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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-16484
GETCHELL GOLD CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 64-0748908
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5460 SOUTH QUEBEC STREET 80111
SUITE 240 (Zip Code)
ENGLEWOOD, COLORADO
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (303) 771-9000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EXCHANGES ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
Common Stock, par value $0.0001 American Stock Exchange
The Toronto Stock Exchange
</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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the
March 6, 1997 closing price of $49 1/8 on the American Stock Exchange, was
approximately $1,234,000,000.
Common Stock outstanding on March 6, 1997 was 25,771,871 shares.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed pursuant
to Regulation 14A promulgated under the Securities and Exchange Act of 1934 for
the annual meeting of stockholders to be held May 2, 1997 are incorporated by
reference into Part III.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
The following discussion of Getchell Gold Corporation's business and
properties includes "forward looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended (the "Securities Act"),
and is subject to the safe harbor created by that section. Factors that
realistically could cause results to differ materially from those projected in
the forward looking statements are set forth in "Business and Properties" and in
"Risk Factors" as found in Item 7 of this Form 10K.
Getchell Gold Corporation (including its subsidiary, the "Company")
(formerly known as FirstMiss Gold Inc.), a Delaware corporation, is engaged in
the exploration, development, mining and processing of gold ore from the
33,000-acre "Getchell Property" located in north central Nevada (see map on page
2).
The Getchell Property is located in the Potosi Mining District on the
eastern side of the Osgood Mountain Range, 35 miles northeast of Winnemucca,
Nevada. Access to the property is via Nevada State Highway 18 and an all-weather
gravel road maintained jointly by the Company and various competitors who use
the same access. The Company's operations on the Getchell Property include a
pressure oxidation ("autoclave") mill facility, a heap leach facility and an
underground mine known as the "Getchell Underground" mine. Prior to July 1995,
and for a nine month period during 1996, operations also included open pit
mining of oxide and sulfide ores. During the twelve-month period ended December
31, 1996, approximately 171,343 ounces of gold were produced and sold. A second
underground mine on the Getchell Property known as the "Turquoise Ridge" mine is
currently under development.
The Getchell Property is presently in the midst of a transition from a
predominantly open pit operation to a predominantly underground operation.
During the transition period mill feed will be derived from a low-grade surface
stockpile built up during the past open pit phase and from underground ore from
the Getchell Underground mine. The continued transition away from stockpiled
surface ores will be dependent upon the successful development of the Turquoise
Ridge mine and mining the higher grade ores which independent studies indicate
should be found therein. Initial production of development ore from the
Turquoise Ridge mine is scheduled to begin no earlier than the end of 1997.
Until the Turquoise Ridge mine reaches full capacity, mill ore feed will
continue to be augmented by low grade stockpile ore. Full capacity output at the
Turquoise Ridge mine is expected to be 2,000 tons per day.
Gold mineralization on the Getchell Property is found in a series of zones
associated with faults and with rock types which are chemically receptive to
mineralization. At December 31, 1996, the Company's proven and probable reserves
consisted of approximately 12.8 million tons of underground ore at an average
grade of 0.343 ounces of gold per ton or approximately 4.4 million contained
ounces of gold. There are also on the Getchell Property approximately 2.1
million tons of surface ore averaging 0.065 ounces per ton of gold or
approximately 0.1 million contained ounces of gold.
The Company was incorporated in Nevada in August 1987 by ChemFirst Inc.
("ChemFirst," formerly known as First Mississippi Corporation), a Mississippi
corporation, for the purpose of financing, developing and operating the Getchell
Property and for conducting minerals exploration. In May 1988, the Company sold
3,250,000 shares of its common stock in an initial public offering. Following
the offering, ChemFirst held approximately 81% of the Company's stock. In
October 1995 ChemFirst distributed its 14,750,000 shares of the Company's stock
to ChemFirst's shareholders in a tax free distribution (the "Spin-Off").
In the fourth quarter of 1995 the Company sold a total of 7,475,000 common
shares to the public at $19.50 per share. Net proceeds to the Company were
approximately $137.5 million. In 1996 the Company reincorporated in Delaware. In
September 1995 the Company changed its fiscal year end from June 30 to December
31. As a result, financial and operating data as found herein includes data for
the year ended
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December 31, 1996, the six months ended December 31, 1995 and the two years
ended June 30, 1995 and 1994.
The Company's principal executive offices are located at 5460 South Quebec
Street, Suite 240, Englewood, Colorado 80111. The Company's telephone number is
(303) 771-9000. At December 31, 1996, the Company had 458 employees.
[MAP]
Map which displays the outline of the Getchell Property, its general location
within the state of Nevada and labels of the various mines, faults and
processing facilities.
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THE GETCHELL PROPERTY
HISTORY. Gold mining commenced at the Getchell Property in the late 1930's and
has continued intermittently since that time under several different owners.
ChemFirst purchased the property (inactive at the time) from Conoco Inc. in
1983. ChemFirst began a program to develop the property in July 1983. Operations
at the oxide heap leach facility and the autoclave mill facility were commenced
in June 1985 and February 1989, respectively, and as of December 31, 1996 the
Company had produced over 1.6 million ounces of gold from the Getchell Property.
PROPERTY INTEREST. The Getchell Property consists of approximately 18,900 acres
of unpatented lode and mill site mining claims and 14,100 acres of fee land
owned by the Company. Greater than 90% of the Company's current proven and
probable reserves are on fee land. Approximately 65% of the Getchell Property,
including all current proven and probable reserves, is subject to a royalty
owned by a third party equal to 2% of the sales revenues after deducting
shipping and refining costs.
GEOLOGY. Gold mineralization on the Getchell Property occurs in a series of
discrete zones associated with the north/south-trending Getchell Fault and with
the northeast-trending Turquoise Ridge Fault (See maps on pages 2 and 5). Both
systems cut through a thick sequence of interbedded early Paleozoic sedimentary
and volcanic units. Intensity of gold mineralization is related to structural
complexity and the location of rocks chemically receptive to mineralization.
"Mineralization" is a naturally occurring concentration of minerals which may or
may not be economically minable.
Refractory sulfide gold deposits are found at depth along the Getchell Fault
and in sedimentary units near the Getchell Fault. Drilling has identified
similar gold deposits in folded Paleozoic sedimentary units in contact with and
south of the Turquoise Ridge Fault 2,000 feet northeast of the Getchell Fault.
Oxidized gold deposits are also associated with the Getchell and Turquoise Ridge
fault zones and at other places on the Getchell Property, typically occurring as
discrete zones at depths shallower than the sulfide mineralization. Additional
oxide and sulfide gold mineralization is found in an area known as Section 13
which is located approximately 3 miles northeast of the mill site (see map on
page 2).
MINING. While the Company's past production came principally from open pit
mines, the Company's current production comes primarily from underground mining
at the Getchell Underground mine and low grade surface stockpiles. Surface
mining of sulfide ores in an open pit known as the "Main Pit" was terminated in
July 1995 after a geotechnical monitoring program indicated that the continued
pit mining would likely destablize the pit wall. Open pit mining of oxide ores
ceased in November 1996 following the exhaustion of recoverable oxide ores. The
Getchell Underground mine commenced commercial production in May 1995 and the
Company anticipates that the majority of mining activities will be from
underground operations for the foreseeable future.
Stockpiles of low grade ore, mined during the active life of the Main Pit,
together with current production from the Getchell Underground mine are expected
to furnish mill feed until additional refractory ore sources from the Turquoise
Ridge ore body can be placed into production, although no assurance can be made.
Stockpile ore grades are expected to average no greater than 0.085 ounces per
ton, significantly lower than what is typically produced from the Getchell
Underground mine. As anticipated production increases from the Turquoise Ridge
mine, it is expected that stockpile useage will be scaled back. However, there
can be no assurance as to when, if ever, the Turquoise Ridge mine will commence
production or reach its designed capacity.
GETCHELL UNDERGROUND MINE. The Getchell Underground mine is located
immediately west of and directly beneath the inactive Main Pit. Access to the
ore body is achieved via two portals located in the west wall of the Main Pit
which connect to a series of declines to lower levels. Ore and waste is moved to
the surface by truck. During the year ended December 31, 1996 production from
the Getchell Underground mine averaged approximately 1,188 tons of ore per
operating day with an average gold grade of 0.301 ounces per ton or 127,687
contained ounces of gold. Production from the Getchell Underground
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mine reached 1,371 tons of ore per operating day in the fourth quarter of 1996;
however there can be no assurance that such level of production can be
maintained in the future.
The Company employs the "Drift and Fill" mining method in the Getchell
Underground mine, which the Company has determined is appropriate for the ground
conditions currently being encountered. This mining method involves mining a
section of ore, which is then backfilled with cemented aggregate prior to the
mining of the next contiguous section of the ore body. Higher productivity
mining methods are currently being tested for future applications.
HEAP LEACH. Oxide ore mining on the Getchell Property ceased in mid-1995
with completion of the Turquoise Ridge oxide pit but resumed for a nine-month
period in 1996 as the small Valmy Hill oxide deposit was mined and stacked on
the heap pads. Valmy Hill mining was completed during the last quarter of 1996
and no additional oxide ore is expected to be added to the heap piles in the
foreseeable future. Leaching of oxide ore stacked in earlier periods is expected
to continue into 1997 to recover minor amounts of residual gold.
EXPLORATION AND DEVELOPMENT
The Company's exploration activities are focused on the Getchell Property.
Methods employed include drilling, geological mapping, and geophysical and
geochemical surveys. The exploration staff includes six full-time geologists.
The full-time staff is augmented by consultants and other contract employees as
needed. Exploration efforts have been successful in recent years identifying new
gold reserves at the Getchell Underground mine and at Turquoise Ridge.
Exploration on the rest of the Getchell Property during 1996 and in earlier
years has indicated deep sulfide mineralization at Hansen Creek, located along
the Getchell Fault to the south of the Main Pit, and mixed oxide/sulfide
mineralization at Section 13, located in the northeast corner of the Getchell
Property. Several other exploration targets have been identified at the Getchell
Property and await exploration drilling.
Development drilling at the Getchell Underground mine indicates that the ore
body remains open at depth and along strike to the north and to the south.
Additional drilling is planned, on an ongoing basis, to determine the ultimate
extent of the ore body. Such drilling may determine that there are no
extensions.
TURQUOISE RIDGE.
Development drilling during 1996 identified a southern extension to the
Turquoise Ridge ore body and by December 1996 sufficient drilling and
engineering had been done to establish an additional new reserve of 1.3 million
contained ounces of gold at an average grade of 0.400 ounces per ton. This new
southern extension is now known as the "Shaft Zone" of the Turquoise Ridge ore
body. The Shaft Zone is contiguous with the original Turquoise Ridge reserves
announced at the end of 1995 (see property map on page 5). Initial drill results
indicate that the Shaft Zone has more favorable grades and mining conditions
than the original Turquoise Ridge reserve and as a result the Company now
intends to initially pursue ores from the Shaft Zone rather than from the
original Turquoise Ridge reserve areas to the north of the shafts. Although no
assurance can be given, the Company expects no significant change in the total
development costs, expected production rates, or start-up schedule as a result
of this change in the plan to develop Turquoise Ridge.
There are two shafts currently under construction at Turquoise Ridge to
provide access to the Shaft Zone reserves and ultimately to the other Turquoise
Ridge reserves. One shaft will serve as a production/ service shaft and the
other as a ventilation shaft and emergency escape-way. It is anticipated that
the ventilation shaft will provide access to the ore body and that development
drilling will be conducted from the ventilation shaft until the production shaft
is completed.
The Company currently estimates that $88 million of capital is required to
bring the Turquoise Ridge underground mine into commercial production at its
designed capacity of 2,000 tons of ore per day. At
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December 31, 1996 approximately $27.6 million of the projected $88 million had
been spent. Under the timetable presently contemplated by the Company initial
production of development ore would commence no earlier than the end of 1997
with such production levels being reached no earlier than 15 months after
initial production. However, there can be no assurance that the anticipated
costs will not exceed $88 million nor that this development schedule can be
achieved. See "Risk Factors--Certain Turquoise Ridge Mine Risks" in Item 7
below.
[MAP]
Map which displays details of the active mining areas of the Getchell Property
including location of proven and probable reserves, shafts, mill facilities,
heap leach facilities, inactive pits and other sites.
5
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RESERVES
A reserve is that part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination. Proven
reserves are reserves for which 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 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 are reserves for which quantity and grade and/ or quality are
computed from information similar to that used for proven reserves, but the
sites for inspection, sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven reserves, is high enough to assume continuity between points of
observation.
The Company's sulfide reserves are based upon a 0.200 ounce per ton cutoff
for underground reserves except for the original Turquoise Ridge deposits which
use a 0.250 ounce per ton cutoff. Sulfide stockpile reserves are based on a
0.075 ounce per ton cutoff. Oxide reserves are based on a 0.010 ounce per ton
cyanide soluble cutoff grade. Proven and probable mineable ore reserves shown
below are estimates of quantities and grades of ore which can be economically
recovered based on a $400 per ounce future gold price and projected future
mining and milling costs. If gold prices remain below $400 per ounce for an
extended time it may be determined that a portion of the proven and probable
mineable reserves listed below may not qualify as reserves in the future (See
"Risk Factors--Gold Price Volatility" and "Reserves" in Item 7 below).
A total of 1.7 million new ounces of gold were added to reserves during 1996
bringing total proven and probable mineable reserves to 4.5 million ounces at
December 31, 1996 after deducting the 1996 production. The major additions
during the year include approximately 1.3 million new ounces in the Turquoise
Ridge Shaft Zone and approximately 0.4 million ounces in the Getchell
Underground mine.
The following table sets forth the proven and probable mineable gold ore
reserves located on the Getchell Property as of December 31, 1996. These
reserves have been prepared by the Company and verified by two independent
mining consulting firms. Mineral Resources Development Inc. ("MRDI") confirmed
the portion of reserves identified in the 1995 Turquoise Ridge pre-feasibility
study (which reserves equaled 3,712,000 ore tons at a weighted average grade of
0.338 ounces per ton or 1,254,000 contained ounces of gold). All other reserves
were confirmed by Mine Development Associates ("MDA").
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PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
AVERAGE
GRADE (OZ./ CONTAINED
AREA ORE TONS TON) OUNCES(1)
- ------------------------------------------------------------------- ------------ ----------- ----------
<S> <C> <C> <C>
UNDERGROUND RESERVES
Turquoise Ridge.................................................. 4,217,700 0.342 1,441,660
Turquoise Ridge Shaft Zone....................................... 3,324,000 0.400 1,329,800
Getchell Underground............................................. 5,119,100 0.309 1,582,890
Other underground................................................ 184,000 0.278 51,200
------------ ----------
Total Underground Reserves......................................... 12,844,800 0.343 4,405,550
------------ ----------
------------
SURFACE RESERVES
Sulfide.......................................................... 200,400 0.148 29,600
Oxide............................................................ 1,024,800 0.031 32,440
Stockpile........................................................ 876,030 0.085 74,400
------------ ----------
Total Surface Reserves............................................. 2,101,230 0.065 136,440
------------ ----------
------------
TOTAL PROVEN & PROBABLE............................................ 4,541,990
----------
----------
</TABLE>
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(1) The proven and probable mineable ore reserve ounces are "contained" ounces.
Actual ounces expected to be recovered during milling and heap leach
processing will be less due to process inefficiencies.
OPERATIONS
MILLING PROCESS. Economic gold recoveries from the sulfide ores on the Getchell
Property are obtained by a pressure oxidation process (autoclaving) prior to
treatment by conventional carbon in leach ("CIL") processes. The Company's mill
was designed and constructed in 1989 to use high temperature, high pressure
autoclaves to oxidize sulfides in the ore. Prior to pressure oxidation, ore is
ground in a conventional grinding circuit, thickened to form an ore slurry,
treated with sulfuric acid to remove carbonate minerals and then preheated. The
preheated ore slurry then enters the autoclaves where the temperature and
pressure are increased and oxygen is added to oxidize the sulfide minerals.
After the ore slurry leaves the autoclaves, limestone and lime are added to
adjust the pH level and sodium cyanide is added in small amounts to leach the
gold from the ore slurry. The ore slurry is then transferred to a conventional
CIL circuit where the dissolved gold is absorbed onto carbon granules. Loaded
carbon is periodically removed from the cyanide circuit and processed to strip
the gold. The stripping process culminates in a gold precipitate which is
collected in filter presses and smelted into dore bars. The Company believes
that autoclaves are presently the most effective available method for milling
the Getchell Property sulfide ores.
The mill was designed to process a nominal average daily throughput of 3,000
tons at an average recovery rate of 89%. Improvements in operating efficiencies
have allowed the mill to exceed design capacity in recent years. Daily mill
throughput averaged 3,059 tons and 3,215 tons in the year ended December 31,
1996 and the six months ended December 31, 1995, respectively. Gold recovery
averaged 88.7% and autoclave availability averaged 89% in the year ended
December 31, 1996.
As discussed above, low grade stockpile ore is required to supplement the
underground ore feed at the current time. Although the grade of the stockpile
ore is relatively low, it has been sufficient to yield revenues in excess of the
variable costs of processing and thus generates cash to cover certain fixed
costs at the mine site.
HEAP LEACHING PROCESS. Heap leaching is a process used to recover gold from
naturally oxidized, permeable ores. The process involves heaping the ore on an
impermeable pad and applying a weak cyanide
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solution to the top of the heap. As the solution percolates through the heap,
gold is leached from the ore. The gold bearing solution is recovered as it seeps
from the bottom of the pile and the solution is treated to recover the gold.
Since gold recovery rates from heap leaching are lower than from conventional
CIL milling, this process is not usually applied to high-grade ore. In such
higher grade ore the value of the incremental gold recovered in a milling
process typically more than offsets the higher cost of the milling process.
Recovery of cyanide soluble gold averaged approximately 70% in the years ended
June 30, 1995 and 1994. Recovery of gold from oxide ore stacked in 1996 will not
be known until leaching of such ore is completed in 1997.
Oxide ores from several pits on the Getchell Property were mined and leached
from 1985 until 1996. In 1995 full-time oxide ore mining was discontinued as
reserves which could be processed at the existing heap leach facility were
exhausted. Various small oxide deposits are still known to exist on the Getchell
Property and intermittent oxide mining may proceed from time to time, as it did
in 1996, on a non-continuous basis utilizing the ores from the small known
zones. The heap leach operation may also be reactivated from time to time to
recover residual gold from ores stacked in past periods.
PRODUCTION. The following table sets forth selected information about the
Company's production of gold.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEARS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1995 1995 1994
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Ounces of gold sold........................................ 171,343 85,627 184,298 243,826
Average realized price per ounce........................... $ 396 $ 402 $ 388 $ 390
Milling: Production (ounces)............................... 163,580 82,691 166,937 215,363
Ore milled (dry tons)............................... 1,119,547 591,498 1,174,934 1,192,867
Grade milled--pit ore
(ounces per ton).................................. -- -- 0.220 0.202
Grade milled--underground ore
(ounces per ton).................................. 0.301 0.295 0.333 0.319
Grade milled--stock pile ore
(ounces per ton).................................. 0.082 0.104 0.132 --
Average grade milled (ounces per ton)............... 0.162 0.160 0.175 0.203
Cash costs per ounce produced....................... $ 410 $ 379 $ 327 $ 290
Leaching: Production (ounces).............................. 7,763 2,936 17,361 28,463
Ore processed (dry tons).......................... 874,753 -- 955,068 1,285,615
Average grade (ounces per ton).................... 0.019 -- 0.025 0.030
Cash costs per ounce produced..................... $ 231 $ 144 $ 318 $ 183
</TABLE>
In addition to ounces shown above there were 14,939 ounces produced during
development of the Getchell Underground mine in the year ended June 30, 1995.
Grades and sources of mill feed for 1996 were as follows:
<TABLE>
<CAPTION>
GETCHELL
UNDERGROUND TOTAL VALMY HILL
STOCKPILE MINE SULFIDE ORE OXIDE ORE
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Tons Processed............................. 700,575 418,972 1,119,547 874,753
Average Grade.............................. 0.082 0.301 0.162 0.019
</TABLE>
ANCILLARY FACILITIES AND RAW MATERIALS. Oxygen used in the autoclave process is
supplied under a long-term agreement by an independent contractor which owns and
operates a plant at the Company's mill site. The agreement has a remaining term
of approximately seven years. Payments for the oxygen totaled $2.5 million in
1996. Supplemental liquid oxygen has been purchased and delivered via truck
during periods of
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down time at the oxygen plant and when oxygen needs exceeded the oxygen plant
capacity during times of higher mill throughput. Liquid oxygen purchases were
negligible during 1996.
Electricity is provided by an independent utility company under an electric
services agreement. The mill uses reclaimed water pumped from the tailings pond
and from the dewatering of the pits. Makeup water for the milling process comes
from two wells located on the Getchell Property approximately four miles from
the plant. A limestone deposit located on the Getchell Property is mined and
stockpiled for use in the milling process.
Other materials necessary in the milling process, such as sodium hydroxide,
sulfuric acid, lime, carbon, propane and sodium cyanide are available for
purchase from more than one supplier and are hauled by truck to the Getchell
Property. These materials may be subject to shortages from time to time,
resulting in higher costs. Where practicable, the Company seeks to enter into
long term contracts to assure continuing supplies and to minimize costs of such
materials.
The Company has constructed a tailings dam and pond on 297 acres of land on
the property. In 1996 the Company began the process of completing an additional
lift, thereby increasing the capacity at the tailings pond. Additional lifts to
increase capacity will be constructed as needed including completion of the 1996
lift in 1997. The pond is lined with a plastic liner and is designed to
accommodate water run-off from a 100-year flood event and reasonably expected
seismic activity for the site.
SALES AND MARKETING
During the year ended December 31, 1996 the Company's dore was refined under
contracts with Metalor USA Refining Corporation ("Metalor") of North
Attleborough, Massachusetts, a wholly-owned subsidiary of Swiss Bank
Corporation. The refined gold was sold to Metalor (82% of total sales), the
Canadian Imperial Bank of Commerce, the Bank of Nova Scotia and Gerald Metals
Inc. The Company believes that there are a number of potential purchasers in
addition to those currently used. Total ounces of gold sold were 171,343 in
1996, 85,627 during the six months ended December 31, 1995, 199,237 (which
includes 14,939 development phase ounces from the Getchell Underground mine) in
the year ended June 30, 1995 and 243,826 in the year ended June 30, 1994. Of
these sales, none have been exported since the year ended June 30, 1994 when
seven percent was exported to France.
HEDGING ACTIVITIES
The Company currently uses spot deferred contracts to protect earnings and
cash flows from the impact of short-term drops in gold price. These transactions
have been designated as hedges of the price of future production and are
accounted for as such.
Spot deferred contracts are agreements between a seller and a counterparty
whereby the seller commits to deliver a set quantity of gold on an established
future date and at an agreed upon price. The established forward price is equal
to the current spot gold price on the day the agreement is signed plus
"contango." Contango is equal to the difference between the prevailing market
interest rate for cash deposits less the gold lease rate, for comparable
periods. The contango rate was 4.0% per annum for one-month to twelve-month
periods at December 31, 1996.
On the scheduled future delivery date, the seller may deliver gold and
thereby fulfill the contract or defer delivery to a future date. If the spot
price on the delivery date is greater than the contract price, delivery on the
contract may be deferred to a new future date and the gold is sold at the higher
spot price. If the spot price is lower than the contract price, the delivery may
be made against the contract and the higher contract price is realized. In
practice, this generally allows the seller to maximize the price realized. Each
time a seller defers delivery, the forward sales price is increased by the then
prevailing contango (assuming it is positive) for the next period out to the
newly established future delivery date. Generally, the
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counterparty will allow the seller to continue to defer contract deliveries
provided there is sufficient scheduled production from proven and probable
reserves to fulfill the commitment.
At December 31, 1996, the Company had spot deferred contracts on 90,000
ounces of gold, all of which are scheduled to be delivered during 1997 at prices
ranging between $370 and $422. Based on the market price of gold at December 31,
1996, the unrealized gain on the contracts was $2.4 million.
Risk of loss from these forward sales agreements arises from the possible
inability of a counterparty to honor contracts and from changes in the Company's
potential ability to deliver gold.
The Company's accounting treatment for hedging is outlined in Notes 2 and 3
to Item 8--"Financial Statements and Supplementary Data."
GOVERNMENT REGULATION
SAFETY The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the United States
Department of Labor ("MSHA") under the provisions of the Mine Safety and Health
Act of 1977. The Occupational Safety and Health Administration ("OSHA") also has
jurisdiction over safety and health standards not covered by MSHA.
On January 15, 1997, a mine site accident involving a mining vehicle
resulted in the death of a Company employee. As required by Federal law, MSHA
officials have investigated the nature and cause of the accident. MSHA has
notified the Company that as a result of the investigation, the Company will
likely be subject to maximum civil penalties of $350,000 and possible further
investigation. The ultimate outcome of the MSHA investigation is uncertain and
the Company is unable to estimate if further penalties will result. While
management of the Company believes that the results of the investigation will
not have a materially adverse impact on the financial position, operating
results or liquidity of the Company, no assurance can be given that this
investigation will not have such effects.
CURRENT ENVIRONMENTAL LAWS AND REGULATIONS The Company must comply with
standards, laws and regulations which may entail greater or lessor costs and
delays depending on the nature of the regulated activity and how stringently the
regulations are implemented by the regulatory 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 and
the governmental policies for implementation of such laws and regulations 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. These requirements include regulations under: (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund") which regulates and establishes liability for the
release of hazardous substances; (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats; (iii) the Clean Water Act; (iv) the
Clean Air Act; (v) the Resource Conservation and Recovery Act for disposal of
hazardous waste; (vi) the Migratory Bird Treaty Act; (vii) the Safe Drinking
Water Act; (viii) the Federal Land Policy and Management Act; (ix) the National
Environmental Policy Act; (x) the National Historic Preservation Act; and many
other state and federal laws and regulations.
10
<PAGE>
The United States Environmental Protection Agency ("EPA") continues the
development of a solid waste regulatory program specific to mining operations
under the Resource Conservation and Recovery Act ("RCRA"). EPA is currently
evaluating a Draft Hardrock Mining Framework which, if ultimately implemented,
could create a system of federal regulation of the entire mine site focused on
water quality and waste management. The requirements being considered by the EPA
are very similar to the existing Nevada regulations concerning environmental
controls at mine sites. Many of the requirements being considered by EPA could
be duplicative of existing Nevada regulations. The effect of compliance with a
new EPA program would depend on the extent to which the substantive or
procedural requirements of such new federal regulations would exceed the
existing requirements of the Nevada regulations.
Environmental laws and regulations may also have an indirect impact on the
Company, such as increased cost for electricity due to acid rain provisions of
the Clean Air Act Amendments of 1990. Charges by refiners to which the Company
sells its products have substantially increased over the past several years
because of requirements that refiners meet revised environmental quality
standards. The Company has no control over the refiners' operations or their
compliance with environmental laws and regulations.
POTENTIAL LEGISLATION Several recent legislative developments have affected
or may in the future affect the cost of and the ability of mining claimants to
use the Mining Law of 1872, as amended (the "General Mining Law"), to acquire
and use federal lands for mining operations. Since October 1994, a moratorium
has been imposed on processing new patent applications for mining claims. This
moratorium should not affect the status of the patent applications made by the
Company under the General Mining Law before the moratorium was imposed. Also,
since 1993, a rental or maintenance annual fee of $100 per claim has been
imposed by the Federal government on unpatented mining claims in lieu of the
prior requirement for annual assessment work. During the last several
Congressional sessions, bills have been repeatedly introduced in the U.S.
Congress which would supplant or radically alter the General Mining Law. As of
the end of 1996, no such bills have been passed. Such bills have proposed, among
other things, to permanently eliminate or greatly limit the right to a mineral
patent, impose royalties, and impose new Federal reclamation, environmental
control and other restoration requirements. Royalty proposals have ranged from a
2% royalty on "net profits" from mining claims to an 8% royalty on modified
gross income/net smelter returns. It is anticipated that similar legislation
will again be introduced when the new Congress convenes in 1997. If enacted,
such legislation could substantially impair the ability of companies to
economically develop mineral resources on federal lands. The extent of the
changes, if any, which may be made by Congress to the General Mining Law is not
presently known, and the potential impact on the Company as a result of future
Congressional action is difficult or impossible to predict. Although a majority
of the Company's existing mining operations occur on private or patented
property, the proposed changes to the General Mining Law could adversely affect
the Company's ability to economically develop mineral resources on federal
lands. Disposal of overburden and mineral processing wastes by the Company occur
on both private and federal lands. Exploration activities occur on both private
and federal lands. Other legislative initiatives regarding environmental laws
potentially applicable to mining include proposals to substantially alter
CERCLA, the Clean Water Act, Safe Drinking Water Act, Endangered Species Act and
bills which introduce additional protection of wetlands. 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. Thus, the potential impact on the
Company of such legislative initiatives is not clear at this time.
ENVIRONMENTAL MATTERS AND SAFETY
ENVIRONMENTAL LIABILITY Mining is subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products that could occur as a result of the Company's mineral
exploration, development and production. Environmental liability also may result
from mining activities conducted by others prior to the Company's ownership of a
property. Historic mining disturbances,
11
<PAGE>
facilities, waste materials and other discrete areas of potential contamination
associated with gold, tungsten, and molybdenum production between 1937 and 1969
by previous owners and operators are encompassed within the area of the
Company's Getchell Property operations. Restoration of certain areas of historic
disturbance and contamination has been undertaken in conjunction with current
mining operations and has been incorporated into the Company's state permits in
coordination with the federal land management agency.
POLLUTION INSURANCE Insurance for environmental risks (including potential
liability for pollution or other hazards as a result of the disposal of waste
products occurring from exploration and production) has not been purchased by
the Company as it is not generally available at a reasonable price to the
Company or to other companies within the industry. To the extent the Company is
subject to environmental liabilities, the payment of such liabilities or the
costs which must be incurred to remedy environmental pollution would reduce
funds otherwise available to the Company and could have a material adverse
effect on the Company. Should the Company be unable to fully remedy 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.
ENVIRONMENTAL PERMITS All of the Company's exploration, development and
production activities are subject to regulation under one or more of the various
state and federal environmental laws and regulations. These laws address
emissions to the air, discharges to water, management of wastes, management of
hazardous substances, protection of natural resources, protection of antiquities
and restoration of lands which are disturbed by mining. Many of the regulations
require permits to be obtained for the Company's activities. The Company
maintains permits required for its facilities and operations which provide for
ongoing compliance and monitoring. Some of the permits include BLM Plan of
Operations No. N24-87-003P; EPA Hazardous Waste Facility No. NVD986774735;
Nevada water pollution control permits NEV86014 (for mining and mineral
processing) and NEV95113 (for excess mine water disposal); Nevada reclamation
permit 0105; and Nevada air quality permit AP1041-0292. These permits must be
updated and reviewed from time to time, and normally are subject to
environmental impact analyses and public review processes prior to approval of
the activity. For example, the Company has applied for air permits required by
Title V of the 1990 Amendments to the Clean Air Act to maintain compliance with
applicable requirements for air emissions sources of the types utilized by the
Company in its operations. It is possible that future changes in applicable
laws, regulations and permits could have a significant impact on some portion of
the Company's business, causing those activities to be economically re-evaluated
at that time.
ENVIRONMENTAL COMPLIANCE AND CAPITAL COSTS The Company incurred compliance
expenses of $1.0 million for the year ended December 31, 1996 in connection with
permitting, monitoring for compliance with pollution control requirements, and
other environmental protection and waste management activities. Capital
expenditures for environmental protection were $4.7 million in 1996 reflecting
an enlargement of the tailings disposal facility and water treatment facilities
for the Turquoise Ridge project. These expenditures were incurred to maintain
compliance with laws and regulations currently in effect.
RESTORATION The Company accrues a liability over the productive life of its
mine for anticipated costs associated with restoration of the mine site.
Activities which result in restoration costs include the permanent closure of
the mining and mineral processing operations and the reclamation of the
disturbed land to a productive use. This includes restoration of historic and
current mining and mineral processing operations and associated land
disturbances. Restoration takes place concurrent with and after the productive
life of the operations. Activities which result in restoration costs after
permanent closure and reclamation primarily relate to monitoring and other post
mining management activities.
The uncertainties related to future restoration costs result from unknown
future additional regulatory requirements, significant new surface disturbances
or additional mineral processing facilities and the
12
<PAGE>
potential for recognition in the future of additional activities needed for
restoration. The technologies for restoration are evolving during the life of
the operations. Periodic review of the activities and costs for restoration, and
consequent adjustments to the ongoing accrual, are conducted. The Company
conducts concurrent restoration of mining disturbances and anticipates an
ongoing program of restoration over the productive life of the operations.
Activities have included regrading, seeding and planting, monitoring, and
restoration research.
In accordance with the State of Nevada Division of Environmental Protection
("NDEP"), the Company has posted a bond of $4.5 million to cover the costs for
reclamation of the Getchell Property. As of December 31, 1996, the total
estimated restoration costs for the Getchell Property were $5.5 million, of
which the Company had accrued $2.7 million. The amount of total estimated
restoration costs has increased over time due to more stringent regulatory
requirements and expanded mining activities and additional increases may occur
in the future for the same reasons. The Company has begun reclamation of surface
mining disturbances and anticipates an ongoing program of reclamation over the
next several years. Activities have included regrading, revegetation and soil
stabilization. This includes restoration activities for which bonding must be
provided and other restoration costs not included in bonding calculations.
SAFETY The Company incurred compliance costs of $0.5 million during the
twelve months ended December 31, 1996 related to safety department operations,
safety training and industrial hygiene.
COMPETITION
The Company faces competition from other mining companies in connection with
the recruitment and retention of qualified employees and in the acquisition of
capital funds for new development projects. The Company maintains an ongoing
evaluation of the labor market for qualified mining industry employees.
WORKING CAPITAL REQUIREMENTS AND SEASONALITY OF BUSINESS
The Company does not expect seasonally-induced changes in the amount of
working capital requirements.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or to
which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1996.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the American Stock Exchange and on
The Toronto Stock Exchange under the symbol "GGO." The high and low recorded
prices of the Company's common stock on the American Stock Exchange (after June
24, 1996) and on the Nasdaq National Market (prior to June 25, 1996) during the
periods indicated are stated in the table below. No dividends have been declared
since the Company's initial public offering in May 1988, and dividends are not
anticipated for the foreseeable future. The Company intends to retain earnings
to support current operations and to fund exploration and development projects.
There were approximately 12,300 stockholders of record as of February 28, 1997.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1994
First Quarter........................................................ $ 8.00 $ 5.13
Second Quarter....................................................... $ 8.00 $ 5.13
Third Quarter........................................................ $ 8.63 $ 5.94
Fourth Quarter....................................................... $ 7.88 $ 6.25
FISCAL 1995
First Quarter........................................................ $ 8.75 $ 6.25
Second Quarter....................................................... $ 10.50 $ 8.00
Third Quarter........................................................ $ 10.13 $ 7.75
Fourth Quarter....................................................... $ 21.00 $ 9.75
SIX MONTHS ENDED DECEMBER 31, 1995
Quarter ended September 30........................................... $ 25.00 $ 19.50
Quarter ended December 31............................................ $ 23.75 $ 17.63
1996
First Quarter........................................................ $ 29.25 $ 21.75
Second Quarter....................................................... $ 41.00 $ 27.13
Third Quarter........................................................ $ 50.25 $ 30.50
Fourth Quarter....................................................... $ 48.00 $ 37.38
1997
First Quarter (through March 6)...................................... $ 51.50 $ 31.75
</TABLE>
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------------------------
1996 1995 1995 1994 1993 1992
------------ ------------ ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIODS ENDED:
Sales.................................. $ 67,878 $ 34,425 $ 71,485 $ 95,150 $ 78,773 $ 83,048
------------ ------------ ---------- --------- --------- ---------
------------ ------------ ---------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle.... $ (13,952) $ (5,027) $ (18,357) $ 4,299 $ (2,469) $ 4,257
Cumulative effect of change in
accounting principle................. -- -- -- 1,350 -- --
------------ ------------ ---------- --------- --------- ---------
Net income (loss)...................... $ (13,952) $ (5,057) $ (18,357) $ 5,649 $ (2,469) $ 4,257
------------ ------------ ---------- --------- --------- ---------
------------ ------------ ---------- --------- --------- ---------
Income (loss) per common share:
Before cumulative effect of change in
accounting principle............... $ (0.54) $ (0.25) $ (1.01) $ 0.24 $ (0.14) $ 0.24
Cumulative effect of change in
accounting principle............... -- -- -- 0.07 -- --
------------ ------------ ---------- --------- --------- ---------
Net income (loss)...................... $ (0.54) $ (0.25) $ (1.01) $ 0.31 $ (0.14) $ 0.24
------------ ------------ ---------- --------- --------- ---------
------------ ------------ ---------- --------- --------- ---------
AT END OF PERIOD:
Total assets........................... $ 208,808 $ 210,493 $ 85,120 $ 88,747 $ 92,238 $ 93,348
Long-term debt, including current
portion.............................. $ 25,336 $ 23,783 $ 40,900 $ 29,339 $ 33,435 $ 37,400
Stockholders' equity................... $ 151,222 $ 164,264 $ 31,744 $ 49,719 $ 44,068 $ 46,102
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with Item 8--"Financial Statements and
Supplementary Data."
The information set forth in this discussion and analysis includes "forward
looking statements" within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended (the "Securities Act"), and is subject to the safe
harbor created by that section. Factors that realistically could cause results
to differ materially from those projected in the forward looking statements are
set forth in "Risk Factors."
On September 24, 1995, the Board of Directors of ChemFirst Inc.
("ChemFirst") (formerly known as First Mississippi Corporation) approved the
spin-off of ChemFirst's stock in the Company to ChemFirst shareholders of record
on October 10, 1995 (the "Spin-Off"). On October 20, 1995, ChemFirst distributed
its 81% interest in the Company to ChemFirst shareholders. In September 1995,
the Company changed its fiscal year end from June 30 to December 31.
On June 25, 1996, the Company changed its corporate name from FirstMiss Gold
Inc. to Getchell Gold Corporation and changed its state of incorporation from
Nevada to Delaware. The primary purpose of this reincorporation was to allow the
Company to benefit from Delaware's well-developed corporate law.
15
<PAGE>
RESULTS OF OPERATIONS
The following Consolidated Statement of Operations includes results for the
year ended December 31, 1996, the six months ended December 31, 1995 and the
years ended June 30, 1995 and 1994, and are derived from the Financial
Statements of the Company, which have been audited by KPMG Peat Marwick LLP,
whose report thereon is included herein. Because the Company changed its fiscal
year end from June 30 to December 31 after June 30, 1995, the unaudited
Consolidated Statement of Operations for the year ended December 31, 1995 and
for the six months ended December 31, 1994 are included for comparability.
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, DECEMBER 31, YEAR ENDED JUNE 30,
---------------------- ---------------------- --------------------
1996 1995 1995 1994 1995 1994
--------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $ 67,878 $ 67,884 $ 34,425 $ 38,026 $ 71,485 $ 95,150
Cost of sales................................ 78,784 69,972 35,956 35,759 69,775 82,131
--------- ----------- --------- ----------- --------- ---------
Gross margin............................... (10,906) (2,088) (1,531) 2,267 1,710 13,019
General and administrative expenses.......... 4,669 3,531 2,054 1,182 2,659 1,745
Exploration expenses......................... 3,580 2,106 628 2,298 3,776 4,049
Abandonment and impairment of mineral
properties................................. -- 11,531 -- -- 11,531 --
--------- ----------- --------- ----------- --------- ---------
Income (loss) from operations.............. (19,155) (19,256) (4,213) (1,213) (16,256) 7,225
Interest expense, net of capitalized
interest................................... (1,082) (3,680) (2,634) (759) (1,805) (1,776)
Interest and other income.................... 5,415 981 936 87 132 150
--------- ----------- --------- ----------- --------- ---------
Pre-tax income (loss) before cumulative
effect of change in accounting
principle................................ (14,822) (21,955) (5,911) (1,885) (17,929) 5,599
Income tax provision (benefit)............... (870) 109 (884) (565) 428 1,300
--------- ----------- --------- ----------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle........... (13,952) (22,064) (5,027) (1,320) (18,357) 4,299
Cumulative effect of change in accounting
principle.................................. -- -- -- -- -- 1,350
--------- ----------- --------- ----------- --------- ---------
Net income (loss).......................... $ (13,952) $ (22,064) $ (5,027) $ (1,320) $ (18,357) $ 5,649
--------- ----------- --------- ----------- --------- ---------
--------- ----------- --------- ----------- --------- ---------
Income (loss) per common share:
Before cumulative effect of change in
accounting principle..................... $ (0.54) $ (1.16) $ (0.25) $ (0.07) $ (1.01) $ 0.24
Cumulative effect of change in accounting
principle................................ -- -- -- -- -- 0.07
--------- ----------- --------- ----------- --------- ---------
Net income (loss).......................... $ (0.54) $ (1.16) $ (0.25) $ (0.07) $ (1.01) $ 0.31
--------- ----------- --------- ----------- --------- ---------
--------- ----------- --------- ----------- --------- ---------
Weighted average number of shares
outstanding................................ 25,727 19,035 19,857 18,122 18,139 18,150
--------- ----------- --------- ----------- --------- ---------
--------- ----------- --------- ----------- --------- ---------
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Results for the year ended December 31, 1996 were a loss of $14.0 million or
$0.54 per share versus a loss of $22.1 million or $1.16 per share for the year
ended December 31, 1995. Included in the 1995 results are non-cash impairment
and abandonment charges of $11.5 million. While operating costs were in line
with expectations during 1996, sales revenues were disappointing as lower mill
grades and lower heap leach
16
<PAGE>
recoveries contributed to lower production levels than anticipated. These
conditions are expected to continue until such time as the Turquoise Ridge mine
is completed.
Sales revenues were $67.9 million for both 1996 and 1995. Sales revenues
resulted from gold production of 171,343 ounces in 1996 and 171,194 ounces in
1995. The average realized gold price was $396 per ounce and $397 per ounce in
1996 and 1995, respectively. The Company hedged a portion of its production,
which resulted in a higher realized price than the average market price of $387
per ounce in 1996 and $385 per ounce in 1995. Production revenue is not expected
to increase until the completion of the Turquoise Ridge mine. Revenue from the
Turquoise Ridge mine development ore, net of mining costs associated with its
production, will be offset against the capital costs of the Turquoise Ridge
project.
Cost of sales was $78.8 million in 1996, up from $70.0 million in 1995 and
cash costs per ounce produced were $402 compared with $359 in 1996 and 1995,
respectively. The increase in the cost of sales and the cash costs per ounce in
1996 over 1995 is due to higher mining, milling and administrative costs. Higher
depreciation costs also contributed to the increased cost of sales. The
increased costs were the result of shifting from primarily open pit operations
in 1995 to primarily underground operations in 1996 and an increase in the scope
of the operations in 1996 as compared to 1995.
General and administrative costs ("G&A") were $4.7 million in 1996 versus
$3.5 million in 1995. The increase in G&A in 1996 compared to 1995 reflects
increased corporate activities, including primarily investor relations and
professional services, following the October 1995 Spin-Off from ChemFirst.
Exploration expenses totaled $3.6 million in 1996, up from $2.1 million in
1995. Including capitalized resource development drilling, exploration
expenditures totaled $6.9 million and $8.5 million in 1996 and 1995,
respectively. The higher exploration expenditures in 1995 reflect the
pre-feasibility drilling programs at Turquoise Ridge during 1995.
Abandonments and impairments in 1995, which totaled $11.5 million, included
a $2.4 million non-cash write-off of an inactive silver exploration property in
New Mexico and a $9.1 million non-cash write-down of assets associated with the
Main Pit. The silver property write-off was in response to the continued low
price of silver, unsuccessful attempts in the fourth quarter of fiscal 1995 to
find a buyer for the property and the commitment of exploration and development
resources to Turquoise Ridge. Capitalized pit development costs and deferred
stripping costs were written off as a result of the early shut-down of the Main
Pit due to a geotechnical monitoring program indicating that continued mining
would likely destabilize the pit wall.
Net interest expense was $1.1 million in 1996 compared to $3.7 million in
1995. Net interest expense was lower in 1996 due to lower debt balances with
ChemFirst and higher capitalized interest associated with the Company's current
development projects, primarily Turquoise Ridge.
Interest and other income of $5.4 million in 1996 is higher than the $1.0
million in 1995 due to higher cash and cash equivalent balances resulting from
the 1995 equity offering.
A $0.9 million tax benefit was recognized on the pretax loss in the first
quarter of 1996 with no additional benefits taken in subsequent quarters of
1996. Based upon tax planning strategies and estimates of future operations, the
Company anticipates being subject to the alternative minimum tax in the future.
As such, it is more likely than not that the Company will be unable to realize
the benefit of Federal net operating loss carryforwards. An income tax provision
of $0.1 million was recognized in 1995.
On February 14, 1997, the Board of Directors of the Company authorized a
one-time bonus to an executive and granted stock appreciation rights under the
Company's 1996 Long Term Equity Incentive Plan with respect to 76,723 shares at
a weighted average option price of $8.24 per share to certain executives and
other employees of the Company. Compensation with respect to stock appreciation
rights is accounted for on a variable basis and is "marked to market" at the end
of each fiscal quarter based on the market price of the Company's Common Stock.
Accordingly, the Company's future quarterly financial
17
<PAGE>
results will reflect additional compensation expense if the market price of the
Common Stock increases from the preceding quarter or income if such market price
decreases from the preceding quarter. Based on the market price of the Company's
Common Stock on the date of grant, the Company would have recognized
compensation expense of $2.6 million in the first quarter of 1997 had that
quarter ended on such date.
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
Results for the six months ended December 31, 1995 were a net loss of $5.0
million or $0.25 per share compared to a net loss of $1.3 million or $0.07 cents
per share in the six months ended December 31, 1994. Lower sales volumes, due to
lower mill feed grades, were largely responsible for the larger loss in the 1995
period versus the 1994 period. Increased use of lower grade stockpile ores
resulted in the lower grades. Charges related to the Spin-Off and associated
short-term financing costs, as discussed in Note 5 to Item 8--"Financial
Statements and Supplementary Data," also contributed to the 1995 period's lower
earnings.
Sales revenues for the six months ended December 31, 1995 decreased to $34.4
million from $38.0 million in the six months ended December 31, 1994. Sales
revenues resulted from gold production of 85,627 ounces in the 1995 period and
103,306 ounces in the 1994 period. The average gold price realized was $402 per
ounce and $385 per ounce in the 1995 period and 1994 period, respectively. The
Company hedged a portion of its production in the six months ended December 31,
1995, which resulted in realizing a higher price than the average market price,
which was $385 per ounce for the 1995 period.
Lower output from both the mill and heap leach contributed to the decline in
production in the six months ended December 31, 1995 compared to the same period
in 1994. Mill production was lower due to lower feed grades. Even with
approximately 1,000 tons per day of higher grade underground ore entering the
mill during the 1995 period, the low grade stockpile ores used to meet mill
capacity requirements reduced the average grade below what it was during the
same period in 1994 when the Main Pit ores were still being milled. Heap leach
gold production for the six months ended December 31, 1995 consisted of residual
recoveries from ores stacked on pads in earlier periods, and as such was
substantially lower than in the six months ended December 31, 1994. There were
no oxide ores mined in the six months ended December 31, 1995.
Cost of sales during the six months ended December 31, 1995 were essentially
unchanged from the six months ended December 31, 1994, with slightly higher
sulfide operating costs offset by lower heap leach costs due to cessation of
mining at the heap leach operation. Total cost per ounce for the six months
ended December 31, 1995 rose to $420 from $362 in the six months ended December
31, 1994, reflecting lower unit output from the mill and the heap leach. Cash
cost per ounce showed a similar pattern for the same reasons, rising to $371 per
ounce in the six months ended December 31, 1995 from $293 for the same period in
1994.
G&A costs in the six months ended December 31, 1995 of $2.1 million were
$0.9 million higher than in the six months ended December 31, 1994 reflecting a
higher level of overall activity related to the Spin-Off of the Company from
ChemFirst and the Turquoise Ridge feasibility study. Professional services,
travel and various insurance costs also contributed to the increase.
Exploration expenses of $0.6 million for the six months ended December 31,
1995 were down sharply from the $2.3 million in the same period of 1994
primarily due to a temporary hiatus in drilling during the 1995 period while
various geophysical surveys were performed to identify and prioritize drill
targets for 1996.
Interest expense in the six months ended December 31, 1995 was up from the
comparable period in 1994 due to higher balances on the ChemFirst notes during
the first three months of the 1995 period and
18
<PAGE>
due to loan fees on bridge financing required to carry the Company from the
Spin-Off in October 1995 until the equity issue in late 1995.
The increase of $0.8 million in interest and other income in the six months
ended December 31, 1995 over the same period of 1994 reflects higher interest
income on higher cash balances following the equity offering in November 1995
and higher royalty income.
YEARS ENDED JUNE 30, 1995 AND 1994
Results for the year ended June 30, 1995 ("fiscal 1995") were a net loss of
$18.4 million or $1.01 per share compared to net income of $5.6 million or $0.31
cents per share in the year ended June 30, 1994 ("fiscal 1994"). Included in the
results in fiscal 1995 are non-cash impairment and abandonment charges of $11.5
million. Lower mill throughput and reduced grades at both the heap leach
facility and the mill resulted in lower sales revenues as compared to 1994. In
fiscal 1994, a one-time $1.4 million benefit from a change in accounting for
income taxes contributed to income.
Sales revenues in fiscal 1995 fell to $71.5 million from $95.2 million in
fiscal 1994 due to lower volume and lower ore grades in both the oxide and
sulfide operations. Oxide ore grades dropped as the Turquoise Ridge oxide pit
came to the end of its scheduled productive life in the fourth quarter of fiscal
1995. Mill feed grades were lower due to increased milling of lower grade
stockpile ores. Mill feed grades averaged 0.175 and 0.203 ounces per ton in
fiscal 1995 and fiscal 1994, respectively.
Realized gold prices of $388 per ounce in fiscal 1995 were basically
unchanged from $390 in fiscal 1994. The Company's hedging program contributed $3
per ounce to the realized price in fiscal 1995 and $11 per ounce in fiscal 1994.
During fiscal 1995, hedges for 169,900 ounces were closed against spot
deferred contracts at an average price of $392 per ounce, contributing $0.6
million to revenues as compared to 3,000 ounces delivered against spot deferred
contracts at $375 per ounce in fiscal 1994. Sales in fiscal 1994 reflected gold
loan payments of 20,625 ounces at $475 per ounce. In addition, in fiscal 1994,
the Company exercised hedges for the sale of 47,000 ounces of gold at $400 per
ounce under terms of a gold loan related hedging program.
Total cost of sales in fiscal 1995 was down $12.4 million, or 15%, from
fiscal 1994, largely due to lower depreciation and mining costs associated with
the lower grade stockpile ores milled during the year. Although total cost of
sales was down, total cost per ounce increased from $337 per ounce in fiscal
1994 to $379 per ounce in fiscal 1995 due to lower mill throughput and reduced
grades at both the heap leach facility and the mill. Cash costs per ounce were
$326 in fiscal 1995 compared to $278 in fiscal 1994 due to lower production
levels in fiscal 1995.
G&A costs were $2.7 million in fiscal 1995, up from $1.7 million in fiscal
1994. The increase in G&A costs in fiscal 1995 was primarily due to increases in
personnel and activities relating to the Spin-Off of the Company's common stock
held by ChemFirst. Legal and professional services also were higher in response
to the anticipated Spin-Off and certain financing activities. Fiscal 1995
salaries, benefits and moving charges increased from the 1994 fiscal year,
reflecting the hiring of additional corporate officers.
Exploration expenses in fiscal 1995 of $3.8 million were down from $4.0
million in fiscal 1994. Total exploration and development expenditures,
including drilling costs capitalized at Turquoise Ridge after September 1994,
were up sharply to $10.7 million in fiscal 1995 from $5.7 million in fiscal
1994. The significant increase is largely a reflection of the increased scope of
activity at Turquoise Ridge as well as drilling on various other exploration
targets on the Getchell Property.
Abandonments and impairments in fiscal 1995, which totaled $11.5 million,
included a $2.4 million non-cash write-off of an inactive silver exploration
property in New Mexico and a $9.1 million non-cash write-down of assets
associated with the Main Pit.
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Total obligations payable to ChemFirst increased to $43.2 million, including
$2.3 million of current payables, at June 30, 1995 from $30.3 million at the end
of fiscal 1994. Net interest expense of $1.8 million in fiscal 1995 was
essentially unchanged from the prior fiscal year, but gross interest expense
before capitalization of interest was $3.0 million in fiscal 1995 or $1.0
million greater than fiscal 1994. The increase was a result of higher balances
on the ChemFirst notes as discussed in Note 5 to Item 8-- "Financial Statements
and Supplementary Data". Interest capitalized during fiscal years 1995 and 1994
amounted to $1.2 million and $0.2 million, respectively. The increase from
fiscal 1994 to fiscal 1995 was due primarily to development at the Getchell Main
Underground mine.
Interest and other income totaled $0.1 million in fiscal 1995, essentially
unchanged from the prior fiscal year. Other income includes gains on sale of
excess equipment, minor royalties and other miscellaneous income.
Fiscal 1995 income tax expense was down from the prior fiscal year as a
result of lower earnings, partially offset by a $6.7 million valuation allowance
for Federal net operating loss carryforwards.
In July 1993, the Company adopted the Financial Accounting Standards Board's
Statement No. 109 "Accounting for Income Taxes" ("SFAS 109"). Adoption of SFAS
109 changed the Company's method of accounting for income taxes from the
deferred method required under APB Opinion 11 to the asset and liability method.
The Company reported impact of this accounting change as a cumulative effect of
change in accounting principle. The cumulative effect on fiscal 1994's income
from adopting Statement 109 was a $1.4 million tax benefit. See Note 7 to Item
8--"Financial Statements and Supplementary Data."
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company spent $51.7 million in capital expenditures
primarily funded by cash and cash equivalents which were $114.6 million at
December 31, 1995. These capital expenditures included $27.6 million on the
Turquoise Ridge mine development, $13.2 million on Getchell Underground mine
development, $6.0 million on the mill, $3.2 million on development drilling and
$1.7 million on other items. During 1996, cash provided by operating activities
was $1.8 million and cash used in financing activities was $0.6 million.
Approximately $70 million is expected to be spent on capital projects in
1997, including the Turquoise Ridge mine, modifications to the mill, the
Getchell Underground mine development, equipment and development drilling.
Cash and cash equivalents at December 31, 1996 of $64.1 million will be used
for the capital expenditures anticipated in 1997. The Company projects that it
will not have sufficient internal funds to complete the construction of the
Turquoise Ridge mine. Shortfalls in funds required to meet these needs may be
supplemented by additional funds raised through borrowings or securities
offerings. The recoverability of the Turquoise Ridge assets and completion of
the underground mine is dependent on the Company's ability to raise sufficient
funds to complete the construction. There can be no assurance that funding will
be available on favorable terms, if at all.
The principal balance of the promissory note with ChemFirst was $25.3
million at December 31, 1996. The promissory note is due September 22, 2000 or
upon a change in control of the Company and may be prepaid without penalty. The
interest rate on the loan is the London Interbank Offered Rate ("LIBOR") for a
period selected by the Company, plus an applicable margin based on the Company's
leverage ratio. The interest rate was 6 5/32% at December 31, 1996. Since the
inception of the promissory note, interest has been capitalized to the note at
the end of each interest period.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
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Disposed Of." There was no impact on the Company's financial position or results
of operations from application of this standard.
Also in 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company adopted this standard for the 1996 year by continuing
to account for such compensation under the Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and disclosing the pro forma
effect on net loss and loss per share had the new measurement standard been
applied.
RISK FACTORS
READERS SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW, AS WELL
AS ALL INFORMATION INCLUDED IN THIS DOCUMENT AND THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN.
GOLD PRICE VOLATILITY
The Company's profitability is significantly affected by changes in the
price of gold. Gold prices may fluctuate widely and are affected by numerous
industry factors, such as demand for precious metals, forward selling by
producers, central bank sales and purchases of gold and production and cost
levels in major gold-producing regions. Moreover, gold prices are also affected
by macro-economic factors such as expectations for inflation, interest rates,
currency exchange rates and global or regional political and economic
situations. The current demand for and supply of gold affects gold prices, but
not necessarily in the same manner as current demand and supply affect the
prices of other commodities. The potential supply of gold consists of new mine
production plus existing stocks of bullion and fabricated gold held by
governments, financial institutions, industrial organizations and individuals.
Since mine production in any single year constitutes a very small portion of the
total potential supply of gold, normal variations in current production do not
necessarily have a significant effect on the supply of gold or on its price. If
gold prices should decline below the Company's expected cash costs of production
and remain at such levels for any sustained period, the Company could determine
that it is not economically feasible to continue commercial production.
The volatility of gold prices is illustrated in the following table of the
annual high, low and average London P.M. Fix:
<TABLE>
<CAPTION>
PRICE PER OUNCE
---------------------------------
CALENDAR YEAR HIGH LOW AVERAGE
- ------------------------------------------------------------ --------- --------- -----------
<S> <C> <C> <C>
1987........................................................ $ 500 $ 390 $ 446
1988........................................................ $ 484 $ 395 $ 437
1989........................................................ $ 416 $ 356 $ 381
1990........................................................ $ 424 $ 346 $ 383
1991........................................................ $ 403 $ 344 $ 362
1992........................................................ $ 360 $ 330 $ 344
1993........................................................ $ 406 $ 326 $ 360
1994........................................................ $ 396 $ 370 $ 384
1995........................................................ $ 396 $ 372 $ 384
1996........................................................ $ 415 $ 367 $ 387
1997 (through March 6)...................................... $ 367 $ 338 $ 352
</TABLE>
The London P.M. Fix on March 6, 1997, was $353 per ounce.
21
<PAGE>
CONTINUING LOSSES
The Company reported a net loss of $14.0 million for the year ended December
31, 1996, $5.0 million for the six months ended December 31, 1995 and a net loss
of $18.4 million for the fiscal year ended June 30, 1995. The Company expects to
continue to experience losses until higher grade ore from Turquoise Ridge or
other sources is produced, which other sources could include sources presently
being explored or developed by the Company. There can be no assurance that such
higher grade ores will be obtained by the Company.
FUNDS NEEDED FOR DEVELOPMENT OF TURQUOISE RIDGE
The Company projects that it will not have sufficient internal funds to
complete the construction of the Turquoise Ridge mine. Shortfalls in funds
required to meet these needs may be supplemented by additional funds raised
through borrowings or securities offerings. The recoverability of the Turquoise
Ridge assets and completion of the underground mine at Turquoise Ridge is
dependent on the Company's ability to raise sufficient funds to complete the
construction. There can be no assurance that funding will be available on
favorable terms, if at all.
RESERVES
The ore reserves described by the Company are, in large part, estimates made
by the Company and confirmed by independent mining consultants known as Mine
Development Associates ("MDA") and Mineral Resource Development, Inc. ("MRDI").
The reserves confirmed by MDA and MRDI are subject to certain risks and
assumptions, including those discussed in "Certain Turquoise Ridge Mine Risks"
below. Additionally, no assurance can be given that the indicated level of
recovery of gold will be realized or that the assumed gold price of $400 per
ounce will be obtained. Reserve estimates may require revision based on actual
production experience. Market price fluctuations of gold, as well as increased
production costs or reduced recovery rates, may render ore reserves containing
relatively lower grades of mineralization uneconomic and may ultimately result
in a restatement of reserves. 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 period.
Declines in the market price of gold may also render ore reserves containing
relatively lower grades of gold mineralization uneconomic to exploit unless the
utilization of forward sales contracts or other hedging techniques is sufficient
to offset the effects of a drop in the market price of the gold expected to be
mined from such reserves. If the Company's realized price per ounce of gold,
including hedging benefits, were to decline substantially below the levels set
for calculation of reserves for an extended period, there could be material
delays in the development of new projects, increased net losses, reduced cash
flow, reductions in reserves and asset impairments.
PROJECT DEVELOPMENT RISKS
The Company from time to time engages in the development of new ore bodies.
Specific risks associated with the Company's development of the Turquoise Ridge
mine are discussed below. The Company's ability to sustain or increase its
present level of gold production is dependent in part on the successful
development of such new ore bodies and/or expansion of existing mining
operations. The economic feasibility of any such development project, and all
such projects collectively, is based upon, among other things, estimate of
reserves, metallurgic recoveries, capital and operating costs of such projects
and future gold prices. Development projects are also subject to the successful
completion of feasibility studies, issuance of necessary permits and receipt of
adequate financing.
Development projects have no operating history upon which to base estimates
of future cash operating costs and capital requirements. In particular,
estimates of reserves, metal recoveries and cash
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<PAGE>
operating costs are to a large extent based upon the interpretation of geologic
data obtained from drill holes and other sampling techniques and feasibility
studies which derive estimates of cash operating costs based upon anticipated
tonnage and grades of ore to be mined and processed, the configuration of the
ore body, expected recovery rates of metals from the ore, comparable facility
and equipment costs, anticipated climate conditions and other factors. As a
result, it is possible that actual cash operating costs and economic returns of
any and all development projects may materially differ from the costs and
returns initially estimated.
CERTAIN TURQUOISE RIDGE MINE RISKS
The Turquoise Ridge mine involves numerous risks. These include the
following:
CAPITAL REQUIREMENTS. Expenditures required to advance the Turquoise Ridge mine
to the point of a production test is large, particularly since the Company has
decided to proceed with shaft systems capable of being used in full-scale
production in order to save time and money should trial mining be confirmed as
viable. Thus, to a large extent, expenditures which would usually be supported
by a feasibility study will depend on the data in-hand and assumptions made in
the Company's mine plans with an attendant higher level of uncertainty. See
"--Funds Needed for Development of Turquoise Ridge."
RESERVES. There can be no assurance that the probable reserves set forth in
MRDI and MDA's reserve reports for Turquoise Ridge and Shaft Zone (see "Proven
and Probable Mineable Reserves" table to Item 1 and 2 "Business and Properties")
will actually be mined and milled on an economic basis, if at all. The MDA and
MRDI reports are based upon many assumptions, some or all of which may not prove
to be accurate. The failure of any such assumptions to prove accurate may alter
the conclusions of MDA's and/or MRDI's report on reserves and may have a
material adverse affect on the Company. The resource and reserve estimates were
prepared using geological and engineering judgment based on available data. In
the absence of underground development, such estimates must be regarded as
imprecise and some of the assumptions made may later prove to be incorrect or
unreliable. The grade distribution at Turquoise Ridge is between 0.2 to 0.6
ounces per ton. Small changes in cutoff grade can cause large shifts in the
reserves. If dilution and/or mining costs related to poor ground conditions are
higher than expected, the reserves could be substantially reduced, resulting in
a shortening of mine life and a reduced or negative cash flow.
DILUTION. The tonnage and grade of the mill feed material was estimated by
applying dilution factors to certain resource data. The dilution agents are
backfill, waste from the back of overcut crosscuts and drifts, and from the
walls. In the case of the latter two, MRDI assumed that there would be an
average of one foot of back and wall dilution. MDA used approximately 15%
dilution and 95% recovery of the mineable reserve. If this dilution increases,
there will be corresponding negative effects on the tonnage and grade to mill.
This risk is related to the irregular configuration of the ore body which, even
with the tight cut-and-fill stoping method used, could make achievement of a
dilution thickness of one foot impossible to achieve in practice.
PRODUCTION SHAFT COMPLETION. The two-year assumed construction period for the
Production Shaft, which was started in the fourth quarter of 1996, is an
aggressive schedule. Delay in construction would necessitate removing ore
through the Ventilation Shaft, which is basically designed for waste and the
limited ore from early production. Additionally, the availability of the final
ventilation circuit required for mining depends upon the completion of the
Production Shaft.
MINING COST. As part of the project risk assessment, sensitivities were run on
various mining costs. Due to uncertainties about actual ground conditions and
productivities, these costs are only predictable within a broad range and the
predictions may not be valid. Therefore, actual mining costs may have a material
adverse effect on the viability of the Turquoise Ridge project and on the
Company.
23
<PAGE>
HYDROLOGY. Drainage of the ore body and surrounding rock will be critical to
the achievement of the mining efficiencies and costs estimated for the study. If
the deposit is not drained and water remains in this clay-rich environment,
mining conditions could worsen, and ground support costs will increase. If, due
to the presence of fine clays, the deposit drains slowly, the start of
production may be delayed, and the build-up to full production may be of longer
duration. Additionally, depending upon the quantity and quality of water
encountered, the water treatment/disposal options presently available to the
Company may be insufficient to meet estimated amounts needed to treat water
pumped from Turquoise Ridge during dewatering.
GEOTECHNICAL CONSIDERATIONS. The Turquoise Ridge ore zones contain areas of
poor ground conditions due to a high percentage of the ground being comprised of
low rock mass rating rock and clay. As a result, additional ground support may
be required.
DEPENDENCE ON A SINGLE PROPERTY
All of the Company's revenues are derived from its mining and milling
operations at the Getchell Property. If the operations at the Getchell
Underground mine or at any of the Company's processing facilities were to be
reduced, interrupted or curtailed, the Company's ability to generate revenues
and profits in the future would be materially adversely affected.
EXPLORATION
Mineral exploration, particularly for gold, is highly speculative in nature,
involves many risks and frequently is unsuccessful. The Company is seeking to
expand its reserves only through exploration and development at the Getchell
Property. There can be no assurance that the Company's exploration efforts will
result in the discovery of any additional gold mineralization or that any
mineralization discovered will result in an increase of the Company's reserves.
If reserves are developed, it may take a number of years and substantial
expenditures from the initial phases of drilling until production is possible,
during which time the economic feasibility of production may change. No
assurance can be given that the Company's exploration programs will result in
the replacement of current production with new reserves or that the Company's
development program will be able to extend the life of the Company's existing
mines.
HEDGING ACTIVITIES
The Company currently uses spot deferred contracts to protect earnings and
cash flows from the impact of short-term drops in gold price. These transactions
have been designated as hedges of the price of future production and are
accounted for as such.
Spot deferred contracts are agreements between a seller and a counterparty
whereby the seller commits to deliver a set quantity of gold, on an established
future date and at an agreed upon price. The established forward price is equal
to the current spot gold price on the day the agreement is signed plus
"contango." Contango is equal to the difference between the prevailing market
interest rate for cash deposits less the gold lease rate, for comparable
periods. The contango rate was 4.0% per annum for one-month to twelve-month
periods at December 31, 1996.
On the scheduled future delivery date, the seller may deliver gold and
thereby fulfill the contract or defer delivery to a future date. If the spot
price on the delivery date is greater than the contract price, delivery on the
contract may be deferred to a new future date and the gold is sold at the higher
spot price. If the spot price is lower than the contract price, the delivery may
be made against the contract and the higher contract price is realized. In
practice, this generally allows the seller to maximize the price realized. Each
time a seller defers delivery, the forward sales price is increased by the then
prevailing contango (assuming it is positive) for the next period out to the
newly established future delivery date. Generally, the counterparty will allow
the seller to continue to defer contract deliveries providing that there is
sufficient scheduled production from proven and probable reserves to fulfill the
commitment.
24
<PAGE>
At December 31, 1996, the Company had spot deferred contracts on 90,000
ounces of gold of which all are scheduled to be delivered during 1997 at prices
ranging between $370 and $422. Risk of loss from these forward sales agreements
arises from the possible inability of a counterparty to honor contracts and from
changes in the Company's potential ability to deliver gold.
The Company's accounting treatment for hedging is outlined in Notes 2 and 3
to Item 8--"Financial Statements and Supplementary Data."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of certain key officers and
employees, including its Chief Executive Officer, its Chief Financial Officer,
its Chief Operating Officer and its Chief Administrative Officer. Competition in
the mining industry for qualified individuals is intense, and the loss of any of
these key officers or employees, if not replaced, could have a material adverse
effect on the Company's business and its operations. The Company currently does
not have key person insurance. The Company has entered into Termination
Agreements with its Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer and Chief Administrative Officer which provide for certain
payments upon termination or resignation resulting from a change of control (as
defined in such agreements).
In connection with the development of Turquoise Ridge, the Company expects
that it will require a significant number of additional skilled employees. The
Company faces intense competition from other mining companies in connection with
the recruitment and retention of such employees. Additionally, although the
Company does not currently have any unionized employees, there can be no
assurance that unionization will not occur in the future.
GOVERNMENT REGULATION
SAFETY. The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the United States
Department of Labor ("MSHA") under the provisions of the Mine Safety and Health
Act of 1977. The Occupational Safety and Health Administration ("OSHA") also has
jurisdiction over safety and health standards not covered by MSHA.
On January 15, 1997, a mine site accident involving a mining vehicle
resulted in the death of a Company employee. As required by Federal law, MSHA
officials have investigated the nature and cause of the accident. MSHA has
notified the Company that as a result of the investigation, the Company will
likely be subject to maximum civil penalties of $350,000 and possible further
investigation. The ultimate outcome of the MSHA investigation is uncertain and
the Company is unable to estimate if further penalties will result. While
management of the Company believes that the results of the investigation will
not have a materially adverse impact on the financial position, operating
results or liquidity of the Company, no assurance can be given that this
investigation will not have such effects.
25
<PAGE>
CURRENT ENVIRONMENTAL LAWS AND REGULATIONS. The Company must comply with
standards, laws and regulations which may entail greater or lessor costs and
delays depending on the nature of the regulated activity and how stringently the
regulations are implemented by the regulatory 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 and
the governmental policies for implementation of such laws and regulations 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. These requirements include regulations under: (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund") which regulates and establishes liability for the
release of hazardous substances; (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats; (iii) the Clean Water Act; (iv) the
Clean Air Act; (v) the Resource Conservation and Recovery Act for disposal of
hazardous waste; (vi) the Migratory Bird Treaty Act; (vii) the Safe Drinking
Water Act; (viii) the Federal Land Policy and Management Act; (ix) the National
Environmental Policy Act; (x) the National Historic Preservation Act; and many
other state and federal laws and regulations.
The United States Environmental Protection Agency ("EPA") continues the
development of a solid waste regulatory program specific to mining operations
under the Resource Conservation and Recovery Act ("RCRA"). EPA is currently
evaluating a Draft Hardrock Mining Framework which, if ultimately implemented,
could create a system of federal regulation of the entire mine site focused on
water quality and waste management. The requirements being considered by the EPA
are very similar to the existing Nevada regulations concerning environmental
controls at mine sites. Many of the requirements being considered by EPA could
be duplicative of existing Nevada regulations. The effect of compliance with a
new EPA program would depend on the extent to which the substantive or
procedural requirements of such new federal regulations would exceed the
existing requirements of the Nevada regulations.
Environmental laws and regulations may also have an indirect impact on the
Company, such as increased cost for electricity due to acid rain provisions of
the Clean Air Act Amendments of 1990. Charges by refiners to which the Company
sells its metallic concentrates and products have substantially increased over
the past several years because of requirements that refiners meet revised
environmental quality standards. The Company has no control over the refiners'
operations or their compliance with environmental laws and regulations.
POTENTIAL LEGISLATION. Several recent legislative developments have affected or
may in the future affect the cost of and the ability of mining claimants to use
the Mining Law of 1872, as amended (the "General Mining Law"), to acquire and
use federal lands for mining operations. Since October 1994, a moratorium has
been imposed on processing new patent applications for mining claims. This
moratorium should not affect the status of the patent applications made by the
Company under the General Mining Law before the moratorium was imposed. Also,
since 1993, a rental or maintenance annual fee of $100 per claim has been
imposed by the Federal government on unpatented mining claims in lieu of the
prior requirement for annual assessment work. During the last several
Congressional sessions, bills have been repeatedly introduced in the U.S.
Congress which would supplant or radically alter the General Mining Law. As of
the end of 1996, no such bills have been passed. Such bills have proposed, among
other things, to permanently eliminate or greatly limit the right to a mineral
patent, impose royalties, and impose new Federal reclamation, environmental
control and other restoration requirements. Royalty proposals have ranged from a
2% royalty on "net profits" from mining claims to an 8% royalty on modified
gross income/net smelter returns. It is anticipated that similar legislation
will again be introduced when the new Congress convenes in 1997. If enacted,
such legislation could substantially impair the ability of companies to
economically develop mineral resources on federal lands. The extent of the
changes, if any, which may be made by Congress to the General Mining Law is not
presently known, and the potential impact on the Company as a result of future
Congressional action is difficult or impossible to predict. Although a
26
<PAGE>
majority of the Company's existing mining operations occur on private or
patented property, the proposed changes to the General Mining Law could
adversely affect the Company's ability to economically develop mineral resources
on federal lands. Disposal of overburden and mineral processing wastes by the
Company occur on both private and federal lands. Exploration activities occur on
both private and federal lands. Other legislative initiatives regarding
environmental laws potentially applicable to mining include proposals to
substantially alter CERCLA, the Clean Water Act, Safe Drinking Water Act,
Endangered Species Act and bills which introduce additional protection of
wetlands. 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. Thus, the potential impact on the Company of such legislative
initiatives is not clear at this time.
ENVIRONMENTAL MATTERS AND SAFETY
ENVIRONMENTAL LIABILITY. Mining is subject to potential risks and liabilities
associated with pollution of the environment and the disposal of waste products
that could occur as a result of the Company's mineral exploration, development
and production. Environmental liability also may result from mining activities
conducted by others prior to the Company's ownership of a property. Historic
mining disturbances, facilities, waste materials and other discrete areas of
potential contamination associated with gold, tungsten, and molybdenum
production between 1937 and 1969 by previous owners and operators are
encompassed within the area of the Company's Getchell Property operations.
Restoration of certain areas of historic disturbance and contamination has been
undertaken in conjunction with current mining operations and has been
incorporated into the Company's state permits in coordination with the federal
land management agency.
POLLUTION INSURANCE. Insurance for environmental risks (including potential
liability for pollution or other hazards as a result of the disposal of waste
products occurring from exploration and production) has not been purchased by
the Company as it is not generally available at a reasonable price to the
Company or to other companies within the industry. To the extent the Company is
subject to environmental liabilities, the payment of such liabilities or the
costs which must be incurred to remedy environmental pollution would reduce
funds otherwise available to the Company and could have a material adverse
effect on the Company. Should the Company be unable to fully remedy 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.
ENVIRONMENTAL PERMITS. All of the Company's exploration, development and
production activities are subject to regulation under one or more of the various
state and federal environmental laws and regulations. These laws address
emissions to the air, discharges to water, management of wastes, management of
hazardous substances, protection of natural resources, protection of antiquities
and restoration of lands which are disturbed by mining. Many of the regulations
require permits to be obtained for the Company's activities. The Company
maintains permits required for its facilities and operations which provide for
ongoing compliance and monitoring. Some of the permits include Bureau of Land
Management Plan of Operations No. N24-87-003P; EPA Hazardous Waste Facility No.
NVD986774735; Nevada water pollution control permits NEV86014 (for mining and
mineral processing) and NEV95113 (for excess mine water disposal); Nevada
reclamation permit 0105; and Nevada air quality permit AP1041-0292. These
permits must be updated and reviewed from time to time, and normally are subject
to environmental impact analyses and public review processes prior to approval
of the activity. For example, the Company has applied for air permits required
by Title V of the 1990 Amendments to the Clean Air Act to maintain compliance
with applicable requirements for air emissions sources of the types utilized by
the Company in its operations. It is possible that future changes in applicable
laws, regulations and permits could have a significant impact on some portion of
the Company's business, causing those activities to be economically re-evaluated
at that time.
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<PAGE>
RESTORATION. The Company accrues funds over the productive life of its mine for
anticipated costs associated with restoration of the mine site. Activities which
result in restoration costs include the permanent closure of the mining and
mineral processing operations and the reclamation of the disturbed land to a
productive use. This includes restoration of historic and current mining and
mineral processing operations and associated land disturbances. Restoration
takes place concurrent with and after the productive life of the operations.
Activities which result in restoration costs after permanent closure and
reclamation primarily relate to monitoring and other post mining management
activities.
The uncertainties related to future restoration costs result from unknown
future additional regulatory requirements, significant new surface disturbances
or additional mineral processing facilities and the potential for recognition in
the future of additional activities needed for restoration. The technologies for
restoration are evolving during the life of the operations. Periodic review of
the activities and costs for restoration, and consequent adjustments to the
ongoing accrual, are conducted. The Company conducts concurrent restoration of
mining disturbances and anticipates an ongoing program of restoration over the
productive life of the operations. Activities have included regrading, seeding
and planting, monitoring, and restoration research.
In accordance with the State of Nevada Division of Environmental Protection
("NDEP"), the Company has posted a bond of $4.5 million to cover the costs for
reclamation of the Getchell Property. As of December 31, 1996, the total
estimated restoration costs for the Getchell Property were $5.5 million, of
which the Company had accrued $2.7 million. The amount of total estimated
restoration costs has increased over time due to more stringent regulation
requirements and expanded mining activities and additional increases may occur
in the future for the same reasons. The Company has begun reclamation of surface
mining disturbances and anticipates an ongoing program of reclamation over the
next several years. Activities have included regrading, revegetation and soil
stabilization. This includes restoration activities for which bonding must be
provided and other restoration costs not included in bonding calculations.
MINING RISK AND INSURANCE
The gold ore located on the Getchell Property and the existing tailings
ponds and waste dumps located on the Getchell Property contain relatively high
levels of arsenic, and the milling of such ore involves the use of other toxic
substances, including sodium cyanide, sodium hydroxide, sulfuric acid and nitric
acid. In addition, the business of gold mining is generally subject to a number
of risks and hazards, including environmental hazards, industrial accidents,
labor disputes, the encounter of unusual or unexpected geological conditions,
slope failures, changes in the regulatory environment and natural phenomena such
as inclement weather conditions, floods, blizzards and earthquakes. Such
occurrences could result in damage to, or destruction of, mineral properties or
production facilities, personal injury or death, environmental damage, delays in
mining, monetary losses and possible legal liability. The Company maintains
insurance against risks that are typical in the gold mining industry and in
amounts that the Company believes to be reasonable, but which may not provide
adequate coverage in certain unforeseen circumstances. However, insurance
against certain risks (including certain liabilities for environmental pollution
or other hazards as a result of exploration and production) has not been
purchased by the Company as such coverage is not generally available to it or to
other companies within the industry.
TITLE TO PROPERTIES
Certain of the Company's mineral rights consist of unpatented mining claims.
Unpatented mining claims are unique property interests that are generally
considered to be subject to greater title risk than other real property
interests. The greater title risk results from unpatented mining claims being
dependent on strict compliance with a complex body of federal and state
statutory and decisional law, much of which compliance involves physical
activities on the land, and from the lack of public records which definitively
control the issues of validity and ownership.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... 30
CONSOLIDATED STATEMENTS OF OPERATIONS--
Year ended December 31, 1996, Six Months Ended December 31, 1995 and Years Ended June
30, 1995 and 1994..................................................................... 31
CONSOLIDATED BALANCE SHEETS--
December 31, 1996 and 1995............................................................ 32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--
Year ended December 31, 1996, Six Months Ended December 31, 1995 and Years Ended June
30, 1995 and 1994..................................................................... 33
CONSOLIDATED STATEMENT OF CASH FLOWS--
Year ended December 31, 1996, Six Months Ended December 31, 1995 and Years Ended June
30, 1995 and 1994..................................................................... 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
December 31, 1996 and 1995............................................................ 35
</TABLE>
All supporting schedules are omitted because they are inapplicable, not
required, or the information is presented in the consolidated financial
statements or notes thereto.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
GETCHELL GOLD CORPORATION:
We have audited the accompanying consolidated balance sheets of Getchell
Gold Corporation and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 1996, the six months ended December 31,
1995 and each of the years in the two-year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Getchell
Gold Corporation and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the year ended December 31,
1996, the six months ended December 31, 1995 and each of the years in the
two-year period ended June 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 2 and 7 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES, as of July 1, 1993.
KPMG Peat Marwick LLP
Denver, Colorado
February 12, 1997, except
as to Note 14, which is as
of February 14, 1997
30
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1995 1995 1994
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................................... $ 67,878 $ 34,425 $ 71,485 $ 95,150
Cost of sales................................................ 78,784 35,956 69,775 82,131
------------ ------------ ---------- ----------
Gross margin............................................... (10,906) (1,531) 1,710 13,019
General and administrative expenses.......................... 4,669 2,054 2,659 1,745
Exploration expenses......................................... 3,580 628 3,776 4,049
Abandonment and impairment of mineral properties............. -- -- 11,531 --
------------ ------------ ---------- ----------
Income (loss) from operations.............................. (19,155) (4,213) (16,256) 7,225
Interest expense, net of capitalized interest................ (1,082) (2,634) (1,805) (1,776)
Interest and other income.................................... 5,415 936 132 150
------------ ------------ ---------- ----------
Income (loss) before income taxes and cumulative effect of
change in accounting principle........................... (14,822) (5,911) (17,929) 5,599
Income tax provision (benefit)............................... (870) (884) 428 1,300
------------ ------------ ---------- ----------
Income (loss) before cumulative effect of change in
accounting principle..................................... (13,952) (5,027) (18,357) 4,299
Cumulative effect of change in accounting principle (Note
7)......................................................... -- -- -- 1,350
------------ ------------ ---------- ----------
Net income (loss).......................................... $ (13,952) $ (5,027) $ (18,357) $ 5,649
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Income (loss) per common share:
Before cumulative effect of change in accounting
principle................................................ $ (0.54) $ (0.25) $ (1.01) $ 0.24
Cumulative effect of change in accounting principle (Note
7)....................................................... -- -- -- 0.07
------------ ------------ ---------- ----------
Net income (loss).......................................... $ (0.54) $ (0.25) $ (1.01) $ 0.31
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Weighted average number of shares outstanding................ 25,727 19,857 18,139 18,150
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 64,130 $ 114,633
Accounts receivable:
Trade................................................................................. 2,478 3,812
Employee.............................................................................. 171 781
Other................................................................................. 315 68
---------- ----------
Total accounts receivable........................................................... 2,964 4,661
---------- ----------
Inventories:
Ore and ore in process................................................................ 1,816 2,088
Materials and supplies................................................................ 8,676 7,662
---------- ----------
Total inventories................................................................... 10,492 9,750
---------- ----------
Deferred hedging gains, net............................................................. 362 1,046
Prepaid expenses........................................................................ 1,098 559
---------- ----------
Total current assets................................................................ 79,046 130,649
Property, plant and equipment, net (Note 4)............................................... 129,762 79,844
---------- ----------
Total assets........................................................................ $ 208,808 $ 210,493
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 8,378 $ 4,953
Accrued expenses........................................................................ 1,740 702
Current portion of capital lease obligations (Note 6)................................... 1,753 844
---------- ----------
Total current liabilities........................................................... 11,871 6,499
Long-term debt, principally to ChemFirst Inc. (Note 5).................................... 25,336 23,783
Capital lease obligations, less current installments (Note 6)............................. 9,092 4,386
Deferred income taxes (Note 7)............................................................ 7,741 8,611
Reclamation liabilities (Note 2).......................................................... 2,694 2,950
Other liabilities......................................................................... 852 --
---------- ----------
Total liabilities................................................................... 57,586 46,229
---------- ----------
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, par value $0.0001 at December 31, 1996 and $0.01 at December 31, 1995;
10,000,000 shares authorized; none issued............................................... -- --
Common stock, par value $0.0001 at December 31, 1996 and $0.01 at December 31, 1995;
50,000,000 shares authorized; issued and outstanding 25,765,871 at December 31, 1996 and
25,657,600 at December 31, 1995......................................................... 3 257
Contributed and paid-in capital........................................................... 172,879 171,722
Accumulated deficit....................................................................... (21,660) (7,708)
Unearned compensation..................................................................... -- (7)
---------- ----------
Total stockholders' equity.......................................................... 151,222 164,264
---------- ----------
Total liabilities and stockholders' equity.......................................... $ 208,808 $ 210,493
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL IN EARNINGS TOTAL
---------------------- EXCESS OF UNEARNED (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE COMPENSATION DEFICIT) EQUITY
--------- ----------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993...................... 18,112 $ 181 $ 33,862 $ (2) $ 10,027 $ 44,068
Amortization of unearned compensation....... -- -- -- 2 -- 2
Net income.................................. -- -- -- -- 5,649 5,649
--------- ----- ---------- --- ------------ ------------
Balance at June 30, 1994...................... 18,112 181 33,862 -- 15,676 49,719
Shares issued for stock options exercised... 61 1 363 -- -- 364
Issuance of restricted stock awards......... 10 -- 60 (60) -- --
Amortization of unearned compensation....... -- -- -- 18 -- 18
Net loss.................................... -- -- -- -- (18,357) (18,357)
--------- ----- ---------- --- ------------ ------------
Balance at June 30, 1995...................... 18,183 182 34,285 (42) (2,681) 31,744
Shares issued in equity offering, net of
costs (Note 1)............................ 7,475 75 137,437 -- -- 137,512
Amortization of unearned compensation....... -- -- -- 35 -- 35
Net loss.................................... -- -- -- -- (5,027) (5,027)
--------- ----- ---------- --- ------------ ------------
Balance at December 31, 1995.................. 25,658 257 171,722 (7) (7,708) 164,264
Shares issued for stock options exercised... 108 1 956 -- -- 957
Change in par value from $0.01 to $0.0001... -- (255) 255 -- -- --
Additional costs of 1995 equity offering
(Note 1).................................. -- -- (54) -- -- (54)
Amortization of unearned compensation....... -- -- -- 7 -- 7
Net loss.................................... -- -- -- -- (13,952) (13,952)
--------- ----- ---------- --- ------------ ------------
Balance at December 31, 1996.................. 25,766 $ 3 $ 172,879 $ -- $ (21,660) $ 151,222
--------- ----- ---------- --- ------------ ------------
--------- ----- ---------- --- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1995 1995 1994
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ (13,952) $ (5,027) $ (18,357) $ 5,649
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization....................... 9,770 4,078 14,545 23,380
Deferred income taxes.......................................... (870) (884) -- (3,205)
Abandonment and impairment of mineral properties............... -- -- 11,531 --
Deferred hedging gain, net..................................... 684 (1,046) -- --
Accrued interest converted to loan principal................... 1,522 3,048 2,279 1,505
Other.......................................................... 12 34 51 15
Net change in operating assets and liabilities:
Accounts receivable.......................................... 1,697 (2,806) 378 (264)
Inventories.................................................. (742) (196) 3,200 (3,188)
Prepaid expenses............................................. (539) 22 (445) 91
Accounts payable............................................. 2,775 (3,762) 2,792 (2,448)
Accrued expenses............................................. 1,038 197 (50) (48)
Other liabilities............................................ 416 20 46 450
------------ ------------ ---------- ----------
Cash provided by (used in) operating activities............ 1,811 (6,322) 15,970 21,937
------------ ------------ ---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment....................... (51,677) (10,718) (27,201) (15,063)
Proceeds from sale of property................................... 9 -- 203 15
------------ ------------ ---------- ----------
Cash used in investing activities.......................... (51,668) (10,718) (26,998) (15,048)
------------ ------------ ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock........................... 903 137,512 363 --
Proceeds from long-term debt..................................... 31 14,350 10,750 1,200
Repayments on long-term debt..................................... -- (20,500) (1,469) --
Principal payments under capital lease obligation................ (1,580) (284) -- --
Purchase of gold for repayment of gold loan...................... -- -- -- (9,800)
------------ ------------ ---------- ----------
Cash provided by (used in) financing activities............ (646) 131,078 9,644 (8,600)
------------ ------------ ---------- ----------
Net (decrease) increase in cash and cash equivalents............... (50,503) 114,038 (1,384) (1,711)
Cash and cash equivalents at beginning of period................... 114,633 595 1,979 3,690
------------ ------------ ---------- ----------
Cash and cash equivalents at end of period......................... $ 64,130 $ 114,633 $ 595 $ 1,979
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>
See Note 12 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
34
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) THE COMPANY
Getchell Gold Corporation (the "Company") is engaged in gold exploration and
production principally at its Getchell Property in Nevada. The Getchell Property
is in the Potosi Mining District on the eastern side of the Osgood Mountain
Range, approximately 35 miles northeast of Winnemucca, Nevada. The Getchell
Property consists of approximately 18,900 acres of unpatented load and mill site
mining claims and 14,100 acres of fee land owned by the Company. Located on the
Getchell Property are the Getchell Underground and Turquoise Ridge underground
mines. Commercial production from the Getchell Underground mine began in May
1995. Construction of the Turquoise Ridge mine began in January 1996, with
initial production of development ore expected no earlier than the end of 1997,
although there can be no assurance that this will be the case.
The Company was incorporated in August 1987 as a subsidiary of ChemFirst
Inc. ("ChemFirst") (formerly known as First Mississippi Corporation). On
September 24, 1995, ChemFirst's Board of Directors approved the spin-off of
ChemFirst's stock in the Company to ChemFirst shareholders of record on October
10, 1995 (the "Spin-Off"). On October 20, 1995, ChemFirst distributed its 81%
interest in the Company to ChemFirst shareholders. In connection with the
Spin-Off, on September 24, 1995, the Company entered into certain agreements
with ChemFirst, including a loan agreement for the outstanding balances due from
the Company to ChemFirst at the date of the Spin-Off (described in Note 5), an
agreement to settle certain tax sharing arrangements (see Note 7) and an
agreement to undertake a public offering of at least $50 million prior to April
28, 1996. In addition, the Company entered into a $20 million credit facility
with The Toronto-Dominion Bank (see Note 5).
In the fourth quarter of 1995, the Company completed an equity offering of
7,475,000 common shares which resulted in net proceeds to the Company of $137.5
million.
On June 25, 1996, the Company changed its corporate name from FirstMiss Gold
Inc. to Getchell Gold Corporation and changed its state of incorporation from
Nevada to Delaware. In September 1995, the Company changed its fiscal year end
from June 30 to December 31.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") in the United
States ("U.S."), which are different from International Accounting Standards
Committee standards ("IAS"). The principal differences are as follows:
(1) Under IAS, deferred tax assets can not be recognized unless realization
is "beyond any reasonable doubt"; under GAAP the criterion is "more
likely than not". For the year ended December 31, 1996 and the six months
ended December 31, 1995, the impact related to this difference is not
material.
(2) Certain aspects of the standards for employers' accounting for pensions
are different. For the Company, the principal difference is the interest
and discount rate assumptions used to estimate costs and liabilities in
actuarial accounting. IAS permits measurement of tri-annual valuations
and requires the use of long-term assumptions, whereas GAAP requires
annual valuations and
35
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
use of current market-based assumptions. For the year ended December 31,
1996 and the six months ended December 31, 1995, the impact related to
this difference is not material.
CASH AND CASH EQUIVALENTS
For the purposes of the Consolidated Balance Sheets and Consolidated
Statements of Cash Flows, the Company considers all debt and highly liquid
instruments with original maturities of three months or less to be cash
equivalents. Cash equivalents at December 31, 1996 and December 31, 1995
consisted of commercial paper and U.S. and Canadian Treasury obligations
denominated in U.S. dollars. Because of the short maturity of these investments,
the carrying amounts approximate their fair value.
INVENTORIES
Inventories of ore, ore in process and precious metals are stated at the
lower of average cost or net realizable value. Materials and supplies are stated
at the lower of average cost or replacement cost.
The Company provided an allowance for obsolescence for certain materials and
supplies inventory items. The allowance is based on estimates of technical
obsolescence which results from normal ongoing upgrades, improvements and
betterments of plant and equipment. At December 31, 1996 and 1995, the allowance
for obsolescence was $1.0 million and $1.5 million, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repairs
are charged to expense as incurred.
MINERAL EXPLORATION AND MINE DEVELOPMENT
Exploration costs are charged to expense as incurred, as are development
costs for projects not yet determined by management to be commercially feasible.
Expenditures for mine development are capitalized when the properties are
determined to have development potential but are not yet producing at a
commercial level. Prior to commencing commercial production, revenues relating
to development ore, net of mining costs associated with its production, are
offset against mine development costs. Mine development costs incurred to access
reserves on producing mines are also capitalized.
MINERAL PROPERTIES
Mining projects and properties are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. If estimated future cash flows expected to result from
the use of the mining project or property and its eventual disposition are less
than the carrying amount of the mining project or property, an impairment is
recognized based upon the estimated fair value of the mining project or
property. Fair value generally is based on the present value of estimated future
net cash flows for each mining project or property, calculated using estimates
of proven and probable mineable reserves, future prices, operating costs,
capital requirements and reclamation costs.
36
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZATION OF INTEREST
Interest expense allocable to construction or development projects is
capitalized until commercial operations commence.
DEFERRED STRIPPING COSTS
To properly match waste removal costs with revenue from gold sales, mining
costs associated with waste rock removal are deferred and charged to operations
on the basis of the estimated average stripping ratio for the life of each
individual ore body. The average stripping ratio is calculated as a ratio of the
tons of waste rock material estimated to be removed and the tons of ore
estimated to contain recoverable gold.
DEPRECIATION, DEPLETION AND AMORTIZATION
Property, plant and equipment, with useful lives as long or longer than
existing ore reserves, are depreciated or depleted using the unit-of-production
method. Plant and equipment, with useful lives shorter than existing ore
reserves, are depreciated using the straight-line method. Capitalized
development costs and development costs estimated to be incurred over the life
of the mine, are depleted on a unit-of-production method. Depreciation and
depletion rates are subject to periodic review to ensure that asset costs are
amortized over their useful lives.
Depletion is computed on a unit-of-production method based on the ratio of
tons of ore mined or ounces of gold produced during the period, to the estimated
total proven and probable reserves of the related property.
RECLAMATION OF MINING AREAS
Estimated costs for restoring certain disturbed mining and milling areas to
comply with existing reclamation standards totaled $5.5 million at December 31,
1996. This amount is based on management's estimate of future reclamation costs
to be incurred considering environmental and regulatory requirements. Such costs
are charged to operations on a unit-of-production basis over the life of the
mine. The amount accrued at December 31, 1996 was $2.7 million. Such accrued
reclamation costs are reviewed by management on a regular basis and are
appropriately revised for changes in future estimated costs, regulatory
requirements or mine life.
The Company performs concurrent reclamation to the extent possible, however,
most of the accrued costs are anticipated to be expended at the end of the mine
life. Based on existing reserves, the mine life is estimated to be in excess of
10 years.
37
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from spot sales are recorded when title passes to the buyer. Revenue
from shipments under forward sales agreements are recorded at the settlement
date of the agreements. Total ounces of gold sold were:
<TABLE>
<CAPTION>
PERIOD OUNCES SOLD
-----------
<S> <C>
Year ended December 31, 1996.................................................... 171,343
Six Months ended December 31, 1995.............................................. 85,627
Year ended June 30, 1995........................................................ 184,298*
Year ended June 30, 1994........................................................ 243,826
</TABLE>
- ------------------------
*For the year ended June 30, 1995, gold ounces sold does not include 14,939
ounces of gold sold from properties under development, the revenue from which
was credited to mine development costs.
HEDGING TRANSACTIONS
The Company enters into certain financial transactions as a hedge against
changes in prices of the gold produced. Hedging transactions have included spot
deferred contracts and gold loans. Gains and losses on these transactions, as
well as any costs or revenues associated therewith, are recognized in sales when
the related gold production is delivered.
EMPLOYEE STOCK COMPENSATION
The Company applies the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its stock-based incentive plans. Under
the intrinsic value based method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date over the amount an employee
must pay to acquire the stock.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company's deferred income tax assets include certain future tax benefits
such as net operating losses or tax credit carryforwards. The Company records a
valuation allowance against any portion of those deferred income tax assets
which it believes will not be realized. The cumulative effect of adopting the
asset and liability method of accounting for income taxes is included in the
consolidated statement of operations for the year ended June 30, 1994.
Prior to the Spin-Off, the Company had a tax sharing and allocation
agreement with ChemFirst (described in Notes 1 and 7) under which the Company
made payments to ChemFirst in respect to federal,
38
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
state and local income taxes and state franchise taxes as if it were a separate
corporation, not affiliated with ChemFirst, filing separate income tax returns.
Under the provisions of the tax sharing agreement, ChemFirst was required to
reimburse the Company for any deduction, credit or allowance which had been
utilized by ChemFirst and subsidiaries in the consolidated tax returns at such
time as the Company could have utilized the underlying tax assets if it had
filed federal and state income tax returns computed on a separate return basis.
In addition, the Company was required to pay ChemFirst for the estimated income
tax liability of the Company for the taxable year, to be computed as though the
Company were reporting its taxable income or loss on a separate return basis.
INCOME AND LOSS PER SHARE
Income and loss per share are calculated based on the weighted average
number of common shares and dilutive common share equivalents outstanding during
each period.
ESTIMATES, RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
Gold mining requires the use of specialized facilities and technology. The
Company relies heavily on such facilities to maintain production levels. Also,
the market price of gold significantly affects the profitability of the
Company's operations. Market gold prices can fluctuate widely and are affected
by numerous factors beyond the Company's control. Although the Company has
limited its sales to a small number of customers, the Company is not
economically dependent on a limited number of customers for the sale of its
product because gold commodity markets are well-established worldwide.
The Company projects that it will not have sufficient internal funds to
complete the construction of the Turquoise Ridge mine. Currently, several
financing options are being considered. The recoverability of the Turquoise
Ridge assets and completion of the mine is dependent upon the Company's ability
to raise sufficient funds to complete construction.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1996
financial statement presentation.
(3) HEDGING ACTIVITIES AND COMMITMENTS
Precious metals hedging contracts consist of spot deferred contracts. The
Company uses these hedging contracts to protect earnings and cash flows from the
impact of short-term drops in gold price.
At December 31, 1996, the Company's outstanding hedge contracts were for
90,000 ounces at an average price of $400 per ounce, all for the 1997
deliveries. Based on the market price of gold at December 31, 1996, the
unrealized gains on the contracts were $2.4 million. Risk of loss arises from
the
39
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(3) HEDGING ACTIVITIES AND COMMITMENTS (CONTINUED)
possible inability of the counterparty to fulfill its obligations under the
contracts and from changes in the Company's potential ability to deliver gold,
although nonperformance by any party to the contract is not anticipated.
(4) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
(IN THOUSANDS)
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Land and land improvements................................................................ $ 9,524 $ 9,550
Buildings and equipment................................................................... 115,550 98,192
Mine development.......................................................................... 38,757 29,362
Construction-in-progress.................................................................. 48,916 15,980
---------- ----------
Total property, plant and equipment................................................. 212,747 153,084
Accumulated depreciation, depletion and amortization...................................... (82,985) (73,240)
---------- ----------
Net property, plant and equipment................................................... $ 129,762 $ 79,844
---------- ----------
---------- ----------
</TABLE>
Depreciation and depletion expense was $9.8 million, $4.1 million, $9.5
million and $13.5 million for the year ended December 31, 1996, the six months
ended December 31, 1995 and the years ended June 30, 1995 and 1994,
respectively. Amortization expense of deferred stripping cost was $5.0 million
and $9.9 million for the years ended June 30, 1995 and 1994, respectively. There
was no amortization expense in the years ended December 31, 1996 and the six
months ended December 31, 1995.
Mining in the Main Pit was discontinued in July 1995 after a geotechnical
monitoring program, initiated in June 1995, indicated that continued mining in
the Main Pit would likely destabilize the pit wall. This event, combined with
lower grades and higher than anticipated costs, make it unlikely that the
Company would recover the remaining proven and probable reserves in the Main
Pit. Accordingly, the remaining pit development costs of $5.5 million and
deferred stripping costs of $3.6 million were written off at June 30, 1995.
In the fiscal year ended June 30, 1995, the Company's $2.3 million
investment in the Silver Bar property was written off through a charge to
operations. The write off was a result of the Company's decision to commit its
exploration and development resources to the Getchell Property, lower silver
prices than those required to economically develop the prospect and unsuccessful
attempts to sell Silver Bar. Additional exploration prospects with a recorded
value of $0.1 million were abandoned during the year ended June 30, 1995.
(5) DEBT
PROMISSORY NOTE
Contemporaneously with the Spin-Off (discussed in Note 1), the Company and
ChemFirst executed a promissory note, upon which all promissory notes previously
entered into between the two companies were canceled. The principal balance of
the promissory note was equal to the indebtedness of the Company to
40
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(5) DEBT (CONTINUED)
ChemFirst for advances and accrued interest thereon, as of the date of the
Spin-Off, net of a $13.9 million receivable resulting from the settlement of the
tax sharing agreement (see Note 7).
The principal balance of the promissory note was $25.3 million at December
31, 1996 and $23.8 million at December 31, 1995. The promissory note is due
September 22, 2000 or upon a change in control of the Company and may be prepaid
without penalty. The interest rate on the loan is the London Interbank Offered
Rate ("LIBOR") for a period selected by the Company, plus an applicable margin.
The interest rate was 6-5/32% at December 31, 1996 and 6-1/4% at December 31,
1995. Since the inception of the promissory note, interest has been converted to
the note principal at the end of each interest period. The carrying value of
this debt is assumed to approximate its fair value.
The promissory note contains covenants that require minimum net worth, as
defined, of $27.0 million and a ratio of indebtedness to tangible net worth, as
defined, of no more than 2.0:1.0.
BANK LOAN FACILITY
In September 1995, the Company entered into a loan facility with The
Toronto-Dominion Bank (the "Facility"), which provided for $20 million of term
loans to the Company. The Facility was established to finance the development of
the Turquoise Ridge reserves between the date of the Spin-Off and the equity
offering. The Company paid fees of $1.1 million related to the Facility. The
Company borrowed $5.5 million under the Facility on October 20, 1995, which was
repaid in full and terminated upon completion of the November 21, 1995 equity
offering. Interest on the outstanding indebtedness accrued at 3% over the LIBOR
for each month during which the advances were outstanding.
GOLD LOAN
The Company had a gold loan which matured and was repaid in full in June
1994. Under the gold loan, the Company borrowed a total of 150,000 ounces of
gold which provided $71.3 million at an average predetermined price of $475 per
ounce. In the year ended June 30, 1994, the Company repaid 20,625 ounces of the
gold loan and, and as a result of the repayments, $9.8 million of deferred
revenue was recognized in gold sales.
Pursuant to the gold loan agreements, the Company was required to enter into
a forward sales arrangement, covering 202,600 ounces of gold. Under this
agreement, during 1994, the Company sold 47,000 ounces at $400 per ounce. All
commitments under the agreement were fulfilled as of June 30, 1994.
CAPITALIZED INTEREST
Capitalized interest was $1.3 million for the year ended December 31, 1996,
$0.4 million for the six months ended December 31, 1995, $1.2 million for the
year ended June 30, 1995 and $0.2 million for the year ended June 30, 1994.
(6) LEASES
The Company is obligated under capital leases for mining equipment for terms
ranging from three to five years. All capital lease agreements provide that the
Company can purchase the leased equipment at fair value at the end of the lease
term. At December 31, 1996 and 1995, $9.9 million and $5.2 million,
41
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(6) LEASES (CONTINUED)
respectively, of leased property was included in Property, Plant and Equipment
net of $2.8 million and $0.3 million, respectively, of accumulated depreciation,
depletion and amortization.
The Company is also obligated under non-cancelable operating leases for
mining equipment, vehicles and office space. Rental expense under these leases
for the year ended December 31, 1996, the six months ended December 31, 1995 and
the years ended June 30, 1995 and 1994 was $1.0 million, $1.2 million, $1.3
million and $0.4 million, respectively.
Future capital lease payments and future minimum lease payments under
noncancelable operating leases with initial or remaining lease terms in excess
of one year as of December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Year Ended December 31, 1997................................................................ $ 2,738 $ 544
Year Ended December 31, 1998................................................................ 2,901 546
Year Ended December 31, 1999................................................................ 3,594 549
Year Ended December 31, 2000................................................................ 3,197 104
Year Ended December 31, 2001................................................................ 535 --
--------- -----------
Total minimum lease payments.............................................................. 12,965 $ 1,743
-----------
-----------
Less amounts representing interest.......................................................... (2,120)
---------
Present value of minimum capital lease payments........................................... 10,845
Less current installments................................................................... (1,753)
---------
Capital lease obligations, less current installments........................................ $ 9,092
---------
---------
</TABLE>
(7) INCOME TAXES
Until the Spin-Off (see Note 1), the Company and ChemFirst operated under
the terms of a Tax Sharing Agreement. In connection with the Spin-Off, ChemFirst
and the Company entered into an Amended Tax Sharing Agreement. The Amended Tax
Sharing Agreement provided for the termination of the Tax Sharing Agreement, and
sets forth the parties' obligations with respect to taxes relating to taxable
periods prior to the Spin-Off.
The Amended Tax Sharing Agreement obligated ChemFirst to pay the Company (by
either an actual payment or a reduction in the Company's outstanding
indebtedness to ChemFirst) an agreed upon amount of approximately $13.9 million,
representing the tax benefit received by the affiliated group, of which
ChemFirst is the common parent corporation (the ChemFirst Affiliated Group),
from its use of the Company's losses, deductions, credit and allowances in
periods prior to the Spin-Off. As a result of this agreement, the Company
relinquished its rights to, and eliminated the deferred tax balances of, certain
Federal net operating loss carryforwards and alternative minimum tax credit
carryforwards totaling $10.8 million and $8.6 million, respectively, and the
related valuation allowance of $6.7 million.
The Company agreed in the Amended Tax Sharing Agreement to indemnify
ChemFirst for any taxes attributable to the Company and assessed with respect to
consolidated or combined tax returns which
42
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(7) INCOME TAXES (CONTINUED)
include the Company and relate to periods prior to the Spin-Off, to the extent
any liability for such taxes exceeds $0.3 million. Conversely, ChemFirst agreed
to indemnify the Company against any liability for taxes attributable to members
of the ChemFirst Affiliated Group, other than the Company, but imposed on the
Company as a result of its inclusion in ChemFirst's consolidated or combined tax
returns for periods prior to the Spin-Off. Certain of the Federal Income tax
returns of the ChemFirst Affiliated Group are presently under examination by the
Internal Revenue Service for the years 1987 through 1994. In the opinion of
management, any additional tax liability, not previously provided for, resulting
from these examinations and ultimately determined to be payable, has been
adequately provided for.
The Company adopted Statement of Financial Accounting Standard Number 109
"Accounting for Income Taxes" as of July 1, 1993. The cumulative effect of this
change in accounting for income taxes was reflected in earnings for the year
ended June 30, 1994, increasing earnings by $1.4 million, or $0.07 per share.
Components of the Company's deferred income tax liabilities and assets are
as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Plant and equipment, principally due to capitalization, depletion
and depreciation differences...................................... $ (10,598) $ (12,123)
Deferred hedging gains.............................................. (127) (366)
Other, net.......................................................... (1,243) (1,102)
---------- ----------
Total gross deferred tax liabilities............................ (11,968) (13,591)
Deferred tax assets:
Accrued pension costs............................................... 972 657
Accrued reclamation costs........................................... 943 1,093
Inventory valuation adjustment...................................... 406 448
Federal net operating loss carryforward............................. 6,646 1,153
Alternative minimum tax credit carryforward......................... 566 566
Other, net.......................................................... -- 1,063
---------- ----------
Total gross deferred tax assets................................. 9,533 4,980
Less valuation allowance........................................ (5,306) --
---------- ----------
Total deferred tax assets....................................... 4,227 4,980
---------- ----------
Net deferred tax liabilities.................................... $ (7,741) $ (8,611)
---------- ----------
---------- ----------
</TABLE>
Based upon tax planning strategies and estimates of future operations, the
Company anticipates being subject to the alternative minimum tax ("AMT") in the
future. As such, it is more likely than not that the Company will be unable to
realize the benefit of certain deferred tax assets, including the Federal net
43
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(7) INCOME TAXES (CONTINUED)
operating loss carryforwards. A valuation allowance has been recorded to reduce
such Federal net operating losses to an amount expected to be realized through
the reversal of temporary differences. The valuation allowance at December 31,
1996 increased by $5.3 million from December 31, 1995.
As of December 31, 1996, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $19.0 million which may be used
by the Company to offset future Federal taxable income, if any. These loss
carryforwards will expire in 2011.
As of December 31, 1996, the Company had AMT credit carryforwards of $0.6
million available to reduce future regular income taxes, if any, in excess of
alternative minimum taxes. The AMT credit carryforwards are available over an
indefinite period.
The Company's income tax provision (benefit) for income taxes, before the
cumulative effect of a change in accounting principle, consists of (in
thousands):
<TABLE>
<CAPTION>
YEAR SIX MONTHS YEAR ENDED
ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------
1996 1995 1995 1994
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Federal:
Current......................................................... $ -- $ -- $ 428 $ 3,783
Deferred........................................................ (870) (884) -- (2,483)
----- ----- --------- ---------
$ (870) $ (884) $ 428 $ 1,300
----- ----- --------- ---------
----- ----- --------- ---------
</TABLE>
The Company's provisions (benefits) for income taxes before the cumulative
effect of a change in accounting principle differ from amounts computed by
applying the U.S. corporate income tax rate of 35% for the year ended December
31, 1996, the six months ended December 31, 1995 and the year ended June 30,
1995 and 34% for the year ended June 30, 1994 for the following reasons (in
thousands):
<TABLE>
<CAPTION>
YEAR SIX MONTHS YEAR ENDED
ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------
1996 1995 1995 1994
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
U.S. corporate income tax provision (benefit) at statutory
rate......................................................... $ (5,188) $ (2,069) $ (6,275) $ 1,904
Increase in valuation allowance for net deferred tax assets.... 5,306 -- 6,684 --
Percentage depletion........................................... -- -- (1,177) (1,043)
Nondeductible expenses and other............................... 14 (168) 16 (91)
Deductible expenses............................................ (1,002) -- -- --
Tax provision adjustment for pending IRS matters............... -- 1,353 1,180 427
Adjustment to deferred tax assets and liabilities for enacted
change in tax rates.......................................... -- -- -- 103
------------ ------------ --------- ---------
Actual tax provision (benefit)................................. $ (870) $ (884) $ 428 $ 1,300
------------ ------------ --------- ---------
------------ ------------ --------- ---------
</TABLE>
44
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(8) STOCKHOLDERS' EQUITY
SHAREHOLDER RIGHTS PLAN
In connection with the Shareholder Rights Plan amended and restated on
December 31, 1996, Rights have been issued (and will be issued for any newly
outstanding Common Stock) to the outstanding shares of Common Stock of the
Company. The Rights may be exercised only after the earlier of 10 days after a
person becomes (or the directors have knowledge of someone becoming) an
Acquiring Person and 10 days after commencement of a public announcement of a
tender or exchange offer if, upon its consummation, the offeror would
beneficially own 15% or more of the Common Stock. An "Acquiring Person" was
defined to be a person who holds at least 15% of the shares of Common Stock
without the prior approval of a majority of the outside directors of the Board.
In the event someone becomes an Acquiring Person, each holder of Rights (except
the Acquiring Person, whose Rights are voided) has the right to purchase one
one-thousandth of a Series A Junior Participating Preferred Stock ("Preferred
Stock") or, in lieu of shares of Preferred Stock, to receive a number of shares
of Common Stock specified by formula at 50% of the market price the shares of
Common Stock. The Rights, which do not have voting rights, expire in December
2006 and may be redeemed by the Company at a price of $0.01 per Right prior to a
specified period of time after the occurrence of certain events. The Company may
also exchange all of the outstanding Rights for shares of Common Stock at a
ratio of one share of Common Stock per Right (as adjusted), any time after the
first time someone becomes an Acquiring Person. If, following an acquisition of
15% or more of the shares of Common Stock, the Company is acquired in a merger
or other business combination or sells 50% of its assets or earnings power, each
Right (other than Rights voided as above) will entitle its holder to purchase a
number of shares specified by formula of the acquiring company with a value of
twice the then current exercise price. As of December 31, 1996, 25,765,871
rights had been issued and are outstanding. Although the Board of Directors have
authorized the creation of the Series A Junior Participating Preferred Stock,
such series has not been authorized for issuance.
45
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS
STOCK COMPENSATION PLANS
At December 31, 1996, the Company has three stock-based incentive plans
which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized on these stock option plans. Had compensation cost for the
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company's net loss and loss per share would have been reduced to the
pro forma amounts indicated below (in thousands except per share).
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C> <C>
Net loss......................................... As reported $ 13,952 $ 5,027
Pro forma $ 15,333 $ 5,052
Primary loss per share........................... As reported $ 0.54 $ 0.25
Pro forma $ 0.59 $ 0.25
</TABLE>
The fair value of option grants made in the six months ended December 31,
1995 and the year ended December 31, 1996 were estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility of 37%, risk-free interest rate of 6.19% and
expected lives of 5 years.
Directors, officers and certain key employees of the Company participate in
the 1987 Long Term Incentive Plan ("1987 LTIP") under which the Company had
originally reserved 900,000 shares of Common Stock for issuance. Awards may be
in the form of stock options, options to purchase debentures convertible into
Common Stock or convertible preferred stock, stock appreciation rights,
performance units, restricted stock, supplemental cash and such other forms as
directed by the Board of Directors. Stock options granted under 1987 LTIP may be
granted only with an exercise price of not less than 100% of the fair market
value of the Common Stock on the date of grant. The debenture options
outstanding give the holder the right to purchase a debenture from the Company,
which is convertible into preferred stock which is then convertible into the
Common Stock of the Company at the original option price. The Board of Directors
in its discretion, determine the recipients, the amounts of all awards and
vesting period of awards. All awards expire no later than ten years from the
date of grant. As of December 31, 1996, awards for 184,575 common shares
remained available for granting until the plan terminates in October 1997.
Officers and eligible employees of the Company participate in the 1996 Long
Term Equity Incentive Plan ("1996 LTIP") under which the Company had originally
reserved 900,000 shares of Common Stock for issuance. Awards under the 1996 LTIP
include options, stock appreciation rights, restricted stock or performance
shares. Stock options granted under the 1996 LTIP may be granted only with an
exercise price of not less than 100% of the fair market value of the Common
Stock on the date of grant. The Board of Directors in its discretion, determines
the recipients, the amounts of all awards and vesting period of
46
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
awards. All awards expire no later than ten years from the date of grant. As of
December 31, 1996, awards for 372,000 common shares remained available for
granting.
Directors of the Company participate in the 1996 Stock Option Plan for
Outside Directors ("1996 LTIP for Directors") under which the Company had
originally reserved 100,000 shares of Common Stock for issuance. Each person who
(i) was an outside director at the time the 1996 LTIP for Directors was adopted
or (ii) is first elected or appointed as an outside director thereafter will
receive a non-qualified stock option grant to purchase the number of shares of
Common Stock equal to $22,500 divided by one-third of the closing price of the
Common Stock on the date of grant at an option exercise price equal to the fair
market value of the stock on the date of grant. Following such initial grant,
each such Outside director who serves until the third, sixth or ninth
anniversaries of the initial date of grant will automatically receive an
additional number of shares of Common Stock equal to $22,500 divided by
one-third of the closing price of the Common Stock on the date of grant on each
such anniversary at an aggregate option exercise price equal to the fair market
value of the stock on the date of grant, so long as the person is an Outside
Director at the close of business on the date of such anniversary. Generally the
options vest over three years. All options expire five years after the date of
grant. As of December 31, 1996, awards for 74,002 common shares remained
available for granting.
A summary of the status of the Company's three option plans as of December
31, 1996, December 31 1995, June 30, 1995 and June 30, 1994 and changes during
the periods ending on those dates is presented below:
<TABLE>
<CAPTION>
STOCK OPTIONS DEBENTURE OPTIONS
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1993..................................... 125,000 $ 4.3750 100,300 $ 8.0200
Granted........................................................ 60,200 $ 6.6875 5,000 $ 6.3750
Expired or canceled............................................ (2,300) $ 6.6875 (3,000) $ 8.3333
----------- ---------- ----------- ----------
Outstanding at June 30, 1994..................................... 182,900 $ 5.1107 102,300 $ 7.9300
Granted........................................................ 246,349 $ 8.4835 1,000 $ 9.5313
Exercised...................................................... (47,600) $ 5.8069 (13,500) $ 6.4259
Expired or canceled............................................ (129,700) $ 5.2227 (20,300) $ 8.6847
----------- ---------- ----------- ----------
Outstanding at June 30, 1995..................................... 251,949 $ 8.2167 69,500 $ 8.0247
Granted........................................................ 224,041 $ 20.2500 -- --
----------- ---------- ----------- ----------
Outstanding at December 31, 1995................................. 475,990 $ 13.8806 69,500 $ 8.0247
Granted........................................................ 569,133 $ 32.2698 -- --
Exercised...................................................... (56,271) $ 9.2735 (57,000) $ 8.1118
Expired or canceled............................................ (31,800) $ 33.0125 -- --
----------- ---------- ----------- ----------
Outstanding at December 31, 1996................................. 957,052 $ 24.4513 12,500 $ 7.6275
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1996 and the six months ended December 31, 1995 was $13.6751 and
$8.3546, respectively.
47
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes the exercisable options outstanding:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
-------------------------------------------
STOCK OPTIONS DEBENTURE OPTIONS
--------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
At December 31, 1996................................................. 258,514 $ 10.9116 12,500 $ 7.6275
At December 31, 1995................................................. 127,800 $ 6.4682 69,500 $ 8.0247
At June 30, 1995..................................................... 125,800 $ 6.4558 69,500 $ 8.0247
At June 30, 1994..................................................... 182,900 $ 5.1070 102,300 $ 7.9300
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
WEIGHTED- AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- --------------------- ----------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
STOCK OPTIONS
$6.69-$8.50 157,150 7.8 $ 7.3961 157,150 $ 7.3961
$10.75-$11.44 43,709 8.3 $ 11.2330 43,709 $ 11.2330
$20.25 222,193 8.4 $ 20.2500 57,655 $ 20.2500
$30.75-$33.88 474,200 9.3 $ 30.8810 -- --
$34.75-$47.63 59,800 9.8 $ 42.8052 -- --
--
----------- ------------- ----------- -------------
$6.69-$47.63 957,052 8.8 $ 24.4043 258,514 $ 10.9116
--
--
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
DEBENTURE OPTIONS
$3.25 1,000 4.9 $ 3.2500 1,000 $ 3.2500
$5.44-$6.38 3,000 5.5 $ 5.8750 3,000 $ 5.8750
$7.63-$10.19 8,500 3.0 $ 8.7610 8,500 $ 8.7610
--
----------- ------------- ----------- -------------
$3.25-$10.19 12,500 3.8 $ 7.6275 12,500 $ 7.6275
--
--
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
In August 1994, a restricted stock award of 10,000 common shares was
granted. Under the terms of the restricted stock award and as a result of the
Spin-Off and subsequent equity offering completed in November 1995 (see Note 1),
the restricted stock award vested in February 1996. No restricted stock awards
were granted during the year ended December 31, 1996, the six months ended
December 31, 1995 or during the year ended June 30, 1994.
PENSION BENEFITS
Prior to the Spin-Off (see Note 1), the Company's employees participated in
ChemFirst's qualified noncontributory defined benefit pension plan. In
connection with Spin-Off, the Company agreed to establish its own qualified
noncontributory defined benefit pension plan. In turn, ChemFirst agreed to (i)
maintain the administration and funding of accrued benefits at the Spin-Off date
for all vested
48
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
Company employees, and (ii) transfer funds to the Company's pension plan equal
to the actuarially determined pension liability of the non vested Company
employees in the ChemFirst pension plan. ChemFirst transferred funds and,
therefore, the liability for non-vested Company employees previously covered
under the ChemFirst pension plan in September 1996. Therefore, the Company's
financial statements at December 31, 1995 do not reflect the assets or the
liabilities of the pension plan. Such assets or liabilities were not material to
the Company's financial statements at December 31, 1995. Pension expense was
$0.2 million, $0.5 million and $0.4 million for the six months ended December
31, 1995 and years ended June 30, 1995 and 1994, respectively.
Employees who participated in the ChemFirst pension plan as of September 30,
1995 were eligible to participate in the Company's pension plan at inception.
All other employees are eligible to participate in the Company's pension plan
following six months of service. The Company's plan covers all full-time
permanent employees. The benefits are based on years of service and
participants' compensation during the last five years of employment. Under the
plan, an employee becomes a participant following six months of service,
provided that the employee is regularly employed for at least 1,000 hours per
year.
The components of pension expense for the pension plan consist of (in
thousands):
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1996
---------------
<S> <C>
Service cost.................................................................... $ 635
Interest cost on projected benefit obligation................................... 140
Return on assets................................................................ (16)
Net amortization and deferral................................................... 71
-----
Pension expense................................................................. $ 830
-----
-----
</TABLE>
49
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the Company's pension
plan and the amounts recognized in the Company's consolidated balance sheet (in
thousands):
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1996
------------
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested benefit obligation................................................... $ 45
Non-vested benefits......................................................... 954
------------
Accumulated benefit obligation................................................ 999
Effect of future salary increases............................................. 1,640
------------
Projected benefit obligation.................................................... 2,639
Plan assets at fair value....................................................... (558)
------------
Excess of plan assets over projected benefit obligation......................... 2,081
Unrecognized net loss........................................................... (112)
Unrecognized prior service cost................................................. (1,292)
------------
Net pension liability........................................................... $ 677
------------
------------
</TABLE>
In measuring the projected benefit obligation for the pension plan, a
weighted average discount rate of 7.5% and a rate on increase in future
compensation of 3.0% was used at December 31, 1996 and 1995. The weighted
average expected long-term rate of return on plan assets was assumed to be 7.0%
for the year ended December 31, 1996.
SAVINGS PLAN
Substantially all employees who have completed six months of service are
eligible to participate in the Company's 401(k) thrift plan. Under the savings
plan, employees may elect to contribute from 1% to 15% of monthly base pay, with
the Company matching contributions up to 4% of monthly base pay. Total expense
under the plan amounted to $0.4 million, $0.1 million, $0.2 million and $0.2
million for the year ended December 31, 1996, the six months ended December 31,
1995, and the years ended June 30, 1995 and 1994, respectively.
(10) MAJOR CUSTOMERS
The Company is not economically dependent on a limited number of customers
for the sale of its product because gold commodity markets are well-established
worldwide. During 1996, one customer accounted for more than 10% of total sales
with $54.1 million or 82% of total sales to this customer. In the six months
ended December 31, 1995 and the year ended June 30, 1995, one customer accounted
for all of the total sales. For the year ended June 30, 1994, one customer
accounted for more than 10% of total sales with $82.9 million or 93% of total
sales to this customer. For the year ended December 31, 1996, the six months
ended December 31, 1995 and the years ended June 30, 1995 and 1994, export sales
were less than 10% of total sales.
50
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(11) RELATED PARTY TRANSACTIONS
The Company had an administrative services agreement with ChemFirst which
was terminated in conjunction with the Spin-Off (see Note 1). Prior to
agreement's termination, the Company reimbursed ChemFirst on a fee basis
determined annually. Under this agreement, the Company reimbursed ChemFirst
approximately $0.1 million, $0.2 million and $0.1 million for the six months
ended December 31, 1995 and the years ended June 30, 1995 and 1994,
respectively. Direct expenses incurred by ChemFirst on behalf of the Company
were charged to the Company based on the actual costs incurred.
For insurance premiums paid by ChemFirst on behalf of the Company, the
Company reimbursed ChemFirst approximately $0.2 million, $0.3 million and $0.2
million for the six months ended December 31, 1995 and years ended June 30, 1995
and 1994, respectively.
As discussed in Note 5, contemporaneously with the Spin-Off, the Company and
ChemFirst executed a promissory note, upon which all promissory notes previously
entered into between the two companies were canceled.
(12) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------
1996 1995 1995 1994
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Interest, net of amounts capitalized (Note 5)..................... $ (448) $ 87 $ 48 $ 292
Income taxes paid to ChemFirst.................................... $ -- $ -- $ -- $ 2,000
</TABLE>
Excluded from the statement of consolidated cash flows are the effects of
certain non-cash transactions. In the year ended December 31, 1996, the six
months ended December 31, 1995, and the years ended June 30, 1995 and 1994,
interest payable in the amounts of $1.5 million, $3.0 million, $2.3 million and
$1.5 million, respectively, were capitalized to the note payable to ChemFirst.
In the six months ended December 31, 1995, $13.9 million of income taxes
receivable from ChemFirst was offset against the note payable to ChemFirst. In
the year ended June 30, 1994, $3.0 million of income taxes payable to ChemFirst
was transferred to the note payable to ChemFirst.
Capital lease obligations of $7.2 and $5.5 million were incurred to acquire
equipment during the year ended December 31, 1996 and six months ended December
31, 1995, respectively.
(13) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL OBLIGATIONS
The Company's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect the public health and environment and believes its operations are in
compliance with all applicable laws and regulations. The Company has made, and
expects to make in the future, expenditures to comply with such laws and
regulations. The Company cannot predict such future expenditures.
51
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
INTERNAL REVENUE SERVICE TAX CLAIM
In October 1996, the Internal Revenue Service ("IRS") filed a notice of
deficiency, stating that the IRS is proceeding against ChemFirst and, thus the
Company (see Note 7 regarding the Amended Tax Sharing Agreement between
ChemFirst and the Company), for income taxes associated with ChemFirst's
consolidated income tax returns filed in 1989 and 1990. The Company's share of
the asserted deficiency, including interest, totals approximately $3.0 million.
In response, ChemFirst and the Company filed a petition with the United States
Tax Court in December 1996. The Company believes it has adequately reserved for
this tax matter.
MAJOR CONTRACTS
The Company has an agreement with an independent contractor who provides
oxygen for the autoclave process in the mill. The agreement requires, among
other things, that the Company must pay the independent contractor at a rate
(subject to future adjustments for inflation) of approximately $0.2 million a
month. The Company is also obligated to a termination fee if the contract is
terminated prior to January 2004. The termination fee is $2.8 million in 1997
and decreases each year until reaching $0.4 million in 2004.
ROYALTIES
The Company is obligated to pay a 2% royalty on net smelter returns of the
current mineral production from certain of its mining properties. Royalties,
recorded as operating costs, amounted to $1.5 million, $0.8 million, $1.5
million, and $1.9 million for the year ended December 31, 1996, the six months
ended December 31, 1995 and years ended June 30, 1995, and 1994, respectively.
LETTER OF CREDIT
At December 31, 1996, a $1.0 million unsecured letter of credit was
outstanding for bonding of a reclamation plan. In January 1997, this letter of
credit was increased to $4.5 million. This letter of credit reflects fair value
as a condition of its underlying purpose and is subject to fees competitively
determined in the market place.
(14) SUBSEQUENT EVENTS
On February 14, 1997, the Board of Directors of the Company granted stock
appreciation rights under the Company's 1996 LTIP with respect to 76,723 shares
at a weighted average grant price of $8.2371 per share to certain executives and
other employees of the Company. Compensation with respect to stock appreciation
rights is accounted for on a variable basis and is "marked to market" at the end
of each fiscal quarter based on the market price of the Company's Common Stock.
Accordingly, the Company's future quarterly financial results will reflect
additional compensation expense if the market price of the Common Stock
increases from the preceding quarter or income if such market price decreases
from the preceding quarter. Based on the market price of the Company's Common
Stock on the date of grant, the Company would have recognized compensation
expense of $2.6 million in the first quarter of 1997 had that quarter ended on
such date.
52
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(15) FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited selected quarterly financial
information (amounts in thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 14,655 $ 17,193 $ 17,020 $ 19,010 $ 67,878
Gross loss.................................... $ (1,923) $ (1,243) $ (3,572) $ (4,168) $ (10,906)
Loss before income taxes...................... $ (2,603) $ (2,021) $ (4,218) $ (5,980) $ (14,822)
Net loss...................................... $ (1,733) $ (2,021) $ (4,218) $ (5,980) $ (13,952)
Loss per share................................ $ (0.07) $ (0.08) $ (0.16) $ (0.23) $ (0.54)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
-----------------------------------------
THREE MONTHS ENDED SIX MONTHS
--------------------------- ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------- ------------ ------------
<S> <C> <C> <C>
Net sales............................................................ $ 17,605 $ 16,820 $ 34,425
Gross margin (loss).................................................. $ 666 $ (2,197) $ (1,531)
Loss before income taxes............................................. $ (1,659) $ (4,252) $ (5,911)
Net loss............................................................. $ (1,234) $ (3,793) $ (5,027)
Loss per share....................................................... $ (0.07) $ (0.18) $ (0.25)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
-----------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------- YEAR ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, JUNE 30,
------------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $ 21,509 $ 16,517 $ 15,786 $ 17,673 $ 71,485
Gross margin (loss)............................ $ 3,616 $ (1,349) $ 1,637 $ (2,194) $ 1,710
Income (loss) before income taxes.............. $ 882 $ (2,767) $ (39) $ (16,005) $ (17,929)
Net income (loss).............................. $ 507 $ (1,827) $ (454) $ (16,583) $ (18,357)
Income (loss) per share........................ $ 0.03 $ (0.10) $ (0.03) $ (0.91) $ (1.01)
</TABLE>
53
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(15) FINANCIAL DATA (UNAUDITED) (CONTINUED)
The following table sets forth unaudited Consolidated Statements of
Operations for the year ended December 31, 1995 and the six months ended
December 31, 1994 (amounts in thousands except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net sales............................................................................ $ 67,884 $ 38,026
Cost of sales........................................................................ 69,972 35,759
------------ ------------
Gross margin....................................................................... (2,088) 2,267
General and administrative expenses.................................................. 3,531 1,182
Exploration expenses................................................................. 2,106 2,298
Abandonment and impairment of mineral properties..................................... 11,531 --
------------ ------------
Income (loss) from operations...................................................... (19,256) (1,213)
Interest expense, net of capitalized interest........................................ (3,680) (759)
Interest and other income............................................................ 981 87
------------ ------------
Pre-tax income (loss).............................................................. (21,955) (1,885)
Income tax provision (benefit)....................................................... 109 (565)
------------ ------------
Net income (loss).................................................................... $ (22,064) $ (1,320)
------------ ------------
------------ ------------
Income (loss) per common share....................................................... $ (1.16) $ (0.07)
------------ ------------
------------ ------------
Weighted average number of shares outstanding........................................ 19,035 18,122
------------ ------------
------------ ------------
</TABLE>
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and executive officers will
be contained in the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 for the
1997 annual meeting of stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item will be in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 for the 1997 annual meeting and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 for the 1997 annual meeting and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning this item will be in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 for the 1997 annual meeting and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The Financial Statements which are filed with this Form 10-K are set forth
in the Index to Financial Statements at page 29, which immediately precedes such
financial statements. No schedules are required under the applicable
instructions or are inapplicable and have therefore been omitted.
EXHIBITS
The following exhibits are, as indicated below, either filed herewith or
have previously been filed with the Commission and are referred to and
incorporated herein by reference to such filings.
<TABLE>
<S> <C> <C>
3 (a) -- Certificate of Incorporation, as amended. Incorporated by reference to Appendix D
to the Company's definitive Proxy Statement dated May 3, 1996.
3 (b) -- Bylaws of the Company, as amended. Incorporated by reference to Appendix E to the
Company's definitive Proxy Statement dated May 3, 1996.
4 (c) -- Company Resoulutions authorizing the 1988-A Series Convertible Preferred Stock,
effective July 13, 1988. Incorporated by reference to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1988.
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C>
4 (d) -- Company Resolutions authorizing the 1989-A Series Convertible Preferred Stock,
effective August 9, 1989. Incorporated by reference to Exhibit 4(f) to the
Company's Annual Report on Form 10-K for the year ended June 30, 1989.
4 (e) -- Company Resolutions authorizing the 1989-B Series Convertible Preferred Stock,
effective November 2, 1989. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1989.
4 (f) -- Company Resolutions authorizing the 1990-A Series Convertible Preferred Stock,
effective August 8, 1990. Incorporated by reference to Exhibit 4(f) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990.
4 (g) -- Company Resolutions authorizing the Company's 1990-B and 1990-C Series Convertible
Preferred Stock, effective November 1, 1990 and November 2, 1990, respectively.
August 14, 1991. Incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
4 (h) -- Company Resolutions authorizing the 1991-A Series Convertible Preferred Stock,
effective August 14, 1991. Incorporated by reference to Exhibit 4(h) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991.
4 (i) -- Company Resolutions authorizing the 1991-B Series Convertible Preferred Stock,
effective November 7, 1991. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1991.
4 (j) -- Company Resolutions authorizing the 1992-A Series Convertible Preferred Stock,
effective November 5, 1992. Incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1992.
4 (k) -- Company Resolutions authorizing the 1993-A Series Convertible Preferred Stock,
effective November 4, 1993. Incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
4 (l) -- Amended and Restated Rights Agreement between the Company and Harris Trust &
Savings Bank, dated as of December 31, 1996.
10 (a) -- The Company's Amended and Restated Long-Term Incentive Plan, as amended November
14, 1992. Incorporated by reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
10 (b) -- Form of Termination Agreement between the Company and Richard F. Nanna.
Incorporated by reference to Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1991.
10 (c) -- Form of Addendum to Termination Agreement the Company and Richard F. Nanna.
Incorporated by reference to Exhibit 10(x) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1991.
10 (d) -- Mine Operating Contract between FMG Inc. and N.A. Degerstrom, Inc. dated July 1,
1991. Incorporated by reference to Exhibit 10(aa) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1991.
10 (e) -- Oxygen Supply Agreement, dated August 27, 1987, and Air Rights Lease Agreement,
dated as of August 27, 1987. Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1989.
10 (f) -- Amendment to Administrative Service Agreement between ChemFirst and the Company
dated August 29, 1995. Incorporated by reference to Exhibit 10(cc) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
10 (g) -- Form of Termination Agreement between the Company and G.W. Thompson, Donald S.
Robson, R. David Russell and Donald O. Miller (Company's Termination Agreement
with each such individual contains identical provisions to those contained in
the form). Incorporated by reference to Exhibit 10(dd) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
10 (h) -- Promissory Note by the Company in favor of ChemFirst dated February 1, 1995.
Incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.
10 (i) -- Restricted Stock Award Agreement between the Company and G.W. Thompson dated
August 22, 1994. Incorporated by reference to Exhibit 10(ff) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
10 (j) -- Post Spin-Off Agreement dated as of September 24, 1995, by and between ChemFirst
and the Company. Incorporated by reference to 10(a) to the Company's Report on
Form 8-K dated September 24, 1995.
10 (k) -- Tax Ruling Agreement dated as of September 24, 1995, by and between ChemFirst and
the Company. Incorporated by reference to Exhibit 10(b) to the Company's Report
on Form 8-K dated September 24, 1995.
10 (l) -- Loan Agreement dated September 24, 1995, by and between ChemFirst and the Company.
Incorporated by reference to Exhibit 10(c) to the Company's Report on Form 8-K
dated September 24, 1995.
10 (m) -- Amended Tax Sharing Agreement dated as of September 24, 1995, by and between
ChemFirst and the Company. Incorporated by reference to Exhibit 10(d) to the
Company's Report on Form 8-K dated September 24, 1995.
10 (n) -- Loan Agreement dated as of September 24, 1995 by and between The Toronto-Dominion
Bank and the Company. Incorporated by reference to Exhibit 10(cc) to the
Company's Annual Report on Form 10-K for the six months ended December 31, 1995.
10 (o) -- Turquoise Ridge Shaft No. 1 Construction contract between Thyssen Mining and the
Company dated January 2, 1996. Incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
10 (p) -- Turquoise Ridge Shaft No. 2 Construction contract between Thyssen Mining and the
Company dated May 1, 1996. Incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
10 (q) -- 1996 Stock Option Plan for Outside Directors. Incorporated by reference to Exhibit
4(a) to the Company's Registration Statement on Form S-8 dated February 19,
1997.
10 (r) -- 1996 Long Term Equity Incentive Plan. Incorporated by reference to Exhibit 4(b) to
the Company's Registration Statement on Form S-8 dated February 19, 1997.
21. List of subsidiaries of the Company.
23.A Consent of KPMG Peat Marwick LLP.
23.B Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K
None
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GETCHELL GOLD CORPORATION
Date: March 10, 1997 By: /s/ G.W. THOMPSON
-----------------------------------------
G.W. Thompson, PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Chief
/s/ G. W. THOMPSON Executive Officer
- ------------------------------ (Principal Executive March 10, 1997
G. W. Thompson Officer) and Director
Vice President and Chief
/s/ DONALD S. ROBSON Financial Officer
- ------------------------------ (Principal Financial March 10, 1997
Donald S. Robson Officer)
/s/ ROGER D. PALMER
- ------------------------------ Controller (Principal March 10, 1997
Roger D. Palmer Accounting Officer)
/s/ J. KELLEY WILLIAMS
- ------------------------------ Director and Chairman of March 10, 1997
J. Kelley Williams the Board of Directors
/s/ WALTER A. DREXEL
- ------------------------------ Director March 10, 1997
Walter A. Drexel
/s/ ROBERT C. HORTON
- ------------------------------ Director March 10, 1997
Robert C. Horton
58
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ PETE INGERSOLL
- ------------------------------ Director March 10, 1997
Pete Ingersoll
/s/ JOHN RACICH
- ------------------------------ Director March 10, 1997
John Racich
/s/ CHARLIE E. STOTT, JR.
- ------------------------------ Director March 10, 1997
Charlie E. Stott, Jr.
/s/ R. MICHAEL SUMMERFORD
- ------------------------------ Director March 10, 1997
R. Michael Summerford
/s/ ALLEN WINTERS
- ------------------------------ Director March 10, 1997
Allen Winters
/s/ ROBERT L. ZERGA
- ------------------------------ Director March 10, 1997
Robert L. Zerga
59
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
3 (a) -- Certificate of Incorporation, as amended. Incorporated by reference to Appendix D
to the Company's definitive Proxy Statement dated May 3, 1996.
3 (b) -- Bylaws of the Company, as amended. Incorporated by reference to Appendix E to the
Company's definitive Proxy Statement dated May 3, 1996.
4 (c) -- Company Resoulutions authorizing the 1988-A Series Convertible Preferred Stock,
effective July 13, 1988. Incorporated by reference to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1988.
4 (d) -- Company Resolutions authorizing the 1989-A Series Convertible Preferred Stock,
effective August 9, 1989. Incorporated by reference to Exhibit 4(f) to the
Company's Annual Report on Form 10-K for the year ended June 30, 1989.
4 (e) -- Company Resolutions authorizing the 1989-B Series Convertible Preferred Stock,
effective November 2, 1989. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1989.
4 (f) -- Company Resolutions authorizing the 1990-A Series Convertible Preferred Stock,
effective August 8, 1990. Incorporated by reference to Exhibit 4(f) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990.
4 (g) -- Company Resolutions authorizing the Company's 1990-B and 1990-C Series Convertible
Preferred Stock, effective November 1, 1990 and November 2, 1990, respectively.
August 14, 1991. Incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
4 (h) -- Company Resolutions authorizing the 1991-A Series Convertible Preferred Stock,
effective August 14, 1991. Incorporated by reference to Exhibit 4(h) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991.
4 (i) -- Company Resolutions authorizing the 1991-B Series Convertible Preferred Stock,
effective November 7, 1991. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1991.
4 (j) -- Company Resolutions authorizing the 1992-A Series Convertible Preferred Stock,
effective November 5, 1992. Incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1992.
4 (k) -- Company Resolutions authorizing the 1993-A Series Convertible Preferred Stock,
effective November 4, 1993. Incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1993.
4 (l) -- Amended and Restated Rights Agreement between the Company and Harris Trust &
Savings Bank, dated as of December 31, 1996.
10 (a) -- The Company's Amended and Restated Long-Term Incentive Plan, as amended November
14, 1992. Incorporated by reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
10 (b) -- Form of Termination Agreement between the Company and Richard F. Nanna.
Incorporated by reference to Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1991.
10 (c) -- Form of Addendum to Termination Agreement the Company and Richard F. Nanna.
Incorporated by reference to Exhibit 10(x) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1991.
10 (d) -- Mine Operating Contract between FMG Inc. and N.A. Degerstrom, Inc. dated July 1,
1991. Incorporated by reference to Exhibit 10(aa) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1991.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10 (e) -- Oxygen Supply Agreement, dated August 27, 1987, and Air Rights Lease Agreement,
dated as of August 27, 1987. Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1989.
10 (f) -- Amendment to Administrative Service Agreement between ChemFirst and the Company
dated August 29, 1995. Incorporated by reference to Exhibit 10(cc) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
10 (g) -- Form of Termination Agreement between the Company and G.W. Thompson, Donald S.
Robson, R. David Russell and Donald O. Miller (Company's Termination Agreement
with each such individual contains identical provisions to those contained in
the form). Incorporated by reference to Exhibit 10(dd) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
10 (h) -- Promissory Note by the Company in favor of ChemFirst dated February 1, 1995.
Incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.
10 (i) -- Restricted Stock Award Agreement between the Company and G.W. Thompson dated
August 22, 1994. Incorporated by reference to Exhibit 10(ff) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
10 (j) -- Post Spin-Off Agreement dated as of September 24, 1995, by and between ChemFirst
and the Company. Incorporated by reference to 10(a) to the Company's Report on
Form 8-K dated September 24, 1995.
10 (k) -- Tax Ruling Agreement dated as of September 24, 1995, by and between ChemFirst and
the Company. Incorporated by reference to Exhibit 10(b) to the Company's Report
on Form 8-K dated September 24, 1995.
10 (l) -- Loan Agreement dated September 24, 1995, by and between ChemFirst and the Company.
Incorporated by reference to Exhibit 10(c) to the Company's Report on Form 8-K
dated September 24, 1995.
10 (m) -- Amended Tax Sharing Agreement dated as of September 24, 1995, by and between
ChemFirst and the Company. Incorporated by reference to Exhibit 10(d) to the
Company's Report on Form 8-K dated September 24, 1995.
10 (n) -- Loan Agreement dated as of September 24, 1995 by and between The Toronto-Dominion
Bank and the Company. Incorporated by reference to Exhibit 10(cc) to the
Company's Annual Report on Form 10-K for the six months ended December 31, 1995.
10 (o) -- Turquoise Ridge Shaft No. 1 Construction contract between Thyssen Mining and the
Company dated January 2, 1996. Incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
10 (p) -- Turquoise Ridge Shaft No. 2 Construction contract between Thyssen Mining and the
Company dated May 1, 1996. Incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
10 (q) -- 1996 Stock Option Plan for Outside Directors. Incorporated by reference to Exhibit
4(a) to the Company's Registration Statement on Form S-8 dated February 19,
1997.
10 (r) -- 1996 Long Term Equity Incentive Plan. Incorporated by reference to Exhibit 4(b) to
the Company's Registration Statement on Form S-8 dated February 19, 1997.
21. List of subsidiaries of the Company.
23.A Consent of KPMG Peat Marwick LLP.
23.B Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule.
</TABLE>
<PAGE>
____________
GETCHELL GOLD CORPORATION
AND
HARRIS TRUST AND SAVINGS BANK, as Rights Agent
____________
RIGHTS AGREEMENT
Dated as of December 31, 1996
____________
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TABLE OF CONTENTS
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Section 1. CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . 1
Section 2. APPOINTMENT OF RIGHTS AGENT. . . . . . . . . . . . 5
Section 3. ISSUE OF RIGHT CERTIFICATES. . . . . . . . . . . . 5
Section 4. FORM OF RIGHT CERTIFICATES . . . . . . . . . . . . 7
Section 5. COUNTERSIGNATURE AND REGISTRATION. . . . . . . . . 7
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF
RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR
STOLEN RIGHT CERTIFICATES. . . . . . . . . . . . . 8
Section 7. EXERCISE OF RIGHTS, PURCHASE PRICE; EXPIRATION
DATE OF RIGHTS . . . . . . . . . . . . . . . . . . 8
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT
CERTIFICATES . . . . . . . . . . . . . . . . . . . 10
Section 9. AVAILABILITY OF SHARES OF PREFERRED STOCK. . . . . 10
Section 10. PREFERRED STOCK RECORD DATE . . . . . . . . . . . 11
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF
SHARES AND NUMBER OF RIGHTS . . . . . . . . . . . 11
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR
NUMBER OF SHARES. . . . . . . . . . . . . . . . . 19
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF
ASSETS OR EARNING POWER . . . . . . . . . . . . . 19
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES . . . . . 23
Section 15. RIGHTS OF ACTION. . . . . . . . . . . . . . . . . 24
Section 16. AGREEMENT OF RIGHT HOLDERS. . . . . . . . . . . . 24
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED
A STOCKHOLDER . . . . . . . . . . . . . . . . . . 25
Section 18. CONCERNING THE RIGHTS AGENT . . . . . . . . . . . 25
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Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
RIGHTS AGENT. . . . . . . . . . . . . . . . . . . 26
Section 20. DUTIES OF RIGHTS AGENT. . . . . . . . . . . . . . 26
Section 21. CHANGE OF RIGHTS AGENT. . . . . . . . . . . . . . 28
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. . . . . . . . 29
Section 23. REDEMPTION. . . . . . . . . . . . . . . . . . . . 29
Section 24. EXCHANGE. . . . . . . . . . . . . . . . . . . . . 30
Section 25. NOTICE OF CERTAIN EVENTS. . . . . . . . . . . . . 31
Section 26. NOTICES . . . . . . . . . . . . . . . . . . . . . 32
Section 27. SUPPLEMENTS AND AMENDMENTS. . . . . . . . . . . . 32
Section 28. SUCCESSORS. . . . . . . . . . . . . . . . . . . . 33
Section 29. BENEFITS OF THIS AGREEMENT. . . . . . . . . . . . 33
Section 30. DETERMINATIONS AND ACTIONS BY THE
BOARD OF DIRECTORS. . . . . . . . . . . . . . . . 33
Section 31. SEVERABILITY. . . . . . . . . . . . . . . . . . . 33
Section 32. GOVERNING LAW . . . . . . . . . . . . . . . . . . 33
Section 33. COUNTERPARTS. . . . . . . . . . . . . . . . . . . 34
Section 34. DESCRIPTIVE HEADINGS. . . . . . . . . . . . . . . 34
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RIGHTS AGREEMENT
This Amended and Restated Rights Agreement, dated as of December 31,
1996 ("Agreement"), is by and between Getchell Gold Corporation, a Delaware
corporation (the "Company"), and Harris Trust & Savings Bank, an Illinois
banking corporation, as Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the
Close of Business (as defined below) on June 25, 1990 (the "Record Date"),
each Right representing the right to purchase one one-thousandth (subject to
adjustment) of a share of Preferred Stock (as hereinafter defined), upon the
terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right (subject to adjustment as
provided herein) with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earlier of the Distribution Date
and the Expiration Date (as such terms are hereinafter defined); PROVIDED,
HOWEVER, that Rights may be issued with respect to shares of Common Stock
that shall become outstanding after the Distribution Date and prior to the
Expiration Date in accordance with Section 22.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such term
is hereinafter defined) of 15% or more of the shares of Common Stock then
outstanding, but shall not include an Exempt Person (as such term is
hereinafter defined); PROVIDED, HOWEVER, that (i) if the Board of Directors
of the Company determines in good faith that a Person who would otherwise be
an "Acquiring Person" became such inadvertently (including, without
limitation, because (A) such Person was unaware that it beneficially owned a
percentage of Common Stock that would otherwise cause such Person to be an
"Acquiring Person" or (B) such Person was aware of the extent of its
Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Agreement) and without
any intention of changing or influencing control of the Company, and if such
Person as promptly as practicable divested or divests itself of Beneficial
Ownership of a sufficient number of shares of Common Stock so that such
Person would no longer be an "Acquiring Person," then such Person shall not
be deemed to be or to have become an "Acquiring Person" for any purposes of
this Agreement; (ii) if, as of the date hereof, any Person is the Beneficial
Owner of 15% or more of the shares of Common Stock outstanding, such Person
shall not be or become an "Acquiring Person" unless and until such time as
such Person shall become the Beneficial Owner of additional shares of Common
Stock (other than pursuant to a dividend or
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distribution paid or made by the Company on the outstanding Common Stock in
shares of Common Stock or pursuant to a split or subdivision of the
outstanding Common Stock), unless, upon becoming the Beneficial Owner of such
additional shares of Common Stock, such Person is not then the Beneficial
Owner of 15% or more of the shares of Common Stock then outstanding; and
(iii) no Person shall become an "Acquiring Person" as the result of an
acquisition of shares of Common Stock by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of shares of
Common Stock beneficially owned by such Person to 15% or more of the shares
of Common Stock then outstanding, PROVIDED, HOWEVER, that if a Person shall
become the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding by reason of such share acquisitions by the Company and shall
thereafter become the Beneficial Owner of any additional shares of Common
Stock (other than pursuant to a dividend or distribution paid or made by the
Company on the outstanding Common Stock in shares of Common Stock or pursuant
to a split or subdivision of the outstanding Common Stock), then such Person
shall be deemed to be an "Acquiring Person" unless upon becoming the
Beneficial Owner of such additional shares of Common Stock such Person does
not beneficially own 15% or more of the shares of Common Stock then
outstanding. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding shares of Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the
date hereof.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be deemed
to have "Beneficial Ownership" of and shall be deemed to "beneficially own"
any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly, within the
meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date hereof;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; PROVIDED,
HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, (x) securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for purchase, (y)
securities which such Person has a right to acquire upon the exercise of
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Rights at any time prior to the time that any Person becomes an Acquiring
Person or (z) securities issuable upon the exercise of Rights from and after
the time that any Person becomes an Acquiring Person if such Rights were
acquired by such Person or any of such Person's Affiliates or Associates
prior to the Distribution Date or pursuant to Section 3(a) or Section 22
hereof ("Original Rights") or pursuant to Section 11(i) or Section 11(n) with
respect to an adjustment to Original Rights; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; PROVIDED, HOWEVER,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security by reason of such agreement, arrangement or understanding
if the agreement, arrangement or understanding to vote such security (1)
arises solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person and with respect to which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities) for
the purpose of acquiring, holding, voting (except to the extent contemplated
by the proviso to Section 1(c)(ii)(B)) or disposing of such securities of the
Company;
PROVIDED, HOWEVER, that no Person who is an officer, director or employee of
an Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section 1(c)), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer,
director or employee of an Exempt Person.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banking institutions in the State of New York or the city
in which the principal office of the Rights Agent is located are authorized
or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., New
York City time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Common Stock" when used with reference to the Company shall mean
the Common Stock, presently par value $.0001 per share, of the Company.
"Common Stock" when used with reference to any Person other than the Company
shall mean the common stock (or, in the case of an unincorporated entity, the
equivalent equity interest) with the greatest voting power of such other
Person or, if such other Person is a subsidiary of another Person, the Person
or Persons which ultimately control such first-mentioned Person.
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(g) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(h) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(i) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(j) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.
(k) "Exempt Person" shall mean the Company or any Subsidiary (as such
term is hereinafter defined) of the Company, in each case including, without
limitation, in its fiduciary capacity, or any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity or trustee holding
Common Stock for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees of
the Company or of any Subsidiary of the Company.
(l) "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
(m) "Expiration Date" shall have the meaning set forth in Section 7
hereof.
(n) "Flip-In Event" shall have the meaning set forth in Section
11(a)(ii) hereof.
(o) "Final Expiration Date" shall have the meaning set forth in Section
7 hereof.
(p) "Nasdaq" shall mean the Nasdaq Stock Market.
(q) "New York Stock Exchange" shall mean the New York Stock Exchange,
Inc.
(r) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust or other entity, and shall include any
successor (by merger or otherwise) to such entity.
(s) "Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock, par value $.0001 per share, of the Company having the rights
and preferences set forth in the Form of Certificate of Designation attached
to this Agreement as Exhibit A.
(t) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(u) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(v) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
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(w) "Right Certificate" shall have the meaning set forth in Section 3
hereof.
(x) "Securities Act" shall mean the Securities Act of 1933, as amended.
(y) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(z) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(aa) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such,
or such earlier date as a majority of the Board of Directors shall become
aware of the existence of an Acquiring Person.
(bb) "Subsidiary" of any Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary
voting power sufficient to elect a majority of the board of directors or
other persons performing similar functions are beneficially owned, directly
or indirectly, by such Person, and any corporation or other entity that is
otherwise controlled by such Person.
(cc) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(dd) "Summary of Rights" shall have the meaning set forth in Section 3
hereof.
(ee) "Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date be the holders of Common Stock) in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents
as it may deem necessary or desirable.
Section 3. ISSUE OF RIGHT CERTIFICATES.
(a) Until the Close of Business on the earlier of (i) the tenth day
after the Stock Acquisition Date or (ii) the tenth Business Day (or such
later date as may be determined by action of the Board of Directors prior to
such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
Person) to commence, a tender or exchange offer the consummation of which
would result in any Person (other than an Exempt
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Person) becoming the Beneficial Owner of shares of Common Stock aggregating
15% or more of the Common Stock then outstanding (the earlier of such dates
being herein referred to as the "Distribution Date", PROVIDED, HOWEVER, that
if either of such dates occurs after the date of this Agreement and on or
prior to the Record Date, then the Distribution Date shall be the Record
Date), (x) the Rights will be evidenced (subject to the provisions of Section
3(b) hereof) by the certificates for Common Stock registered in the names of
the holders thereof and not by separate Right Certificates, and (y) the
Rights will be transferable only in connection with the transfer of Common
Stock. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person), at
the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right (subject to adjustment as provided
herein) for each share of Common Stock so held. As of the Distribution Date,
the Rights will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Shares of
Preferred Stock to each record holder of Common Stock as of the Close of
Business on the Record Date (other than any Acquiring Person or any Associate
or Affiliate of any Acquiring Person), at the address of such holder shown on
the records of the Company. With respect to certificates for Common Stock
outstanding as of the Record Date, until the Distribution Date, the Rights
will be evidenced by such certificates registered in the names of the holders
thereof together with the Summary of Rights. Until the Distribution Date
(or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Stock outstanding on the Record Date, with or without
a copy of the Summary of Rights, shall also constitute the transfer of the
Rights associated with the Common Stock represented thereby.
(c) Certificates issued for Common Stock (including, without
limitation, upon transfer of outstanding Common Stock, disposition of Common
Stock out of treasury stock or issuance or reissuance of Common Stock out of
authorized but unissued shares) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date shall have impressed
on, printed on, written on or otherwise affixed to them an appropriate legend
with respect to the Rights. With respect to such certificates containing the
foregoing legend, until the Distribution Date the Rights associated with the
Common Stock represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any such certificate,
except as otherwise provided herein, shall also constitute the transfer of
the Rights associated with the Common Stock represented thereby. In the
event that the Company purchases or otherwise acquires any Common Stock after
the Record Date but prior to the Distribution Date, any Rights associated
with such Common Stock shall be deemed canceled and retired so that the
Company shall not be entitled to exercise any Rights associated with the
Common Stock which are no longer outstanding.
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Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law or with
any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange or interdealer quotation system on which the Rights may
from time to time be listed or quoted, or to conform to usage. Subject to
the provisions of Sections 11, 13 and 22 hereof, the Right Certificates shall
entitle the holders thereof to purchase such number of one one-thousandths of
a share of Preferred Stock as shall be set forth therein at the price per one
one-thousandth of a share of Preferred Stock set forth therein (the "Purchase
Price"), but the number of such one one-thousandths of a share of Preferred
Stock and the Purchase Price shall be subject to adjustment as provided
herein.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Right Certificates shall be executed on behalf of the Company
by the President of the Company, either manually or by facsimile signature,
shall have affixed thereto the Company's seal or a facsimile thereof and
shall be attested by the Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned
by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any
of the Right Certificates shall cease to be such officer of the Company
before countersignature by the Rights Agent and issuance and delivery by the
Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the Person who signed such Right Certificates had not ceased
to be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any Person who, at the actual date of the execution
of such Right Certificate, shall be a proper officer of the Company to sign
such Right Certificate, although at the date of the execution of this
Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office or agency designated for such purpose, books
for registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of
the Right Certificates, the number of Rights evidenced on its face by each of
the Right Certificates and the date of each of the Right Certificates.
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Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Sections 7(e), 11(a)(ii), 13 and 14
hereof, at any time after the Distribution Date and prior to the Expiration
Date, any Right Certificate or Right Certificates may be transferred, split
up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of
one one-thousandths of a share of Preferred Stock as the Right Certificate or
Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any
Right Certificate or Right Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate or
Right Certificates to be transferred, split up, combined or exchanged at the
office or agency of the Rights Agent designated for such purpose. Thereupon
the Rights Agent shall countersign and deliver to the Person entitled thereto
a Right Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, at any time
after the Distribution Date and prior to the Expiration Date, upon receipt by
the Company and the Rights Agent of evidence reasonably satisfactory to them
of the loss, theft, destruction or mutilation of a Right Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request, reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will make and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. EXERCISE OF RIGHTS, PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or
in part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at
the office or agency of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price with respect to the
total number of one one-thousandths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which the Rights
are exercised, at any time which is both after the Distribution Date and
prior to the time (the "Expiration Date") that is the earliest of (i) the
Close of Business on December 31, 2006 (the "Final Expiration Date"), (ii)
the time at which the Rights are redeemed as provided in Section 23 hereof
(the "Redemption Date") or (iii) the time at which such Rights are exchanged
as provided in Section 24 hereof.
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(b) The Purchase Price shall be initially $150.00 for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of
a Right. The Purchase Price and the number of one one-thousandths of a share
of Preferred Stock or other securities or property to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as
provided in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) of this Section
7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase
Price for the shares of Preferred Stock to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such
Right Certificate in accordance with Section 9 hereof, in cash or by
certified check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall thereupon promptly (i)(A) requisition from
any transfer agent of the Preferred Stock certificates for the number of
shares of Preferred Stock to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, or (B)
requisition from the depositary agent depositary receipts representing
interests in such number of one one-thousandths of a share of Preferred Stock
as are to be purchased (in which case certificates for the Preferred Stock
represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company hereby directs the depositary agent to
comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) promptly after receipt of such
certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered
in such name or names as may be designated by such holder and (iv) when
appropriate, after receipt, promptly deliver such cash to or upon the order
of the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, in case the registered holder
of any Right Certificate shall exercise less than all of the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent
to the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action
with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed
the certificate contained in the form of assignment or form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered
for such transfer or exercise and (ii) provided such additional evidence of
the identity of the Beneficial Owner (or former Beneficial Owner) thereof as
the Company shall reasonably request.
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Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Right Certificates to the Company, or shall,
at the written request of the Company, destroy such canceled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 9. AVAILABILITY OF SHARES OF PREFERRED STOCK.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred
Stock or any shares of Preferred Stock held in its treasury, the number of
shares of Preferred Stock that will be sufficient to permit the exercise in
full of all outstanding Rights.
(b) So long as the shares of Preferred Stock issuable upon the exercise
of Rights may be listed or admitted to trading on any national securities
exchange, or quoted on Nasdaq, the Company shall use its best efforts to
cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on such
exchange, or quoted on Nasdaq, upon official notice of issuance upon such
exercise.
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance
of shares of Preferred Stock upon the exercise of Rights, to register and
qualify such shares of Preferred Stock under the Securities Act and any
applicable state securities or "Blue Sky" laws (to the extent exemptions
therefrom are not available), cause such registration statement and
qualifications to become effective as soon as possible after such filing and
keep such registration and qualifications effective until the earlier of the
date as of which the Rights are no longer exercisable for such securities and
the Expiration Date. The Company may temporarily suspend, for a period of
time not to exceed 90 days, the exercisability of the Rights in order to
prepare and file a registration statement under the Securities Act and permit
it to become effective. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall
have been obtained and until a registration statement under the Securities
Act (if required) shall have been declared effective.
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(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all shares of Preferred Stock delivered
upon exercise of Rights shall, at the time of delivery of the certificates
therefor (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right
Certificates or of any shares of Preferred Stock upon the exercise of Rights.
The Company shall not, however, be required to pay any transfer tax which
may be payable in respect of any transfer or delivery of Right Certificates
to a Person other than, or the issuance or delivery of certificates or
depositary receipts for the Preferred Stock in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates or depositary receipts for
Preferred Stock upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by that holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's reasonable satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE. Each Person in whose name any
certificate for Preferred Stock is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the shares
of Preferred Stock represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was
duly surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made; PROVIDED, HOWEVER, that if the date of such
surrender and payment is a date upon which the Preferred Stock transfer books
of the Company are closed, such Person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the
next succeeding Business Day on which the Preferred Stock transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby,
the holder of a Right Certificate shall not be entitled to any rights of a
holder of Preferred Stock for which the Rights shall be exercisable,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES AND
NUMBER OF RIGHTS. The Purchase Price, the number of shares of Preferred
Stock or other securities or property purchasable upon exercise of each Right
and the number of Rights outstanding are subject to adjustment from time to
time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date
of this Agreement (A) declare and pay a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred
Stock, (C) combine the outstanding Preferred Stock into a smaller number of
shares of Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), except
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as otherwise provided in this Section 11(a), the Purchase Price in effect at
the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately
adjusted so that the holder of any Right exercised after such time shall be
entitled to receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date and at
a time when the Preferred Stock transfer books of the Company were open, the
holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the shares
of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person (the first occurrence of such event being
referred to hereinafter as the "Flip-In Event"), then (A) the Purchase Price
shall be adjusted to be the Purchase Price in effect immediately prior to the
Flip-In Event multiplied by the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
Flip-In Event, whether or not such Right was then exercisable, and (B) each
holder of a Right, except as otherwise provided in this Section 11(a)(ii) and
Section 11(a)(iii) hereof, shall thereafter have the right to receive, upon
exercise thereof at a price equal to the Purchase Price (as so adjusted), in
accordance with the terms of this Agreement and in lieu of shares of
Preferred Stock, such number of shares of Common Stock as shall equal the
result obtained by dividing the Purchase Price (as so adjusted) by 50% of the
current per share market price of the Common Stock (determined pursuant to
Section 11(d) hereof) on the date of such Flip-In Event; PROVIDED, HOWEVER,
that the Purchase Price (as so adjusted) and the number of shares of Common
Stock so receivable upon exercise of a Right shall, following the Flip-In
Event, be subject to further adjustment as appropriate in accordance with
Section 11(f) hereof. Notwithstanding anything in this Agreement to the
contrary, however, from and after the Flip-In Event, any Rights that are
beneficially owned by (x) any Acquiring Person (or any Affiliate or Associate
of any Acquiring Person), (y) a transferee of any Acquiring Person (or any
such Affiliate or Associate) who becomes a transferee after the Flip-In Event
or (z) a transferee of any Acquiring Person (or any such Affiliate or
Associate) who became a transferee prior to or concurrently with the Flip-In
Event pursuant to either (I) a transfer from the Acquiring Person to holders
of its equity securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred Rights or
(II) a transfer which the Board of Directors has determined is part of a
plan, arrangement or understanding which has the purpose or effect of
avoiding the provisions of this paragraph, and subsequent transferees of such
Persons, shall be void without any further action and any holder of such
Rights shall thereafter have no rights whatsoever with respect to such Rights
under any provision of this Agreement. The Company shall use all reasonable
efforts to ensure that the provisions of this Section 11(a)(ii) are complied
with, but shall have no liability to any holder of Right Certificates or
other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder. From and after the Flip-In Event, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 hereof that represents Rights that
are or have become void pursuant to the
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provisions of this paragraph, and any Right Certificate delivered to the
Rights Agent that represents Rights that are or have become void pursuant to
the provisions of this paragraph shall be canceled. From and after the
occurrence of an event specified in Section 13(a) hereof, any Rights that
theretofore have not been exercised pursuant to this Section 11(a)(ii) shall
thereafter be exercisable only in accordance with Section 13 and not pursuant
to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) a number of shares of Preferred Stock or fraction
thereof such that the current per share market price of one share of
Preferred Stock multiplied by such number or fraction is equal to the current
per share market price of one share of Common Stock. In the event that there
shall not be sufficient shares of Common Stock issued but not outstanding or
authorized but unissued to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Board of Directors
shall, to the extent permitted by applicable law and any material agreements
then in effect to which the Company is a party (A) determine the excess (such
excess, the "Spread") of (1) the value of the shares of Common Stock issuable
upon the exercise of a Right in accordance with the foregoing subparagraph
(ii) (the "Current Value") over (2) the Purchase Price (as adjusted in
accordance with the foregoing subparagraph (ii)), and (B) with respect to
each Right (other than Rights which have become void pursuant to the
foregoing subparagraph (ii)), make adequate provision to substitute for the
shares of Common Stock issuable in accordance with the foregoing subparagraph
(ii) upon exercise of the Right and payment of the Purchase Price (as
adjusted in accordance therewith), (1) cash, (2) a reduction in such Purchase
Price, (3) shares of Preferred Stock or other equity securities of the
Company (including, without limitation, shares or fractions of shares of
preferred stock which, by virtue of having dividend, voting and liquidation
rights substantially comparable to those of the shares of Common Stock, are
deemed in good faith by the Board of Directors to have substantially the same
value as the shares of Common Stock (such shares of Preferred Stock and
shares or fractions of shares of preferred stock are hereinafter referred to
as "Common Stock Equivalents")), (4) debt securities of the Company, (5)
other assets, or (6) any combination of the foregoing, having a value which,
when added to the value of the shares of Common Stock issued upon exercise of
such Right, shall have an aggregate value equal to the Current Value (less
the amount of any reduction in such Purchase Price), where such aggregate
value has been determined by the Board of Directors upon the advice of a
nationally recognized investment banking firm selected in good faith by the
Board of Directors; PROVIDED, HOWEVER, that if the Company shall not make
adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the Flip-In Event (the "Section 11(a)(ii) Trigger
Date"), then the Company shall be obligated to deliver, to the extent
permitted by applicable law and any material agreements then in effect to
which the Company is a party, upon the surrender for exercise of a Right and
without requiring payment of such Purchase Price, shares of Common Stock (to
the extent available), and then, if necessary, such number or fractions of
shares of Preferred Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the Spread.
If, upon the occurrence of the Flip-In Event, the Board of Directors shall
determine in good faith that it is likely that sufficient additional shares
of Common Stock could be authorized for issuance upon exercise in full of the
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Rights, then, if the Board of Directors so elects, the thirty (30) day period
set forth above may be extended to the extent necessary, but not more than
ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the
Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is
herein called the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the second and/or third
sentence of this Section 11(a)(iii), the Company (x) shall provide, subject
to Section 11(a)(ii) hereof and the last sentence of this Section 11(a)(iii)
hereof, that such action shall apply uniformly to all outstanding Rights and
(y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such second sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect.
For purposes of this Section 11(a)(iii), the value of the shares of Common
Stock shall be the current per share market price (as determined pursuant to
Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and the per share or
fractional value of any "Common Stock Equivalent" shall be deemed to equal
the current per share market price of the Common Stock. The Board of
Directors of the Company may, but shall not be required to, establish
procedures to allocate the right to receive shares of Common Stock upon the
exercise of the Rights among holders of Rights pursuant to this Section
11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Stock (or shares having the same rights,
privileges and preferences as the Preferred Stock ("equivalent preferred
shares")) or securities convertible into Preferred Stock or equivalent
preferred shares at a price per share of Preferred Stock or equivalent
preferred shares (or having a conversion price per share, if a security
convertible into shares of Preferred Stock or equivalent preferred shares)
less than the then current per share market price of the Preferred Stock
(determined pursuant to Section 11(d) hereof) on such record date, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the number of shares of
Preferred Stock and equivalent preferred shares outstanding on such record
date plus the number of shares of Preferred Stock and equivalent preferred
shares which the aggregate offering price of the total number of shares of
Preferred Stock and/or equivalent preferred shares so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Preferred Stock and equivalent
preferred shares outstanding on such record date plus the number of
additional shares of Preferred Stock and/or equivalent preferred shares to be
offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); PROVIDED, HOWEVER,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of
the Company issuable upon exercise of one Right. In case such subscription
price may be paid in a
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consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board
of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent. Shares of Preferred Stock and
equivalent preferred shares owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the then current per share market price of
the Preferred Stock (determined pursuant to Section 11(d) hereof) on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights
or warrants applicable to one share of Preferred Stock, and the denominator
of which shall be such current per share market price (determined pursuant to
Section 11(d) hereof) of the Preferred Stock; PROVIDED, HOWEVER, that in no
event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted
to be the Purchase Price which would then be in effect if such record date
had not been fixed.
(d)(i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any security
(a "Security" for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such
Security for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; PROVIDED, HOWEVER, that in the event
that the current per share market price of the Security is determined during
a period following the announcement by the issuer of such Security of (A) a
dividend or distribution on such Security payable in shares of such Security
or securities convertible into such shares, or (B) any subdivision,
combination or reclassification of such Security, and prior to the expiration
of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be
the last sale price, regular way, or, in case no such sale takes place on
such day,
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the average of the closing bid and asked prices, regular way, in either case
as reported by the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading
or, if the Security is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market, as
reported by Nasdaq or such other system then in use, or, if on any such date
the Security is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.
(ii) For the purpose of any computation hereunder, if the Preferred
Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be determined in accordance with the method set forth
in Section 11(d)(i). If the Preferred Stock is not publicly traded but the
Common Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be conclusively deemed to be the current per share
market price of the Common Stock as determined pursuant to Section 11(d)(i)
multiplied by the then applicable Adjustment Number (as defined in and
determined in accordance with the Certificate of Designation for the
Preferred Stock). If neither the Common Stock nor the Preferred Stock is
publicly traded, "current per share market price" shall mean the fair value
per share as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; PROVIDED, HOWEVER, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one
hundred-thousandth of a share of Preferred Stock or one-hundredth of a share
of Common Stock or other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three years from the date of the transaction which requires such adjustment
or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than the Preferred
Stock, thereafter the Purchase Price and the number of such other shares so
receivable upon exercise of a Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a),
11(b), 11(c), 11(e), 11(h), 11(i) and 11(m) hereof, as
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applicable, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with
respect to the Preferred Stock shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
of a share of Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and 11(c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one
one-thousandth of a share of Preferred Stock (calculated to the nearest one
hundred-thousandth of a share of Preferred Stock) obtained by (i) multiplying
(x) the number of one one-thousandths of a share purchasable upon the
exercise of a Right immediately prior to such adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price
and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the
number of Rights, in substitution for any adjustment in the number of one
one-thousandths of a share of Preferred Stock purchasable upon the exercise
of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-thousandths
of a share of Preferred Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights (calculated to the
nearest one-hundredth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price
in effect immediately after adjustment of the Purchase Price. The Company
shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. Such record date may be the
date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least 10 days later then
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i),
the Company may, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights
to which such holders shall be entitled as a result of such adjustment, or,
at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Right Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Right Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Right
Certificates so to be distributed shall be issued, executed and countersigned
in the manner provided for herein and shall be registered in the names
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of the holders of record of Right Certificates on the record date specified
in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a share of Preferred Stock issuable upon
the exercise of a Right, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a share of Preferred Stock which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the fraction of
Preferred Stock or other shares of capital stock issuable upon exercise of a
Right, the Company shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Preferred Stock or other
such shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the holder of any Right exercised after such record date the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such holder
a due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring
such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that it in its sole discretion shall determine to be advisable
in order that any consolidation or subdivision of the Preferred Stock,
issuance wholly for cash of any shares of Preferred Stock at less than the
current market price, issuance wholly for cash of Preferred Stock or
securities which by their terms are convertible into or exchangeable for
Preferred Stock, dividends on Preferred Stock payable in shares of Preferred
Stock or issuance of rights, options or warrants referred to hereinabove in
Section 11(b), hereafter made by the Company to holders of its Preferred
Stock shall not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Rights Agreement and prior to
the Distribution Date, the Company shall (i) declare and pay any dividend on
the Common Stock payable in Common Stock or (ii) effect a subdivision,
combination or consolidation of the Common Stock (by reclassification or
otherwise than by payment of a dividend payable in Common Stock) into a
greater or lesser number of shares of Common Stock, then, in each such case,
the number of Rights associated with each share of
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Common Stock then outstanding, or issued or delivered thereafter, shall be
proportionately adjusted so that the number of Rights thereafter associated
with each share of Common Stock following any such event shall equal the
result obtained by multiplying the number of Rights associated with each
share of Common Stock immediately prior to such event by a fraction the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution Date
or the Stock Acquisition Date, it will not, except as permitted by Sections
23, 24 or 27 hereof, take (or permit any Subsidiary to take) any action if at
the time such action is taken it is reasonably foreseeable that such action
will diminish substantially or eliminate the benefits intended to be afforded
by the Rights.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for
the Common Stock and the Preferred Stock a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 25 hereof (if so required under Section 25 hereof).
The Rights Agent shall be fully protected in relying on any such certificate
and on any adjustment therein contained and shall not be deemed to have
knowledge of any such adjustment unless and until it shall have received such
certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event, directly or indirectly, at any time after the Flip-In
Event (i) the Company shall consolidate with or shall merge into any other
Person, (ii) any Person shall merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of
the Company) or cash or any other property, or (iii) the Company shall sell
or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person (other than the Company
or one or more wholly-owned Subsidiaries of the Company), then upon the first
occurrence of such event, proper provision shall be made so that: (A) each
holder of a Right (other than Rights which have become void pursuant to
Section 11(a)(ii) hereof) shall thereafter have the right to receive, upon
the exercise thereof at the Purchase Price (as theretofore adjusted in
accordance with Section 11(a)(ii) hereof), in accordance with the terms of
this Agreement and in lieu of shares of Preferred Stock or Common Stock of
the Company, such number of validly authorized and issued, fully paid,
non-assessable and freely traceable shares of Common Stock of the Principal
Party (as such term is hereinafter defined), not
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subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall equal the result obtained by dividing the Purchase Price (as
theretofore adjusted in accordance with Section 11(a)(ii) hereof) by 50% of
the current per share market price of the Common Stock of such Principal
Party (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer; PROVIDED,
HOWEVER, that the Purchase Price (as theretofore adjusted in accordance with
Section 11(a)(ii) hereof) and the number of shares of Common Stock of such
Principal Party so receivable upon exercise of a Right shall be subject to
further adjustment as appropriate in accordance with Section 11(f) hereof to
reflect any events occurring in respect of the Common Stock of such Principal
Party after the occurrence of such consolidation, merger, sale or transfer;
(B) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such consolidation, merger, sale or transfer, all the obligations
and duties of the Company pursuant to this Rights Agreement; (C) the term
"Company" shall thereafter be deemed to refer to such Principal Party; and
(D) such Principal Party shall take such steps (including, but not limited
to, the reservation of a sufficient number of its shares of Common Stock in
accordance with Section 9 hereof) in connection with such consummation of any
such transaction as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation
to the shares of its Common Stock thereafter deliverable upon the exercise of
the Rights; provided that, upon the subsequent occurrence of any
consolidation, merger, sale or transfer of assets or other extraordinary
transaction in respect of such Principal Party, each holder of a Right shall
thereupon be entitled to receive, upon exercise of a Right and payment of the
Purchase Price as provided in this Section 13(a), such cash, shares, rights,
warrants and other property which such holder would have been entitled to
receive had such holder, at the time of such transaction, owned the Common
Stock of the Principal Party receivable upon the exercise of a Right pursuant
to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with
the terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (i) or (ii) of the
first sentence of Section 13(a) hereof: (A) the Person that is the issuer of
the securities into which the shares of Common Stock are converted in such
merger or consolidation, or, if there is more than one such issuer, the
issuer the shares of Common Stock of which have the greatest aggregate market
value of shares outstanding, or (B) if no securities are so issued, (x) the
Person that is the other party to the merger, if such Person survives said
merger, or, if there is more than one such Person, the Person the shares of
Common Stock of which have the greatest aggregate market value of shares
outstanding or (y) if the Person that is the other party to the merger does
not survive the merger, the Person that does survive the merger (including
the Company if it survives) or (z) the Person resulting from the
consolidation; and
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(ii) in the case of any transaction described in (iii) of the first
sentence in Section 13(a) hereof, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or
earning power so transferred or if the Person receiving the greatest portion
of the assets or earning power cannot be determined, whichever of such
Persons is the issuer of Common Stock having the greatest aggregate market
value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or
has not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or
indirect Subsidiary of another Person the Common Stock of which is and has
been so registered, the term "Principal Party" shall refer to such other
Person, or (2) if such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stock of all of which is and has been so
registered, the term "Principal Party" shall refer to whichever of such
Persons is the issuer of Common Stock having the greatest aggregate market
value of shares outstanding, or (3) if such Person is owned, directly or
indirectly, by a joint venture formed by two or more Persons that are not
owned, directly or indirectly, by the same Person, the rules set forth in
clauses (1) and (2) above shall apply to each of the owners having an
interest in the venture as if the Person owned by the joint venture was a
Subsidiary of both or all of such joint ventures, and the Principal Party in
each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such
interests.
(c) The Company shall not consummate any consolidation, merger, sale or
transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections
13(a) and (b) hereof shall promptly be performed in accordance with their
terms and that such consolidation, merger, sale or transfer of assets shall
not result in a default by the Principal Party under this Agreement as the
same shall have been assumed by the Principal Party pursuant to Sections
13(a) and (b) hereof and providing that, as soon as practicable after
executing such agreement pursuant to this Section 13, and Principal Party
will:
(i) prepare and file a registration statement under the Securities
Act, if necessary, with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, use its best efforts to
cause such registration statement to become effective as soon as practicable
after such filing and use its best efforts to cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Expiration Date and similarly
comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the Principal
Party shall be listed or admitted to trading on the New York Stock Exchange
or on another national securities exchange, to list or admit to trading (or
continue the listing of) the Rights and the securities
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purchasable upon exercise of the Rights on the New York Stock Exchange or
such securities exchange, or, if the Common Stock of the Principal Party
shall not be listed or admitted to trading on the New York Stock Exchange or
a national securities exchange, to cause the Rights and the securities
receivable upon exercise of the Rights to be authorized for quotation on
Nasdaq or on such other system then in use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Stock of the Principal Party subject to
purchase upon exercise of outstanding Rights.
(d) In case the Principal Party has provision in any of its authorized
securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence
of, the consummation of a transaction referred to in this Section 13, shares
of Common Stock or Common Stock Equivalents of such Principal Party at less
than the then current market price per share thereof (determined pursuant to
Section 11(d) hereof) or securities exercisable for, or convertible into,
Common Stock or Common Stock Equivalents of such Principal Party at less than
such then current market price, or (ii) providing for any special payment,
tax or similar provision in connection with the issuance of the Common Stock
of such Principal Party pursuant to the provisions of Section 13, then, in
such event, the Company hereby agrees with each holder of Rights that it
shall not consummate any such transaction unless prior thereto the Company
and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of
such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision
will have no effect in connection with, or as a consequence of, the
consummation of the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time
after the Flip-In Event, enter into any transaction of the type described in
clauses (i) through (iii) of Section 13(a) hereof if (i) at the time of or
immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (ii)
prior to, simultaneously with or immediately after such consolidation,
merger, sale, transfer or other transaction, the stockholders of the Person
who constitutes, or would constitute, the Principal Party for purposes of
Section 13(b) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates or Associates or (iii) the form
or nature of organization of the Principal Party would preclude or limit the
exercisability of the Rights.
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Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights (except
prior to the Distribution Date in accordance with Section 11(n) hereof). In
lieu of such fractional Rights, there shall be paid to the registered holders
of the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section
14(a), the current market value of a whole Right shall be the closing price
of the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by Nasdaq or such other system
then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the Rights selected by the
Board of Directors of the Company. If on any such date no such market maker
is making a market in the Rights, the fair value of the Rights on such date
as determined in good faith by the Board of Directors of the Company shall be
used.
(b) The Company shall not be required to issue fractions of Preferred
Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) or to distribute certificates
which evidence fractional shares of Preferred Stock (other than fractions
which are integral multiples of one one-thousandth of a share of Preferred
Stock) upon the exercise or exchange of Rights. Interests in fractions of
Preferred Stock in integral multiples of one one-thousandth of a share of
Preferred Stock may, at the election of the Company, be evidenced by
depositary receipts, pursuant to an appropriate agreement between the Company
and a depositary selected by it; PROVIDED, that such agreement shall provide
that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Stock represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not integral multiples of one
one-thousandth of a share of Preferred Stock, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are
exercised or exchanged as herein provided an amount in cash equal to the same
fraction of the current market value of a whole share of Preferred Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
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(c) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares
of Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional shares
of Common Stock would otherwise be issuable an amount in cash equal to the
same fraction of the current market value of a whole share of Common Stock
(as determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares
upon exercise or exchange of a Right (except as provided above).
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Stock),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, prior to the Distribution Date, of the Common Stock), on his
own behalf and for his own benefit, may enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate (or, prior to the Distribution Date, such Common
Stock) in the manner provided therein and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it
is specifically acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Agreement and will be entitled
to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or agency of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
Common Stock certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any
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<PAGE>
notations of ownership or writing on the Right Certificates or the Common
Stock certificate made by anyone other than the Company or the Rights Agent)
for all purposes whatsoever, and neither the Company nor the Rights Agent
shall be affected by any notice to the contrary.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or
any other securities of the Company which may at any time be issuable on the
exercise or exchange of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in this Agreement),
or to receive dividends or subscription rights, or otherwise, until the
Rights evidenced by such Right Certificate shall have been exercised or
exchanged in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to
time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent,
for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability arising therefrom,
directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Right Certificate or certificate for the Preferred Stock or Common Stock or
for other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement or other paper or document believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice
of counsel as set forth in Section 20 hereof.
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Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part
of any of the parties hereto; PROVIDED, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and
in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Right Certificates so countersigned; and in case at
that time any of the Right Certificates shall not have been countersigned,
the Rights Agent may countersign such Right Certificates either in its prior
name or in its changed name and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the President and the Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action
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taken or suffered in good faith by it under the provisions of this Agreement
in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify
the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability
of the Rights (including the Rights becoming void pursuant to Section
11(a)(ii) hereof) or any adjustment in the terms of the Rights provided for
in Sections 3, 11, 13, 23 and 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect
to the exercise of Rights evidenced by Right Certificates after receipt of a
certificate furnished pursuant to Section 12, describing such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
shares of Preferred Stock or other securities to be issued pursuant to this
Agreement or any Right Certificate or as to whether any shares of Preferred
Stock or other securities will, when issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the President or
the Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for
any action taken or suffered by it in good faith in accordance with
instructions of any such officer or for any delay in acting while waiting for
those instructions. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set
forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on and/or after which such action
shall be taken or such omission shall be effective. The Rights Agent shall
not be liable for any action taken by, or omission of, the Rights Agent in
accordance with a proposal included in any such application on or after the
date specified in such application (which date shall
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not be less than five Business Days after the date any officer of the Company
actually receives such application unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent
from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any
such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form
of assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has not been completed to certify the holder is
not an Acquiring Person (or an Affiliate or Associate thereof), the Rights
Agent shall not take any further action with respect to such requested
exercise or transfer without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Stock or Preferred Stock by registered or
certified mail, and, following the Distribution Date, to the holders of the
Right Certificates by first-class mail. The Company may remove the Rights
Agent or any successor Rights Agent upon 30 days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock or Preferred Stock by registered or
certified mail, and, following the Distribution Date, to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or
be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of
a Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered holder of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any
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successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the
United States or the laws of any state of the United States or the District
of Columbia, in good standing, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose.
Not later than the effective date of any such appointment the Company shall
file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Stock or Preferred Stock, and, following the
Distribution Date, mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such forms as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of Common Stock following
the Distribution Date and prior to the Expiration Date, the Company may with
respect to shares of Common Stock so issued or sold pursuant to (i) the
exercise of stock options, (ii) under any employee plan or arrangement, (iii)
upon the exercise, conversion or exchange of securities, notes or debentures
issued by the Company or (iv) a contractual obligation of the Company, in
each case existing prior to the Distribution Date, issue Rights Certificates
representing the appropriate number of Rights in connection with such
issuance or sale.
Section 23. REDEMPTION.
(a) The Board of Directors of the Company may, at any time prior to the
Flip-In Event, redeem all but not less than all the then outstanding Rights
at a redemption price of $.01 per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the
date hereof (the redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors
in its sole discretion may establish. The Redemption Price shall be payable,
at the option of the Company, in cash, shares of Common Stock, or such other
form of consideration as the Board of Directors shall determine.
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(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness
of such redemption), and without any further action and without any notice,
the right to exercise the Rights will terminate and the only right thereafter
of the holders of Rights shall be to receive the Redemption Price. The
Company shall promptly give public notice of any such redemption; PROVIDED,
HOWEVER, that the failure to give, or any defect in, any such notice shall
not affect the validity of such redemption. Within 10 days after such action
of the Board of Directors ordering the redemption of the Rights (or such
later time as the Board of Directors may establish for the effectiveness of
such redemption), the Company shall mail a notice of redemption to all the
holders of the then outstanding Rights at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Stock. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of
redemption shall state the method by which the payment of the Redemption
Price will be made.
Section 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any
time after the Flip-In Event, exchange all or part of the then outstanding
and exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Stock at
an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such amount per Right being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the
Board of Directors shall not be empowered to effect such exchange at any time
after an Acquiring Person shall have become the Beneficial Owner of shares of
Common Stock aggregating 50% or more of the shares of Common Stock then
outstanding. From and after the occurrence of an event specified in Section
13(a) hereof, any Rights that theretofore have not been exchanged pursuant to
this Section 24(a) shall thereafter be exercisable only in accordance with
Section 13 and may not be exchanged pursuant to this Section 24(a). The
exchange of the Rights by the Board of Directors may be made effective at
such time, on such basis and with such conditions as the Board of Directors
in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without
any notice, the right to exercise such Rights shall terminate and the only
right thereafter of a holder of such Rights shall be to receive that number
of shares of Common Stock equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly give
public notice of any such exchange; PROVIDED, HOWEVER, that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. The Company shall promptly mail a notice of any such exchange to
all of the holders of the Rights so exchanged at their last addresses as
they appear upon the registry books of the Rights Agent. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not
the
30
<PAGE>
holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the shares of Common Stock for Rights will be
effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder
of Rights.
(c) The Company may at its option substitute, and, in the event that
there shall not be sufficient shares of Common Stock issued but not
outstanding or authorized but unissued to permit an exchange of Rights for
Common Stock as contemplated in accordance with this Section 24, the Company
shall substitute to the extent of such insufficiency, for each share of
Common Stock that would otherwise be issuable upon exchange of a Right, a
number of shares of Preferred Stock or fraction thereof (or equivalent
preferred shares, as such term is defined in Section 11(b)) such that the
current per share market price (determined pursuant to Section 11(d) hereof)
of one share of Preferred Stock (or equivalent preferred share) multiplied by
such number or fraction is equal to the current per share market price of one
share of Common Stock (determined pursuant to Section 11(d) hereof) as of the
date of such exchange.
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall at any time after the earlier of the
Distribution Date or the Stock Acquisition Date propose (i) to pay any
dividend payable in stock of any class to the holders of its Preferred Stock
or to make any other distribution to the holders of its Preferred Stock
(other than a regular quarterly cash dividend), (ii) to offer to the holders
of its Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of
its Preferred Stock (other than a reclassification involving only the
subdivision or combination of outstanding Preferred Stock), (iv) to effect
the liquidation, dissolution or winding up of the Company, or (v) to pay any
dividend on the Common Stock payable in Common Stock or to effect a
subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of dividends in Common Stock),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Stock and/or Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Stock for
purposes of such action, and in the case of any such other action, at least
10 days prior to the date of the taking of such proposed action or the date
of participation therein by the holders of the Common Stock and/or Preferred
Stock, whichever shall be the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if
31
<PAGE>
occurring prior to the Distribution Date, the holders of the Common Stock) in
accordance with Section 26 hereof, a notice of the occurrence of such event,
which notice shall describe such event and the consequences of such event to
holders of Rights under Section 11(a)(ii) and Section 13 hereof.
Section 26. NOTICES. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Rights Agent) as follows:
Getchell Gold Corporation
5460 S. Quebec St., Ste. 240
Englewood, Colorado 80111
Attention: Chief Financial Officer
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
Harris Trust and Savings Bank
P.O. Box A3504
Chicago, Illinois 60690-3504
Attention: Shareholder Services Division
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the
Rights Agent shall if the Company so directs, supplement or amend any
provision of this Agreement in any respect without the approval of any
holders of the Rights. At any time when the Rights are no longer redeemable,
except as provided in the penultimate sentence of this Section 27, the
Company may, and the Rights Agent shall, if the Company so directs,
supplement or amend this Agreement without the approval of any holders of
Rights in order to (i) cure any ambiguity, (ii) correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provision herein, (iii) shorten or lengthen any time period hereunder,
or (iv) change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable; PROVIDED that no such supplement or
amendment shall adversely affect the interests of the holders of Rights as
such (other than an Acquiring Person
32
<PAGE>
or an Affiliate or Associate of an Acquiring Person), and no such amendment
may cause the Rights again to become redeemable or cause the Agreement again
to become amendable other than in accordance with this sentence.
Notwithstanding anything contained in this Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price.
Upon the delivery of a certificate from an appropriate officer of the Company
which states that the proposed supplement or amendment is in compliance with
the terms of this Section 27, the Rights Agent shall execute such supplement
or amendment.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, the Common
Stock).
Section 30. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS. The
Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise the rights and powers
specifically granted to the Board of Directors of the Company or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including, without limitation, a determination to redeem or not redeem the
Rights or to amend this Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y)
below, all omissions with respect to the foregoing) that are done or made by
the Board of Directors of the Company in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights, as such, and all other parties, and (y) not subject the Board of
Directors to any liability to the holders of the Rights.
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
Section 32. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
33
<PAGE>
Section 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
GETCHELL GOLD CORPORATION
By: Getchell Gold Corporation
----------------------------------
Name: /s/ Donald S. Robson
--------------------------------
Title: Vice President and Chief
Financial Officer
-------------------------------
HARRIS TRUST AND SAVINGS BANK,
as Rights Agent
By: /s/ Harris Trust and Savings Bank
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
35
<PAGE>
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
GETCHELL GOLD CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Getchell Gold Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the
said Corporation, the said Board of Directors on November 14, 1996 adopted
the following resolution creating a series of 100,000 shares of Preferred
Stock designated as "Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, a series of Preferred Stock, par value
$.0001 per share, of the Corporation be and hereby is created, and that
the designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such series and the qualifications, limitations
and restrictions thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
that shall be designated as "Series A Junior Participating Preferred Stock,"
and the number of shares constituting such series shall be 100,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of
shares of Series A Junior Participating Preferred Stock to less than the
number of shares then
A-1
<PAGE>
issued and outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
2. DIVIDENDS AND DISTRIBUTION.
(A) Subject to the prior and superior rights of the holders of any
shares of any class or series of stock of the Corporation ranking prior and
superior to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or
series of stock of the Corporation ranking junior to the Series A Junior
Participating Preferred Stock in respect thereof, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
1st day of March, June, September, and December, in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $____ or (b) the Adjustment Number (as defined below) times
the aggregate per share amount of all cash dividends, and the Adjustment
Number times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock, par value
$.0001 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Junior Participating Preferred
Stock. The "Adjustment Number" shall initially be 1000. In the event the
Corporation shall at any time after December 31, 1996 (the "Rights
Declaration Date") (i) declare and pay any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect immediately prior to
such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series A Junior Participating Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend
A-2
<PAGE>
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Junior Participating Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin
to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Junior Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 60
days prior to the date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to a number of votes equal to the Adjustment
Number on all matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as required by law and by Section 10 hereof, holders of
Series A Junior Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for taking
any corporate action.
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Junior Participating Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series A
Junior Participating Preferred Stock and all such parity stock on which
dividends are
A-3
<PAGE>
payable or in arrears in proportion to the total amounts to which the holders
of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration any shares of
Series A Junior Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Junior Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of Series A Junior
Participating Preferred Stock, or to such holders and holders of any such
shares ranking on a parity therewith, upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. REACQUIRED SHARES. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired promptly after the acquisition thereof.
All such shares shall upon their retirement become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to any conditions and restrictions on issuance set forth
herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any liquidation,
dissolution or winding up of the Corporation, voluntary or otherwise, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series A Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Series A Junior Participating Preferred Stock shall have
received an amount per share (the "Series A Liquidation Preference") equal to
the greater of (i) $____ plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment, or (ii) the Adjustment Number times the per share amount of all cash
and other property to be distributed in respect of the Common Stock upon such
liquidation, dissolution or winding up of the Corporation.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other classes and series of stock of
the Corporation, if any, that rank on a parity with the Series A Junior
Participating Preferred Stock in respect thereof, then the assets available
for such distribution shall be distributed ratably to the holders of the
Series A Junior Participating Preferred Stock and the holders of such parity
shares in proportion to their respective liquidation preferences.
A-4
<PAGE>
(C) Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this
Section 6.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
outstanding shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
each share of Series A Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share equal to the
Adjustment Number times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged.
8. NO REDEMPTION. Shares of Series A Junior Participating Preferred
Stock shall not be subject to redemption by the Company.
9. RANKING. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Preferred Stock as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution
or winding up, unless the terms of any such series shall provide otherwise,
and shall rank senior to the Common Stock as to such matters.
10. AMENDMENT. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which
would materially alter or change the powers, preferences or special rights of
the Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of two-thirds of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
11. FRACTIONAL SHARES. Series A Junior Participating Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
___ day of __________, 199_.
GETCHELL GOLD CORPORATION
By:
-------------------------------
Name:
A-5
<PAGE>
Title:
A-6
<PAGE>
EXHIBIT B
Form of Right Certificate
Certificate No. R-______
NOT EXERCISABLE AFTER DECEMBER 31, 2006 OR EARLIER
IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE
SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET
FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY
OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES
AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE
TRANSFERABLE.
RIGHT CERTIFICATE
GETCHELL GOLD CORPORATION
This certifies that __________________________________ or registered
assigns, is the registered owner of the number of Rights set forth above,
each of which entitles the owner thereof, subject to the terms, provisions
and conditions of the Rights Agreement, dated as of December 31, 1996, as the
same may be amended from time to time (the "Rights Agreement"), between
Getchell Gold Corporation, a Delaware corporation (the "Company"), and Harris
Trust and Savings Bank, as Rights Agent (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., New York City time,
on December 31, 2006 at the office or agency of the Rights Agent designated
for such purpose, or of its successor as Rights Agent, one one-thousandth of
a fully paid non-assessable share of Series A Junior Participating Preferred
Stock, par value $.0001 per share (the "Preferred Stock"), of the Company at
a purchase price of $150.00 per one one-thousandth of a share of Preferred
Stock (the "Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed. The number
of Rights evidenced by this Rights Certificate (and the number of one
one-thousandths of a share of Preferred Stock which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of December 31, 1996, based on the Preferred
Stock as constituted at such date. As provided in the Rights Agreement, the
Purchase Price, the number of one one-thousandths of a share of Preferred
Stock (or other securities or property) which may be
B-1
<PAGE>
purchased upon the exercise of the Rights and the number of Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to
which Rights Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices
of the Company and the above-mentioned office or agency of the Rights Agent.
The Company will mail to the holder of this Right Certificate a copy of the
Rights Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates
of like tenor and date evidencing Rights entitling the holder to purchase a
like aggregate number of shares of Preferred Stock as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled
such holder to purchase. If this Right Certificate shall be exercised in
part, the holder shall be entitled to receive upon surrender hereof another
Right Certificate or Right Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption price
of $.01 per Right or (ii) may be exchanged in whole or in part for shares of
the Company's Common Stock, par value $.0001 per share, or shares of
Preferred Stock.
No fractional shares of Preferred Stock or Common Stock will be issued
upon the exercise or exchange of any Right or Rights evidenced hereby (other
than fractions of Preferred Stock which are integral multiples of one
one-thousandth of a share of Preferred Stock, which may, at the election of
the Company, be evidenced by depository receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof,
as such, any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement) or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised or exchanged as
provided in the Rights Agreement.
B-2
<PAGE>
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of ________ __, 199_.
GETCHELL GOLD CORPORATION
By:
-------------------------------
[Title]
ATTEST:
- ------------------------------------
[Title]
Countersigned:
, as Rights Agent
- ------------------
By:
--------------------------------
[Title]
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED __________________ hereby sells, assigns and transfers
unto __________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
Rights represented by this Right Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
________________ Attorney, to transfer said Rights on the books of the within-
named Company, with full power of substitution.
Dated:
-----------------------------
----------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank, trust company, broker, dealer
or other eligible institution participating in a recognized signature
guarantee medallion program.
..............................................................................
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
----------------------------------
Signature
B-4
<PAGE>
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To GETCHELL GOLD CORPORATION:
The undersigned hereby irrevocably elects to exercise _______ Rights
represented by this Right Certificate to purchase the shares of Preferred
Stock (or other securities or property) issuable upon the exercise of such
Rights and requests that certificates for such shares of Preferred Stock (or
such other securities) be issued in the name of:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated:
-----------------------------
----------------------------------
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
B-5
<PAGE>
Signature must be guaranteed by a bank, trust company, broker, dealer or
other eligible institution participating in a recognized signature guarantee
medallion program.
Form of Reverse Side of Right Certificate - continued
_______________________________________________________________________________
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
----------------------------------
Signature
_______________________________________________________________________________
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase,
as the case may be, must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or
any change whatsoever.
In the event the certification set forth above in the Form of Assignment
or the Form of Election to Purchase, as the case may be, is not completed,
such Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
Subsidiaries of Getchell Gold Corporation
1. FMG Inc.
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 64130
<SECURITIES> 0
<RECEIVABLES> 2964
<ALLOWANCES> 0
<INVENTORY> 10492
<CURRENT-ASSETS> 79046
<PP&E> 212747
<DEPRECIATION> 82985
<TOTAL-ASSETS> 208808
<CURRENT-LIABILITIES> 11871
<BONDS> 43
0
0
<COMMON> 3
<OTHER-SE> 151219
<TOTAL-LIABILITY-AND-EQUITY> 208808
<SALES> 67878
<TOTAL-REVENUES> 67878
<CGS> 78784
<TOTAL-COSTS> 78784
<OTHER-EXPENSES> 2834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1082
<INCOME-PRETAX> (14822)
<INCOME-TAX> (870)
<INCOME-CONTINUING> (13952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13952)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
