson project, located in
Nevada, which was discontinued during 1996.
Higher interest expense of $10.8 million for the first quarter of 1998 compared
with $9.4 million for the 1997 first quarter was primarily attributed to the
assumption of about $73 million of debt in connection with the Kubaka
acquisition, which carries substantially higher interest rates than the
Company's other debt. Due to the completion of the Company's construction
projects, no interest was capitalized during the 1998 first quarter compared
with $4.2 million capitalized during the 1997 first quarter.
During February 1998, Amax Gold entered into an agreement with Cyprus Amax to
sell a portion of the Company's foreign tax net operating losses. In connection
with this transaction, the Company recognized a $6.7 million gain, which has
been included in other income.
LIQUIDITY AND CAPITAL RESOURCES
Amax Gold's cash flow from operations for the first quarter of 1998 increased
slightly to $13.0 million compared with $11.7 million for the 1997 first quarter
due to lower consolidated cash costs coupled with higher production, partially
offset by lower realizations. Cash flow from operations during the first
quarter of 1998 was adversely affected by the build-up of materials and supplies
inventory at Kubaka, since the winter ice road used to supply the mine site is
only open from January through April.
Capital spending of $3.5 million for the 1998 first quarter was lower than the
$5.9 million spent during the 1997 first quarter since the Company's major
construction projects were completed during the first quarter of 1997.
Approximately $2.2 million was spent at Refugio during the 1998 first quarter to
address certain operational inefficiencies remaining from the construction of
the mine while the remaining $1.3 million was spent at Fort Knox, primarily on
certain deferred construction projects.
No additional funds were borrowed under the Cyprus Amax demand loan facility
during the first quarter of 1998. The Company borrowed $5 million under the
Cyprus Amax demand loan facility during April 1998, for a total outstanding
balance of $78.3 million as of May 8, 1998. Scheduled Fort Knox debt repayments
of approximately $14.6 million during the first quarter of 1998 were made
primarily with cash flows from
10
<PAGE>
operations. With continued reductions in capital spending expected for the
remainder of 1998 and with the anticipated higher production and lower cash
costs, the Company expects to generate sufficient funds for general corporate
purposes, capital expenditures, working capital build-up and interest payments.
Assuming the price of gold remains at current levels, the Company does
anticipate borrowing additional amounts under the Cyprus Amax demand loan
facility for a portion of its 1998 debt service. In connection with the Kinross
merger, approximately $335 million of the Company's debt will be eliminated,
including the Cyprus Amax demand loan facility.
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 dates for gold sales,
reserve additions, production improvements at Refugio and Fort Knox, projected
quantities of future gold production, estimated reserves and recovery rates,
anticipated production rates, costs and expenditures, prices realized by the
Company and expected to be realized, expected future cash flows, anticipated
financing needs, growth plans and sources of financing and repayment
alternatives and timing and results of the pending business combinations.
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, cost overruns,
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 and
approvals, 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, 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. Refer to the Risk Factors on pages
19 to 23 of the Company's Information Statement as filed with the Securities and
Exchange Commission on April 23, 1998, for a more detailed discussion of risks.
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.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 13, 1998, a purported class action was filed in the Court
of Chancery of Delaware by two Amax Gold Stockholders entitled Joseph
Ratzerdorfer, and Victoria Shaev, IRA v. Milton H. Ward, et al., C.A.
No. 16189-NC, against Cyprus Amax, the Company's Board, and the Company
as a nominal defendant. The complaint alleges, among other things,
that the defendants breached their fiduciary duties of loyalty and due
care in connection with Amax Gold's entry into the Kinross merger
agreement because: the terms of the Merger are unfair, inadequate, and
the product of self-dealing due to the differences between the
consideration to be received by Cyprus Amax and minority stockholders;
Cyprus Amax controls Amax Gold, the Amax Gold Board and Special
Committee have conflicts of interest arising from the fact that certain
of the directors own Cyprus Amax stock, serve on the boards of both
companies, and/or were nominated to Amax Gold's Board by directors who
suffer from conflicts of interest; defendants have failed to disclose
certain non-public information regarding the value of Amax Gold's
assets and Amax Gold's future earnings and profitability potential; and
the timing of the announcement of the Merger was designed to place an
artificial cap on the market price of the Company's shares to enable
Cyprus Amax to obtain the greatest consideration for its stake in Amax
Gold. The complaint seeks, among other things, an injunction
prohibiting the consummation of the Merger and, in the event the Merger
is consummated, an order rescinding the transaction and/or awarding
damages in an unspecified amount. Amax Gold believes that the
complaint is without merit and intends to defend the matter vigorously.
Piedmont Mining Company and Lancaster Mining Company Inc. have appealed
the April 1998 order of the South Carolina Circuit Court, denying their
motion for reconsideration of the dismissal of certain claims against
the Company and certain subsidiaries.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Kinross merger, Cyprus Amax agreed to vote its
58.8% of the Company's shares in favor of, and granted Kinross a proxy
to vote the Company's shares held by Cyprus Amax and certain of its
affiliates in favor of, the merger. On March 11, 1998, Cyprus Amax
executed a written consent in favor of the merger. Pursuant to Section
228 of the Delaware General Corporate Law and the Certificate of
Incorporation of the Company, no additional approval by Amax Gold's
Stockholders is required.
ITEM 5. OTHER INFORMATION
Not Applicable.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Exhibit
-------------- -------
<S> <C>
10.1 Resolution of the Board of Directors of Amax Gold Inc., dated
February 9, 1998 amending the following plans:
1. Deferred Compensation Plan for Members of the Board of
Directors of Amax Gold Inc.
2. Amax Gold Inc. 1992 Stock Option Plan
3. Amax Gold Inc. Key Executives Long-Term Incentive Plan
4. Amax Gold Inc. Separation Plan for Key Employees
10.2 Nominee Agreement dated February 9, 1998 between Cyprus
Amax Minerals Company and Amax Gold Inc.
10.3 Sponsor Agreement dated February 9, 1998 between Cyprus
Amax Minerals Company and Amax Gold Inc.
(27) Financial Data Schedule
</TABLE>
(B) Reports on Form 8-K - None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMAX GOLD INC.
By /s/ Leland O. Erdahl
------------------------------
Leland O. Erdahl
Vice President and Chief Financial Officer
(principal financial officer)
Dated: May 8, 1998
14
<PAGE>
EXHIBIT 10.1
RESOLUTIONS
OF THE BOARD OF DIRECTORS
OF AMAX GOLD INC.
WHEREAS, Amax Gold Inc. (the "Company") maintains the Deferred Compensation
Plan for Members of the Board of Directors of Amax Gold Inc. (the "Directors'
Plan"), the Amax Gold Inc. 1992 Stock Option Plan (the "Option Plan"), the Amax
Gold Inc. Key Employees Long-Term Incentive Plan (the "Incentive Plan") and the
Amax Gold Inc. Separation Plan for Key Employees (the "Separation Plan")
(collectively, the "Plans"); and
WHEREAS, each of the Plans, by its terms, permits the Board of Directors of
the Company (the "Board") to amend the applicable Plan; and
WHEREAS, the Company wishes to make certain clarifying amendments to the
Plans, effective February 9, 1998; and
WHEREAS, the Board wishes to take certain actions with respect to the
Option Plan that relate to the proposed merger of the Company and Kinross Gold
Corporation; and
NOW, THEREFORE, it is hereby
I. PLAN AMENDMENTS
---------------
RESOLVED that, effective February 9, 1998, each of the Plans shall hereby
be amended as follows:
1. Deferred Compensation Plan for Members of the Board of
-------------------------------------------------------
Directors of Amax Gold Inc.
---------------------------
Paragraph 3 of Section 3.02 of the Directors' Plan is hereby amended
in its entirety to read as follows:
"The amount of Stock in each Participant's Account shall be appropriately
adjusted and modified upon the occurrence of any stock split, reverse stock
split, stock dividend, or stock consolidation. In the event that the
outstanding shares of Stock are exchanged for the stock of the surviving
entity in connection with a merger of the Company with another entity, the
Stock credited to Participants' Accounts
-1-
<PAGE>
shall be automatically converted into the stock of such surviving entity.
After the stock of the surviving entity is credited to Participants'
Accounts, dividends shall be credited thereto in the same manner as
dividends were credited on Stock credited to the Participants' Accounts
prior to the merger. Notwithstanding Section 4.03, following a conversion
of the Stock in the Participants' Accounts into the stock of the surviving
entity, distributions from the Plan shall be made in the stock of such
surviving entity."
2. Amax Gold Inc. 1992 Stock Option Plan
-------------------------------------
Paragraph 3 of Section 8(c) of the Option Plan is hereby amended and
restated in its entirety to read as follows:
"Notwithstanding the immediately preceding two paragraphs, in the event of
a Change in Control, any optionee who holds an option granted under this
Plan shall be entitled to elect, during the 60-day period immediately
following such Change in Control, in lieu of acquiring the shares of Common
Stock covered by such option, to receive, and the Company shall be
obligated to pay, the Change in Control Settlement Value (as defined in
Section 8(h) hereof) with respect to shares of Common Stock up to the
number of shares covered by such option, which amount shall be paid in cash
within 15 days after (i) the Change in Control, if the Change in Control is
a transaction, or (ii) the closing of the transaction connected with a
Change in Control, if the Change in Control is not itself a transaction
(e.g., if the Change in Control is shareholder approval of a merger);
----
provided that if an optionee's election is made on or after the event
described in clause (i) or (ii) above (as applicable), the amount shall be
paid in cash within 15 days after such election."
3. Amax Gold Inc. Key Executives' Long-Term
-----------------------------------------
Incentive Plan
--------------
-2-
<PAGE>
The last sentence of Section 4.1(b) of the Incentive Plan is hereby
amended to read as follows:
"Any such payment pursuant to this paragraph (b) shall be made in a lump-
sum within 15 days after (i) the Change in Control, if the Change in
Control is a transaction, or (ii) the closing of the transaction connected
with the Change in Control, if the Change in Control is not itself a
transaction (e.g., if the Change in Control is shareholder approval of a
----
merger)."
4. Amax Gold Inc. Separation Plan for Key Employees
------------------------------------------------
(i) Section 1.1 of the Separation Plan is hereby amended as follows:
(A) By changing the definition of "Separation from Service" in its
entirety to read as follows:
"'Separation from Service' means termination of an Eligible Employee's
employment with the Company, within 12 months following a Change of
Control or in anticipation thereof, either (i) by the Company or by
the Successor (as applicable) without Cause or (ii) by the Eligible
Employee for Good Reason."
(B) By adding the definition of the term "Cause," to read as
follows:
"'Cause' means (i) substantial and continued failure by the Eligible
Employee to perform his services and duties to the Company (or the
Successor, as applicable), (ii) any act of fraud or embezzlement
against the Company (or the Successor, as applicable), or (iii) the
conviction, or pleading guilty or no contest, to a felony."
(C) By adding the definition of the term "Good Reason," to read as
follows:
-3-
<PAGE>
"'Good Reason'" means any of the following events: (i) material
reduction in the Eligible Employee's compensation, benefits, title or
duties, or (ii) a change in the Eligible Employee's principal place of
employment which is more than 35 miles away from the Eligible
Employee's pre-Change of Control place of employment, and more than 35
miles away from the Eligible Employee's primary residence."
(ii) Section 2.1(a) of the Separation Plan is hereby amended in its
entirety to read as follows:
"Except as set forth in Subsections (b) and (c), an Eligible Employee who
incurs a Separation from Service shall be eligible to receive Benefits."
(iii) Section 2.1(b)(2) of the Separation Plan is hereby amended in its
entirety to read as follows:
"the Eligible Employee has a Separation from Service, and a Successor
offers the Eligible Employee Comparable Employment following a Change of
Control, regardless of whether the Eligible Employee accepts such offer,
unless the principal place of business at which the Eligible Employee is
offered such Comparable Employment is more than 35 miles away from the
Eligible Employee's pre-Change of Control principal place of employment,
and more than 35 miles away from the Eligible Employee's primary
residence."
II. OPTION PLAN: ACCELERATION OF VESTING AND APPROVAL
---------------------------------------------------
OF CERTAIN PAYMENTS
-------------------
RESOLVED, that, pursuant to the authority granted to the Board under the
Option Plan, all options granted under the Option Plan which are unvested on the
date of the "Change in Control" (as defined in the Option Plan) which is caused
by actions taken pursuant to the Merger Agreement, dated as of February 8, 1998
among the Company, Kinross and Kinross Merger
-4-
<PAGE>
Corporation (the "Kinross Change in Control") shall become fully vested and
exercisable at the time of the Kinross Change in Control; provided that such
full vesting shall not occur if (i) the combination of the Company and Kinross
in accordance with the Merger Agreement is intended by the Company to be
accounted for under the "pooling of interests" method for purposes of Canadian
accounting and (ii) the Company's auditors advise that such full vesting would,
if implemented, cause such pooling of interests method to be unavailable; and
RESOLVED, that the payments by the Company or its successor to holders
of options granted under the Option Plan, made in accordance with the "cashout"
election provided to such persons under the Option Plan on account of the
Kinross Change in Control, be, and they hereby are, approved with respect to
persons who are subject to Section 16(b) of the Securities Exchange Act of 1934,
as amended.
III. GENERAL
-------
FURTHER RESOLVED, that the officers of the Company be, and each of them
hereby is, authorized to execute and deliver such contracts, instruments and
other documents, and to take any and all such actions as may be necessary or
advisable to carry out the intent of the foregoing resolutions.
-5-
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby have duly executed these
Resolutions as of the day of February 1998.
Milton H. Ward
Richard H. Block
Allen Born
Gerald J. Malys
Vernon Taylor, Jr.
Russell L. Wood
-6-
<PAGE>
EXHIBIT 10.2
February 9, 1998
Guanaco Mining Company Inc.
Los Immigrantes No. 720
Oficina 4
Antofagasta, Chile
NOMINEE AGREEMENT
Dear Sirs:
We refer you to the Sponsor Guarantee Agreement, dated February 9,
1998 (the "Sponsor Guarantee Agreement"), between Cyprus Amax Minerals Company
("Cyprus Amax") and Amax Gold Inc. ("Amax Gold"), the Recognition of Debt to be
dated as of the Closing Date (the "Recognition of Debt"), between Minera Cyprus
Amax Chile Limitada ("MCCL") and Compania Minera Amax Guanaco ("Guanaco"), and
the Letter Agreement, dated February 9 , 1998 (the "Letter Agreement"), between
MCCL and Guanaco. In consideration of the execution and delivery of this
Nominee Agreement (the "Agreement"), the Sponsor Guarantee Agreement, the
Recognition of Debt and the Letter Agreement by the other parties hereto and
thereto, each of Guanaco Mining Company Inc. ("GMC"), Cyprus Foote Mineral
Company ("Cyprus Foote") and Cyprus Specialty Metals Company ("Cyprus Metals"
and, together with Cyprus Foote, the "Nominees"), hereby agrees as follows.
1. Share Subscription and Duties of Nominees. (a) Cyprus Foote, as
nominee on behalf of GMC, agrees to subscribe for 1,759 new Class A common
shares (the "Foote Shares") of Guanaco, representing 76.15% of the outstanding
Class A common shares of Guanaco after giving effect to such subscription, on
the date on which all of the conditions precedent contained in Section 5 are
satisfied or waived (the "Closing Date"), for a subscription price (the "Foote
Subscription Price") equal to US$42,315,675, payable on the Closing Date.
(b) Cyprus Metals, as nominee on behalf of GMC, agrees to subscribe
for 371 new Class A common shares (the "Metals Shares" and, together with the
Foote Shares and any securities issued in exchange therefor or in replacement
thereof, the "New Shares") of Guanaco, representing 16.06% of the outstanding
Capital A common shares of Guanaco after giving effect to such subscription, on
the Closing Date for a subscription price (the "Metals Subscription Price" and,
together with the Foote Subscription Price, the "Subscription Price") equal to
US$8,925,021, payable on the Closing Date.
<PAGE>
(c) Each Nominee agrees to hold any dividends or other distributions
on the New Shares received by it in trust for the benefit of GMC, and to pay
such dividends or other distributions to GMC promptly upon receipt.
(d) GMC shall be the sole beneficial owner of all right, title and
interest in the New Shares. Each Nominee agrees, promptly upon the request of
GMC, to surrender and return the New Shares held by such Nominee to GMC and to
effect any transfers necessary to reflect GMC or its designee as the record
owner of such New Shares.
(e) Each Nominee shall exercise any voting or other rights arising
out of its record ownership of New Shares only in accordance with the
instructions of GMC. Promptly upon the request of GMC, each Nominee shall
execute such documents as may be necessary to give any designee of GMC a valid
and effective power of attorney in respect of the New Shares held by such
Nominee.
(f) Each Nominee shall not sell, assign, pledge or otherwise transfer
or dispose of New Shares held by it without the prior written consent of GMC.
Each Nominee shall transfer New Shares as directed by GMC promptly after receipt
from GMC of instructions for transfer.
2. Reimbursement of Nominees. On the Closing Date, and subject to
receipt by Amax Gold or its designated subsidiary on the Closing Date of amounts
outstanding under certain intercompany notes issued by Guanaco in an amount
equal to or greater than the Subscription Price, GMC shall (i) reimburse Cyprus
Foote or its designee in cash for the full amount of the Foote Subscription
Price, and (ii) reimburse Cyprus Metals in cash for the full amount of the
Metals Subscription Price.
3. Indemnity. (a) GMC shall indemnify, defend and hold harmless
each Nominee, together with its directors, officers and employees, from and
against any cost, expense, loss, liability, penalty or tax not arising from such
Nominee's gross negligence or willful misconduct (including, without limitation,
any environmental liability), whether accruing before or after the Closing Date,
(i) arising out of Guanaco's operation of its business or (ii) resulting from
actions taken by such Nominee at the direction of GMC pursuant to clauses (d),
(e) and (f) of Section 1 hereof.
(b) With respect to third party claims, promptly after receipt by
either Nominee of notice of the commencement of any action or the presentation
or other assertion of any claim which could result in a claim for
indemnification, such Nominee shall give prompt written notice thereof to GMC,
and GMC shall be entitled to assume the defense thereof; provided, however, that
the Nominees may participate in the defense at their own cost. GMC shall have
the right to settle or compromise any claim or liability
-2-
<PAGE>
subject to indemnification; provided, however, that unless such settlement or
compromise includes a full release of the Nominees, any such settlement or
compromise shall require the consent of the Nominees, which consent shall not be
unreasonably withheld. The parties agree to provide all reasonable cooperation
in connection with any claim for which indemnification is or may be sought under
this Agreement.
4. Conditions Precedent. The obligations of each party hereto are
subject to satisfaction or waiver prior to the Closing Date of each of the
following conditions:
(i) no court or governmental or regulatory authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, or non-appealable
judgment, decree, injunction or other order which is in effect on
the Closing Date and prohibits the consummation of this
Agreement, the Sponsor Guarantee Agreement, the Recognition of
Debt or the Letter Agreement;
(ii) the shareholders of Guanaco shall have approved the issuance of
the New Shares;
(iii) the Central Bank of Chile shall have approved a prepayment by
Guanaco to Amax Gold or its designated subsidiary on certain
intercompany notes issued by Guanaco in a gross amount equal to
or greater than the sum of the Subscription Price plus US$6.1
million;
(iv) each party shall have received any other Chilean government
approvals necessary to give effect to the transactions
contemplated hereby;
(v) each party shall have received (A) an opinion of Phillipi,
Yrarrazaval, Pulido & Brunner as to Chilean legal matters and (B)
an opinion of Arthur Andersen as to Chilean tax matters, in each
case on terms reasonably satisfactory to such party; and
(vi) the Recognition of Debt, the Letter Agreement and the Sponsor
Guarantee Agreement shall have been executed and delivered by (A)
in the case of obligations of the Nominees, each of Amax Gold and
Guanaco party thereto and (B) in the case of obligations of GMC,
each of Cyprus Amax, Cyprus Foote, Cyprus Metals and MCCL party
thereto.
-3-
<PAGE>
5. Unwinding. In the event that the Nominees make full or partial
payment of the Share Subscription Price on the Closing Date and GMC fails to
reimburse the Nominees for the entire amount of such payment in cash on the
Closing Date as contemplated by Section 2, this Agreement, the Nominee Agreement
and the Letter Agreement, shall terminate and GMC shall cause Guanaco
immediately to return to the Nominees, without set-off for any reason, the
entire amount of the Share Subscription Price.
6. Termination. This Agreement shall terminate at such time as no
Nominee is record owner of any New Shares, provided that the obligations of GMC
under Section 2 and Section 3, in each case accruing prior to such termination,
shall survive such termination.
7. Amendment and Modification. This Agreement may not be modified or
amended except in a writing signed by both parties, and each party agrees not to
take any judicial or administrative action seeking modification or waiver of any
of its provisions.
8. Severability. If any provision of this Agreement is held to be
invalid, void or unenforceable, the remainder of this Agreement shall remain in
full force and effect.
9. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
This Agreement may be executed in any number of separate counterparts,
each of which when so executed and delivered shall be an original, but all
counterparts together shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign
this
-4-
<PAGE>
letter and return it to us, and upon the acceptance hereof by you, this letter
and such acceptance hereof shall constitute a legally binding agreement between
you and us.
Yours sincerely,
CYPRUS FOOTE MINERALS COMPANY
By:___________________________________
Name:
Title:
CYPRUS SPECIALTY METALS COMPANY
By:___________________________________
Name:
Title:
Agreed and accepted as of the date hereof:
GUANACO MINING COMPANY INC.
By:_______________________________
Name:
Title:
-5-
<PAGE>
EXHIBIT 10.3
SPONSOR GUARANTEE AGREEMENT
SPONSOR GUARANTEE AGREEMENT, dated February 9, 1998 (the "Agreement"),
between Cyprus Amax Minerals Company, a Delaware corporation ("Cyprus Amax"),
and Amax Gold Inc., a Delaware corporation ("Amax Gold" and, together with
Cyprus Amax, the "Sponsors").
WHEREAS, Cyprus Foote Mineral Company ("Cyprus Foote") and Cyprus
Specialty Metals Company ("Cyprus Metals") have agreed to subscribe for common
shares of Compania Minera Amax Guanaco ("Guanaco") on the Closing Date (as
defined below) as nominees for Guanaco Mining Company Inc. ("GMC") pursuant to a
Nominee Agreement, dated as of the date hereof (the "Nominee Agreement"), among
Cyprus Foote, Cyprus Metals and GMC;
WHEREAS, Minera Cyprus Amax Chile Limitada ("MCCL") has agreed to
extend a loan to Guanaco on the Closing Date in an amount equal to US$7 million
as contemplated by the Recognition of Debt, to be dated as of the Closing Date
(the "Recognition of Debt"), between MCCL and Guanaco, and the Letter Agreement,
dated February 9, 1998 (the "Letter Agreement"), between MCCL and Guanaco, such
loan to be repaid solely from the proceeds, if any, of a refund of first-
category Chilean income taxes previously paid by Sociedad Chilena de Litio
Limitada and MCCL to be procured by Guanaco after the consummation of the
transactions contemplated by the Nominee Agreement (the "Tax Refund") ;
WHEREAS, Amax Gold or its subsidiaries (other than Guanaco) will
retain, after withholding for certain Chilean taxes, approximately US$6.1
million of the proceeds of the share subscription and the MCCL loan in
consideration of their participation in the transactions contemplated hereby;
WHEREAS, Cyprus Amax indirectly owns all of the outstanding capital
stock of Cyprus Foote, Cyprus Metals and MCCL, Amax Gold owns all of the
outstanding capital stock of GMC, and GMC owns 90% of the outstanding capital
stock of Guanaco; and
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Nominee Agreement on the Closing Date that each
Sponsor execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the premises and to induce the
parties to enter into the Nominee Agreement, the Recognition of Debt and the
Letter Agreement, the Sponsors hereby agree as follows.
<PAGE>
1. Guarantees. (a) Cyprus Amax hereby guarantees (i) to GMC, the
prompt and complete payment and performance by each of Cyprus Foote and
Cyprus Metals of all its obligations under the Nominee Agreement and (ii)
to Guanaco, the prompt and complete payment and performance by MCCL of all
its obligations under the Letter Agreement and the Recognition of Debt.
Each of GMC and Guanaco shall be a third party beneficiary of the
obligations of Cyprus Amax under this Agreement.
(b) Amax Gold hereby guarantees (i) to MCCL the prompt and complete
payment and performance by Guanaco of all its obligations under the
Recognition of Debt and the Letter Agreement, and (ii) to Cyprus Foote and
Cyprus Metals, the prompt and complete payment and performance by GMC of
all its obligations under the Nominee Agreement. Each of MCCL, Cyprus
Foote and Cyprus Metals shall be a third-party beneficiary of the
obligations of Amax Gold under this Agreement.
(c) Each Sponsor (i) agrees that its obligations under clauses (a)
and (b) above shall be unconditional, irrespective of the invalidity or
unenforceability of, or any amendment or modification to, the Nominee
Agreement, the Recognition of Debt or the Letter Agreement, or the
insolvency or bankruptcy of any of Cyprus Foote, Cyprus Metals, MCCL, GMC
or Guanaco (each, an "Obligor") and (ii) waives diligence, presentment,
demand of payment, filing of claims, protest, notice and all demands
whatsoever. In the event that any payment by an Obligor is rescinded or
must otherwise be returned for any reason, each Sponsor shall remain liable
for such obligations to the extent provided for herein as if such payment
had not been made.
2. Indemnity; Expenses. (a) Subject to clause (b) below, Cyprus Amax
shall indemnify and hold harmless Amax Gold and each of its subsidiaries,
together with their respective and former directors, officers and employees
(each, an "Indemnified Party"), from any cost, expense, liability, loss,
penalty or tax incurred as a result of (i) the execution and delivery of
this Agreement, the Nominee Agreement, the Recognition of Debt or the
Letter Agreement, (ii) the performance of this Agreement, the Nominee
Agreement, the Recognition of Debt or the Letter Agreement, (iii) the
procurement or retention of the Tax Refund, or (iv) any claim made against
Guanaco for any amounts purporting to be due and owing under the
Recognition of Debt in excess of the amount of any Tax Refund actually
received by Guanaco, provided that this clause (a) shall not apply to any
cost, expense, liability, loss, penalty or tax (A) in respect of U.S.
income taxes, (B) in respect of any claim by ENAMI arising out of its lease
of property and mineral rights to Guanaco, (C) incurred as a result of the
indemnity obligations of GMC under the
-2-
<PAGE>
Nominee Agreement or (D) arising out of the breach of this Agreement, this
Nominee Agreement, the Recognition of Debt or the Letter Agreement by any
Indemnified Party. Without limiting the generality of the foregoing, the
obligation of Cyprus Amax to indemnify and hold harmless under this Section
2(a) shall include the obligation to indemnify against any Chilean or other
non-United States withholding or other taxes incurred in connection with
the consummation of the Share Subscription, the procurement by Guanaco of
the Tax Refund, the extension of the MCCL loan, the payment US$59 million
of principal and interest due on intercompany notes from Guanaco to GMC,
this Agreement, the Nominee Agreement, the Recognition of Debt or the
Letter Agreement (or any other agreement related hereto or thereto).
(b) In no event shall the aggregate obligations of Cyprus Amax under
this Section 2 exceed US$13.5 million.
(c) With respect to third party claims, promptly after receipt by a
person entitled to indemnification under Section 2(a) (an "Indemnified
Party") of notice of the commencement of any action or the presentation or
other assertion of any claim which could result in a claim for
indemnification, such Indemnified Party shall give prompt written notice
thereof to Cyprus Amax, and Cyprus Amax shall be entitled to assume the
defense thereof. Any Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof
at the expense of such Indemnified Party. In addition, if (i) Cyprus Amax
has failed promptly to assume the defense and employ counsel or (ii) the
named parties to such action (including any impleaded parties) include any
Indemnified Party and Cyprus Amax or any of its affiliates, and such
Indemnified Party has received written advice of counsel that there may be
one or more legal defenses available which are different from or in
addition to those available to Cyprus Amax (or any of its affiliates) and
which could create a conflict of interest between Cyprus Amax (or such
affiliates) and such Indemnified Party, then such Indemnified Party shall
have the right to participate in the defense thereof with separate counsel
at the expense of Cyprus Amax; provided that, Cyprus Amax shall not be
responsible for the fees and expenses of more than one firm of separate
counsel in connection with any such action in the same jurisdiction, in
addition to any local counsel. Cyprus Amax shall have the right to settle
or compromise any claim or liability subject to indemnification; provided,
however, that, unless such settlement or compromise includes a full release
of such Indemnified Party, any such settlement or compromise shall require
the consent of such Indemnified Party, which consent shall not be
unreasonably withheld. The parties agree to provide all reasonable
cooperation in connection with any claim for which indemnification is or
may be sought under this Agreement.
-3-
<PAGE>
(d) Cyprus Amax shall pay, or reimburse Amax Gold, Guanaco, GMC and
their affiliates (an "AGI Party") for, all reasonable and documented legal,
administrative and other expenses incurred by any AGI Party in respect of
the consummation of the Share Subscription, the procurement and retention
by Guanaco of the Tax Refund, the extension of the MCCL loan, the execution
and delivery of this Agreement, the Nominee Agreement, the Recognition of
Debt or the Letter Agreement, the transfer to GMC of the shares acquired as
a result of the Share Subscription pursuant to Section 1(d) of the Nominee
Agreement, the disposition of such shares to a third-party designee of GMC
pursuant to Section 1(f) thereof (to the extent such expenses do not exceed
the expenses that would be incurred if such shares were transferred to GMC
itself) or the unwinding pursuant to Section 6 of the Nominee Agreement of
the transactions contemplated thereby.
3. Transaction Fee. On the Closing Date and subject to receipt by
Cyprus Foote and Cyprus Metals on the Closing Date of the reimbursement
payments due to them under Section 2 of the Nominee Agreement, Cyprus Amax
shall pay to Amax Gold a fee in respect of the participation by Amax Gold
and its affiliates in the transactions contemplated hereby in an amount
equal to US$6.7 million minus the amount of the proceeds of the Share
Subscription and the MCCL loan, after withholding for Chilean taxes,
retained by Amax Gold or its affiliates. The parties currently expect that
the amount of this transaction fee will be approximately US$600,000.
4. Effectiveness. This Agreement shall become effective on the date
specified in the Nominee Agreement as the Closing Date (the "Closing
Date").
5. Miscellaneous. (a) This Agreement shall be binding upon the
Sponsors, and shall inure to the benefit of the Sponsors, Cyprus Foote,
Cyprus Metals, MCCL, GMC, Guanaco, and each other Indemnified Party, in
each case, together with their respective successors and assigns.
(b) If any provision of this Agreement is held to be invalid, void or
unenforceable, the remainder of this Agreement shall remain in full force
and effect.
(c) This Agreement may not be modified except in a writing signed by
both Sponsors.
-4-
<PAGE>
(d) No failure or delay by any person in exercising any right, power
or privilege under this Agreement (whether or not consistent with any prior
course of dealing between the Sponsors or their respective subsidiaries)
shall constitute a waiver thereof, nor shall any partial exercise of any
right, power or privilege preclude any other or further exercise.
(e) This Agreement may be executed in any number of separate
counterparts, each of which when so executed and delivered shall be an
original, but all the counterparts together shall constitute one and the
same instrument.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed as of the date first written above.
CYPRUS AMAX MINERALS COMPANY
By:______________________________
Name:
Title:
AMAX GOLD INC.
By:_______________________________
Name:
Title:
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,600
<SECURITIES> 0
<RECEIVABLES> 29,600
<ALLOWANCES> 0
<INVENTORY> 67,300
<CURRENT-ASSETS> 129,000
<PP&E> 1,135,500
<DEPRECIATION> (424,600)
<TOTAL-ASSETS> 856,700
<CURRENT-LIABILITIES> 227,600
<BONDS> 331,100
0
1,800
<COMMON> 1,100
<OTHER-SE> 267,000
<TOTAL-LIABILITY-AND-EQUITY> 856,700
<SALES> 62,700
<TOTAL-REVENUES> 62,700
<CGS> 40,500
<TOTAL-COSTS> 61,600
<OTHER-EXPENSES> (6,400)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,500<F1>
<INCOME-PRETAX> (3,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
<FN>
<F1>Net of interest income of $0.3 million.
</FN>
</TABLE>
